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IMT-61: Corporate Finance-2014

IMT-61: Corporate Finance-2014

SECTION - A

 

Q1: Between Equity shares and debentures which is preferable for raising additional longer term capital for a manufacturing company and why?

 

Q2: The following data has been abstracted from the annual accounts of a company:

Share capital                          Amount in lakhs

20,000 shares of Rs. 10 each   200.00

General reserve                        156.00

Investment allowance reserve   50.00

15 % long term loan                 300.00

Profit before tax                        140.00

Provision for tax                       84.00

Proposed dividends                  10.00

 

Calculate from the above the following details:

A. Return on capital employed, and

B. Return on Net Worth.

 

Q3: Answer the following question:

(i) ‘profit maximization is the basic goal of a finance manager’. Discuss.

(ii) What are the criteria for evaluating proposals to minimize risk?

 

Q4: Using the information given below, compute the payback period under

(i) Traditional Payback method, and

(ii) Discounting payback method.

Initial Outlay                                      Rs. 80,000

Estimated life                                     Five years

Profit After Tax:

End of life              1                                    Rs. 6,000

                             2                                    Rs. 14,000

                             3                                    Rs. 24,000

                             4                                    Rs. 16,000

                             5                                    Nil

Depreciation has been calculated under straight line method. The cost of capital may be taken at 20 per cent per annum and the P.V of Re 1 at 20 per cent per annum is given below:

Year             1        2        3        4        5

P.V factor     0.83   0.69   0.58   0.48   0.40

 

Q5: Answer the following question:

(i) Operating leverage is determined by firm’s cost structure and financial leverage by the mix of debt-equity funds used to finance the firm’. Explain.

(ii) Discuss the major types of currency exposures

 

SECTION - B

Q1: Define working capital. Distinguish between permanent and temporary working capital.

Q2: Answer the following question:

a. Explain the difference between managerial synergy and operating synergy.

b. The consequences of overcapitalization are far more serious and fatal than Undercapitalization,’ Discuss.

Q3(a) Following are the details regarding three companies:

A ltd.           B ltd.

R= 15 %      10%

Ke= 10%     10%

E = 10%      10%

You are required to calculate the effect of individual payment on the profits of each of the above companies under the following different situations:

a. When dividend is paid 8 per share.

b. When no dividend is paid.

 

Q3(b): Write a lucid note on current divided practice in India.

 

Q4: Examine the problems in the determination of composite cost of capital.

 

Q5: What do you mean by optimum capital structure? Make a list of factors determining optimum capital structure.

 

SECTION - C

Q1: What are the various objective of public sector enterprises?

Q2: Wearwell Ltd. supplies you the following Balance sheet on 31 December 2014:

The following additional information has been supplied to you:

(i) Dividends amounting to Rs 3,500 were paid during the year 2014.

(ii) Land was purchased for Rs 10,000

(iii) Rs. 5,000 were written off on goodwill during the year.

(iv) Bonds of Rs. 6,000 were paid during the course of the year.

You are required to prepare a cash flow statement.

 

Q3: Explain the role of IFCI and IDBI in providing long term finance to industry.

 

Q4: Write a short note:

(a) Financial Risk.

(b) Marginal cost of capital.

(c) Point of indifference.

(d) Dividend policy.

(e) Preference share.

 

Q5: Discuss briefly the Net present value method Vs Internal rate of return method of evaluation of projects.

 

 

 

CASE STUDY - 1

Form the following capital structure of a company:

Source                                               Book value   Market value

Equity share capital (Rs.10 shares)    45,000        90,000

Retained earnings                                        15,000        -

Preference share capital                     10,000        10,000

Debentures                                        30,000        30,000

The after tax cost of difference sources of finance is an follows:

Equity share capital:       14%

Retained earnings                    13%

Preference share capital 10%

Debentures:                   5%

Calculate overall cost of capital, using Book value weights.

 

CASE STUDY - 2

ABC Ltd. is presently selling a product @Rs 10 per unit. The pre-sale are Rs. 30,000 Units, and the variable cost per unit is Rs. 6 and the fixed costs amount to Rs. 60,000.

 

The average collection period is thirty days. The company proposes to relax its credit standard resulting in a 15 per cent increase in units sales.

 

The average collection period is expected is increase to 45 days. However, there is to be no change in losses account of bad debts and collection expenses.

 

The company expects return on investment at 15 per cent.

 

You are required to advise whether the company should relax its standard.

Get solution from http://distpub.in/index.php/cPath/71/

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