ig KX [This question paper contains 24 printed/pages.] Your Roll N Sr. No. of Question Paper: 1403 G : oo : Unique Paper Code + 1 2412082302 Name of the Paper : Financial Management Name of the Course : B.Com. () - UGCF Semester : III -[December 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. ond P.T.O.pri & fa Ree 1 wa WR-va & at A GT fee ae Pees ea KT samen ferfeag 2. wwT-waN Aas TE 3 att wet S oer aie 4. St wets ae GIT eI 5. ure Haat Tea AH aga ze eat sae aa area UH St ST UT (a) Explain t SAE Ta TT SK FA aT A Peat Gee HTT SE, AAT he concept of profit maximisation and wealth maximisation. Which one of these is a better operational guide for / (b) Determine the weighted ave using : finance manager? (6) rage cost of capital (i) Book value weights, and (ii) Market value weig hts based on the following information :1403 3 ee Book value structure z Debentures (% 100 per Debenture) 8,00,000 Preference shares (% 100 per abe 2,00,000 Equity shares (@ 10 per share) 10,00,000 20,00,000 Recent market price of all these securities are: Debentures 110 per debenture, Preference shares %120 per share and Equity shares 222 per share. External Financing opportunities are : (i) 100 per debenture redeemable at par, 10- year maturity 13% coupon rate, 4% Flotation cost and sale price 7100. (ii) €100 per Preference share redeemable at par 10-year maturity 14% dividend rate, 5% flotation cost and sale price 7100. (iii) Equity shares 22 per share flotation costs and sale price 222. Dividend expected on equity shares at the end of the year is 2 per.share, anticipated growth rate in dividend is 7%, the company pays all its earnings in the form of: dividends, corporate tax rate is 30%, , (12) P.T.O.1403 4 Or (a) Explain how the scope of finance function has changed over time. What role does the finance manager play in a modern firm? (6) (b) The following is the capital structure of XYZ Ltd. Sources Amount @® | Specific c/e (cost of capital Equity share capital (2,00,000 20,00,000 11% shares of @ 10 each) Preference share capital 5,00,000 8% (50,000 shares of € 10 each) Retained earnings 10,00,000 | 11% 7.5% Debenture of & 1000 each 15,00,000 : 45% Presently the debentures are being traded at 94%, - Preference shares at par and Equity shares at 213 per share: Find out the weighted average cost of capital based on Book value weights and market value weights. (12) 2. (a) “Trading on equity is resorted to with a view to decrease EPS.” Comment on the statement. (6) (b) X Ltd. is considering replacing a machine having the written down value of 21,60,000 and it will be fully depreciated at the end of 2 year. The1403 s remaining economic life of the machine is 4 years after which it will have no salvage value. But if it is sold today, it has a salvage value of 21,20,000. It will generate revenue of %5,20,000 per annum for 4 years and incur expenses of %3,80,000 per annum. It ‘can be replaced by a new machine costing %4,80,000. The new machine will generate revenue of 29,20,000 per arinum and incur annual expenses of %5,80,000. Additional working capital of %2,00,000 will be required if the new machine is bought. Depreciation on the new machine will be charged at the rate of 80,000 per annum to make its book value equal to its salvage value of 21,60,000 at the end of 4" year. Tax rate of the company is 30%. Advise the company if the cost of capital is 15%. (12) 1 2 4 0.870 | 0.756 0.572 Or (a) “Cash flows of different periods in absolute terms are incomparable.” Explain the reasons and how they can be made comparable? (6) P.T.O.1403 6 (b) Y Ltd. is considering an investment proposal requiring initial investment of 50,000. The corporate tax rate is 35% and the company uses Straight Line Method of depreciation. The estimated profit before depreciation and taxes from the investment proposals are as follows : Year PBDT PVF 10% _| PVF 11% PVF 12% 1. 11,000 0.909 0.901 0,893 2. 20,000 0.826 0.812 0.797 3.- 18,000 0.751 0.731 0.712 4___| 15,000 0.683 | 0.659 0.636 3. 