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Subject Code: KMBN204

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MBA
(SEM II) THEORY EXAMINATION 2021-22
FINANCIAL MANAGEMENT AND CORPORATE FINANCE
Time: 3 Hours Total Marks: 100
Notes:
 Attempt all Sections and assume any missing data.
 Appropriate marks are allotted to each question, answer accordingly.
SECTION-A Attempt All of the following Questions in brief Marks(10X2=20) CO
Q1(a) What is Financial Management? 1
Q1(b) What is meant by Time Value of Money? 1
Q1(c) Define Profitability Index. How is it calculated? 2
Q1(d) A project requires an outlay of Rs. 50,000 and yields annual cash inflow of Rs. 12,500 for 2
7 years. Calculate the payback period for the project. And also tell whether this project will
be accepted or not and why?
Q1(e) What is Indifference Point? How is it determined? 3
Q1(f) A company has estimated that for a new product its selling price is Rs. 14 per unit, variable 3
cost is Rs. 9 per unit and fixed cost is Rs. 10,000. Calculate the Operating Leverage for
sales volumes of 3000 units.
Q1(g) What is meant by Interim Dividend? 4
Q1(h) Define Conservative Dividend Policy. 4
Q1(i) What do you mean by Mergers? 5
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Q1(j) What is meant by Acquisition? 5
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SECTION-B Attempt ANY ONE of the following : Marks(2X15=30) CO
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Q2(a) i) The capital structure of “VEER” Ltd. is as follows: 3
Rs.

6.
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10% Debentures 8,00,000

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4,000 6% Pref. Shares of Rs. 100 each 4, 00,000

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8,000 Equity Shares of Rs. 100 each 8,00,000
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Total Capital 20,00,000

The present earnings before interest and taxes (EBIT) is Rs. 3,00,000. The company is
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considering an expansion programme which will require an additional investment of Rs.

10,00,000. It is expected that additional investment will yield Rs. 1,00,000 before interest
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and taxes. The tax rate is 50% and the alternatives are as below:-
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(I). Issue of 14% Debentures at par,

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(II). Issue of 6% Preference Shares at par,

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(III). Issue of Equity Shares at par.

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Examine the above alternatives and suggest the best alternative of financing.
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ii) Triple ‘V’ Ltd. issued 1,000 10% Preference Shares of Rs. 100 each. Cost of issue is 2
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Rs. 2 per share. Calculate cost of preference capital if these shares are issued:
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(I). at par (II). at 5% premium and (III). at 2% discount.

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Also calculate cost of preference shares after tax in the above situations, if corporate
dividend tax is 10%.
Q2(b) i) The earnings per share of a company are Rs. 16. The market value of discount 4
(Capitalisation rate) to the company is 12.5%. Retained earnings can be employed to yield
a return of 10%. The company is considering a payout of 25%, 50% and 75%. Which of
these would maximize the wealth of shareholders?

ii) A project costs Rs. 16,000 and is expected to generate cash inflows of Rs. 8,000, Rs. 2
7,000 and Rs. 6,000 at the end of each year for next 3 years. Calculate IRR by Trial and
Error Method.

QP22EP2_132 | 22-08-2022 09:07:34 | 103.76.138.18

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Subject Code: KMBN204
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MBA
(SEM II) THEORY EXAMINATION 2021-22
FINANCIAL MANAGEMENT AND CORPORATE FINANCE
SECTION-C Attempt ANY ONE following Question Marks (1X10=10) CO
Q3(a) What is Capital Asset Pricing Model? Discuss the Assumptions and Limitations of Capital 1
Asset Pricing Model.
Q3(b) Discuss the Financial Decisions and Objectives of Financial Management. 1

SECTION-C Attempt ANY ONE following Question Marks (1X10=10) CO

Q4(a) The average rate of dividend paid by ‘V’ Ltd. for the last five years is 21%. The earnings 2
of the company have recorded a growth rate of 3% per annum. The market value of the
equity shares is estimated to be Rs. 105. Find out:
(I). The cost of equity share capital.
(II). Determine the estimated market price of the equity shares if the anticipated growth
rate of the firm rises to 5%.
(III). If the company’s cost of capital is 20% and anticipated growth rate is 5%, determine
the market price of the share, assuming the same dividend per share.
Q4(b) A project will cost Rs. 40,000. Its stream of earnings before depreciation, interest and taxes 2
(EBDIT) during first year through five years is expected to be Rs. 10,000, Rs. 12,000, Rs.
14,000, Rs. 16,000 and Rs. 20,000. Assume a 50% tax rate and depreciation on straight-
line basis. Calculate project’s ARR.
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SECTION-C Attempt ANY ONE following Question Marks (1X10=10) CO
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Q5(a) What do you mean by Capital Structure? Explain the Theories of Capital Structure in brief. 3

8.
Q5(b) “BHARAT” Ltd. has sales of Rs. 25,00,000. The fixed costs are Rs. 4,00,000 and variable 3
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costs are Rs. 17,00,000. The company uses a debt of Rs. 10,00,000 @ 12% p.a.

6.
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From the available data, calculate the operating, financial and combined leverages.

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SECTION-C Attempt ANY ONE following Question Marks (1X10=10) CO

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Q6(a) Discuss M-M Hypothesis Dividend Model. 4
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Q6(b) Radhe Engineering Co. Ltd. currently has outstanding 1,00,000 shares selling at Rs. 100 4
each. The firm is thinking of declaring a dividend of Rs. 5 per share at the end of the
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current year. The capitalization rate of this type of firm is 10%.

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(I). What will be the price of the share at the end of the year if (i) a dividend is not declared
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and (ii) a dividend is declared.

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(II). Explain that as per M-M approach the wealth of shareholders is equal whether
dividend is paid or not.
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SECTION-C Attempt ANY ONE following Question Marks (1X10=10) CO

Q7(a) Write a short notes on:- 5
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(I). Exchange Ratio

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(II). Synergy Benefits

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(III). Post Merger EPS

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(IV). De-Merger
Q7(b) What challenges are faced with a merger or acquisition? Discuss. 5

QP22EP2_132 | 22-08-2022 09:07:34 | 103.76.138.18