[This question paper contains 16 printed pages.] Sr. No. of Question Paper: 1456 G Unique Paper Code : 2412082302 Name of the Paper : Financial Management Name of the Course : B.Com. (H) - UGCF Semester : : Ill Dec 2023 Duration : 3 Hours Maximum Marks : 90 Instructions for Candidates 1. Write your Roll No. on the top immediately on receipt of this question paper. 2. This paper consists of 5 questions. 3. Attempt all questions. 4, All questions carry equal marks. 5. Use of a simple calculator allowed. 6. Answers -may be written either in English or Hindi; but the same medium should be used throughout the Paper. P.T.O.1456 vail & fae fea Lo Rome & fod & ame ee ay Reftt SIT eT sre Fefery 1 2 wT Tay 5 wee 3. ait wei a ser are 4 at uel S sm war? 5. MUR eres STAT a aA B 6 FEW Ta asa SiH a BA FR ar eT APE, Afar wh See are ve A ae RR (a) Why is the Consideration of time important in financial decision makin 8? How can time be adjusted? (6) (b) MNC Ltd has the following Capital structure - Parti Equity share capital (1.69, 1296 Preference share 2 S88" OF 109 sac 10% Debeni Amoun:1456 3 The equity shares of the company are quoted at 2110, and the company is expected to declare a dividend of %15 per share. Rate of growth of dividend is 8% which is expected to be maintained. (i) Assuming the tax rate of 40%, calculate Weighted Average Cost of Capital using Book value weights and Market value weights. (ii) The company wants to raise the additional term loan of %20,00,000 at 10% calculate the revised WACC assuming the market price of equity shares has gone down to 105. (12) Or (a) “Financial management is nothing but managerial decision making on asset mix, capital mix and profit allocation.” Explain the statement. (6) (b) The latest Balance sheet of X Ltd. is given below : (12) Ordinary shares (30,000 shares of 2100 each) 30,00,000 9% Preference shares of £100 each 18,00,000 13% Debentures (Face value %100 each) 8,00,000 (40% Term Loan. I 14,00,000.1499 o2: | The ordinary shares are currently priced at 2150 (Preference shares are priced at 7100) The debentures are selling at 7110 and tax is Paid by X Ltd. at 30 percent{ X Ltd.’s cost of equity has been estimated at 19 percent. Calculate the weighted average cost of Capital of X Ltd. using book value and market value weights. (a) Explain in brief the weights that you would take into consideration for computing the Weighted Average Cost of Capital? Why are the market value weights considered superior to the book value weights? (6) (b) The cash flows of three projects are as follows : Rank these projects on the basis of : @ Pay back Method (ii) Average Rate of Return Method. ii) Interna} Rate of Return Method. (12)(1456 5 Or (a) What is the relevance of Time Value of money in financial decision making? (6) (b) Tashu purchased a machine six years back for %3,00,000 having the estimated life of 15 years and nil salvage valuej now has a book value of %1,80,000. The financial manager suggested to replace this machine with a new machine costing %5,00,000 and it willfreduce the operating cost by %60,000. per annum for next years. The old machine can be sold now for %1,00,000 and the new machine will have a salvage value of %50,000_ after 9 years. Advise whether the suggestion should be implemented if the tax rate is 40% and the cost of capital is 10%. (12) 3. (a) What are the similarities and dis-similarities between NPV and IRR? Which of the two methods will you prefer when they are giving different ranking of investment proposals? (6) (b) From the following data, prove the statement as per MM Approach that dividend payment does not affect the value of the firm: (12) Earnings per share 220 ° P/E 6 ay hae +e ses : | Ge s err1456 k, 12% o of outstanding shares 40,000 Expected Dividend =10 Expected Net income 74,00,000 New Investment %8,00,000 Or (a) “Cash flow approach is considered superior to accounting profit approach”. Comment. (6) - (b) SG Ltd. invested %25,00,000 in 2,50,000 shares of %10/- each. Rate of return on investment is 15% and retention ratio is 70% of its earnings. If the appropriate capitalisation rate is 12%, (i) What would be the price as per Gordon’s Model? z (ii) What would be the price if the company has payout ratios of 25% and 75%? (12) 4. (a) me do you understand by stable dividend policy? X) Plain the Significance of stability of dividend? eo (6) LY XYZ Lia, 2024. Th follows : plans to Sell 50,000 units in the year © expected Cost of goods sold is as| i q ; 1456 : 1 = (Per Unit) Raw material 200 Manufacturing expenses 60 Selling and administrative expenses 40 Selling price . 400 Additional information : (i) Raw materials are held in stock for 2 months. Gi) Work in progress stage is 1 month. Si Finished goods remain in warehouse on an average for half month. (iv) Debtor are provided 1 month’s credit. (v) Assuming the monthly sales level of 5,000 units, estimate the gross working capital requirement if the desired cash balance is 5% of the gross working capital requirement and work in progress is 25% complete with respect to manufacturing expenses. (12) Or \ oe (a) What are the effects of bonus issue on EPS and market price of share? (6). P.T.O.1456 7 (b) The following options are available to a company, which is contemplating to change its credit Policy, From the data given below advise which is the best alternative : (12) Credit policy _ Present | X Y Z ] “Average collection 30 45 60 75 period(days) | { Sales(in lakhs of rupees) 200 210 220 250 Variable cost (60% of 120 126 132 150 sales) (in lakhs of | rupees) | dt Fixed cost (in lakhs) 20 | 20 20 20 Bad debts 1% 15% [2% [| 3% Firms rate of investment is 18% 5. (a) What are the costs and benefits associated with a liberal credit policy? (6) (b) From the following information given below determine the value of two firm (P Ltd and Q Ltd) belongings to homogeneous risk class except in terms of Capital structure under (i) Net Income approach and (ii) Net Operating Income approach : (12) eee ae ee Oia ee aS ion Rate: 0.20 Tax rate 0.30 Wy1456 9 Or (a) Explain the factors affecting working capital requirements of a concern. (6) (b) Following information is available in respect of Lev Ltd and Unlev Ltd.: Particulars Lev Ltd @) Unlev Ltda @_| Profit before Interest and Tax 10,00,000 10,00,000 (EBIT) (-) Interest @ 8% 1,60,000 Nil Profit before tax 8,40,000 10,00,000 (-) Tax @ 35% 2,94,000 3,50,000 Prot after Tax 5,46,000 7,50,000, Show and verify that value of Levered firm is equal to, value of Unlevered firm plus PV of tax shield on interests. Use MM model (with taxes) given the k, for Unlev Ltd. is 20%. (12) (@) fata foie at 4 aaa ar fran Rt weal 2? wa at fea war wratirr fear wt waa 27 (6) (@) ward fates at Gt dem Peafaferr 2 ferazoy Sfeact SEX TST (2100 Hele eT 160,000 12% afar Say 10% fetay Taw 1,60,00,000 16,00,000 24,00,000