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 Solutions - Financial
Lawpolnt's B.Com S
vi Management
firm: 10%
Cost of capital of the year is as below
received at the end of each (5 marks)
p.v. of 1at 10% to be 4
2 3
Year
0.83 0.75 0.68
PV. Factor 0.91

information :
6. X Ltd. provides the following
?96,000
(a) Annual cost saving
5years
(b) Useful life
70
(c) Salvage value
15%
(d) Internal Rate of Return
1.05
(e) Profitability Index (PI)
You are required to calculate :

(i) Cost of the project (i) NPV of the project

(ii) PVIFA (15%. 5) = 3.353 (2 +3 =5 marks)
Or,
expenditure deci
What is Accounting Rate of Return (ARR) method in the context of capital
sion? (5 marks)
Group -B
7. From the following information presented by a manufacturing company, prepare statement
showing working capital requirement for 2019-2020:
Expected monthly sales of 1,00,000 units at 15 per unit. The anticipated ratios of raw-material
cost and wages of selling price are
Raw-material cost 40%
Wages -30%
Budgeted overhead is worked out at 50,000 per week. Overhead expenses include depre
ciation of ?20,000 per week. Planned stock will include raw-material of 1,20,000 and
40,000 units of finished stock. Material will stay in process for 2 weeks. Credit period allowed
to debtors is 5 weeks. Credit period allowed by creditors is 1month. Lag in payment of wages
and overhead is 2 weeks.
20% of sales may be assumed to be made against cash, and cash in hand is expected to be
50,000. Assume that production is carried on evenly throughout the year and wages al
Overhead accrue evenly. (10marks)
8. (a) What do you mean by aggressive and conservative current asset financing policies? State
your preference with reasons.
(b) Write a short note on the (5 + 5 = 10
marks)
recommendation of Chore Committee.
9. A company will purchase either Machine X or Machine Y. Following are
the
garding the two. Theestimated life ofboth the machine isfive years with no informauo
salvage ve
sinancial Management Honours 2019
vii
Cost (?)
Anticipated
Yr. 1
Cash flows after tax per year ()
Yr. 2 Yr. 3
Machine X Yr. 4
17,18,750 1,50,000 1,80,000
Yr. 5
Machine Y
27,50,000 6,78,500 9,62,500 13,75,000 9,62,000 4,12,000
The company's Cost of capital is 11,00,000 11,68,750 5,50,000
10%. You are required to advise the
which one should be procured using both () management as to
NPV and (i) IRR method of project
appraisal.
Year 10% 12% 14%
1 .909 .893 .877
2 .826 .797
Present value of Re. 1 .769
3 751 .712 .675
4 .683 .636 .592
5 .621 .567 .519 (5 +5= 10marks)
Or,
(a) What is Modified Internal Rate of Return (MIRR) in the context of Capital Expenditure
Decision of a firm?

(b) What do you understand by Reinvestment Rate and what are its assumptions under the
Net Present Value and Internal Rate of Return method. (4+ 6= 10 marks)
10. The selected financial data for two companies namely X andY for the year ended March
2019 are as follows:
Particulars X Y
75 50
Variable expenses as a percentage of sales
300 1000
Interest ( inlakhs) 2
6
Degree of operating leverage 4 2
Degree of financial leverage 0.35 0.35
Income tax rate

statements for X and Y.

(a) Prepare income (8 + 2=10 marks)
position of the companies
(b) Comment on the financial
Or,
under-capitalisation is desirable". Justify the statement.
over-capitalisation nor (5 +5=10 marks)
(a) "Neither (NI) Approach to capital structure.
Net Income
(b) Critically examine the capital with corresponding specific cost of each
type:
T1. Acompany has following amounts of Book Market

Type of capital Value (?) value (?)

2,50,000 4,50,000
of ? 10each)
Equity capital (25,000 shares 100 each)
50,000 45,000
capital (500 shares of 1,50,000
13% Preference
Reserves and surplus 1,50,000 1,45,000
100 each)
Debentures (1.500 Debentures of
14%
 Lawpoint's B.Com Solutions - Financial
viii
Management
The expected dividend per share is 1.40 and the dividend per share is expected to grow at a
rate of 8% forever. Preference shares are redeemable after 5 years at par, whereas deben-
ture are redeemable after 6 years at par. The tax rate for the company is 50 per cent
You are required to compute weighted average cost of capital using market value as weink
(10marks)
12. Virat Ltd. has a capital of ?15 lakh in equity shares of 100 each. The shaares are currently
quoted at par. The company is expected to pay dividend of 20 per share at the end of the
current financial year. The company belongs to a risk class of which appropriate capitalisation
rate is 10%.
Using MM model (with no taxes) calculate the market price of share at the end of the year it:
(i) a dividend is declared.
(i) A dividend is not declared.
(ii) Assuming that the company pays the dividend and has net profit of 5,30,000and makes
new investment of 5,00,000 during the period, how many new shares should be issued?
(3 +3+ 4= 10 marks)
Or,
(a) Explain the term 'Dividend' and 'Dividend Policy'.
(b) Determine the market price of equity shares of company from the folowing information
using Walter Model:
Earnings of Company 5,00,000
Dividend paid 73,00,000
Number of Shares 1,00,000
Price earning ratio
Rate of Returnon Investment 15%

Are you satisfied with the dividend policy of the firm? If not, what should be the optimal divi
dend payout ratio and the consequent market price of equity shares of the company accord
ing to Walter Model? (5 + 5= 10 marks)
13. Explain the concept of Ratio Analysis as a tool of financial control, State the limitations of this
tool of financial control. (4 + 6= 10 marks)