12,000 0.621 0,593 0.567 Calculate : (i) ARR (ii) NPV at 10% discount rate (12) (iii) IRR 3.. (a) “The payback period is more a method of liquidity rather than profitability”. Examine the statement explaining payback period method of capital budgeting. (6)ESE Elec 1403 7 dD ing i Fear (b) The following information is provided to you about PQR Ltd. : Earnings of the firm %36,00,000 No. of equity shares 3,00,000 Amount of dividend paid %18,00,000 Return on equity ; 15% Cost of Equity 10% (i) Calculate the present price of the share and the value of the firm using Walter’s Model. (ii) Is this the optimum pay-out ratio? What is the value of the firm at the optimum pay- out ratio? (iii) What should be the payout ratio if the firm wants to keep its share price at 7160? \ (iv) When will the firm be indifferent about dividend payment? (12) Or (a) Why do we focus on cash flows rather than on profits while evaluating capital budgeting decisions? ' (6) P.T.O.1403 8 (b) Aakarshan Textiles currently has outstanding 1,00,000 shares selling @%100 each. The firm is contemplating the declaration of dividend of %8 per share at the end of the current fiscal year that has just started. The firm’s opportunity cost of capital is 10%. Given the assumptions of M-M approach, answer the following questions: (i) What will be the price of the share at the end of the year if (i) dividend is not declared, (ii) dividend is declared? (ii) If the firm has net profits of €10,00,000 and makes new investments of %20,00,000 during the period, how many new shares must be issued in both the situations? (12) 4. (a) How does Gordon’s Model differ from Walter’s Model to relevance of dividends? Discuss their similarities. (6) (b) X Ltd. is considering changing its present credit policy. The details of the options are given below : eee ee teeSee eee ee ee eencnneeee nme ee Rccacne anata near ae ae ante tnnnenncee: eae eemenaneeetem 1403 9 Credit Policy B Cc Sales . 60,000, 62,000 Variable cost 49,600 (80%) @) i Fixed cost (2) 16,000 Average collection 30 45 60 75 | period(days) Advise the best option if the rate of investment is 20%. (12) Or (a) Write short notes on: (3x2) (i) Stock-Split (ii) Scrip- Dividend (b) The production of a company during the year 2023 was 5,00,000 units. The same level of activity is expected to be maintained during the year 2024. : The expected ratios of cost of selling price are : Raw materials: 40%, direct wages 20%, overheads 20% The raw materials ordinarily remain in a store for three months before production and the production P.T.O.1403 10 remains in process for two months and is assumed to be consisting of 100% raw materials, wages and overheads. Finished: goods remain in the warehouse for three months. Credit allowed by creditors is four months from the date of the delivery of raw material and credit given to debtors is three months from the date of the dispatch. The estimated balance of cash to be held is 21,00,000. Lag in the payment of wages and expenses is half month. Selling price is 28 per-unit. You are required to make a provision of 10% for . contingency (except cash). (12) 5. (a) Discuss the consequences of lengthening and shortening of credit period by firm. (6) (b) Discuss various approaches for financing the working capital requirements. (6) (c) What do you mean by operating cycle? Why is it important in assessing the working capital requirements of a firm? (6) i1403 11 Or LMS Ltd provides the following details : (18) Installed Capacity 1,50,000 Units Actual production and sales 1,00,000 Units Selling price per unit Variable cost per unit Fixed cost - Funds required zl * 20.50 238,000 %1,00,000 Equity shares of = 60% 100 each to be : issued at 25% emium 15% Debt 10% Preference NIL shares of = 100 each Financial Plans B Cc 40% 35% 50% NIL 15% Assume Income Tax rate is 30% (i) Degree of Operating Leverage, Financial Leverage and Combined Leverage for each plan. P.T.O.re 1403 12 (ii) The indifference-point between plan A and B. (iii) The Financial break-even point for each plan. Suggest which plan has been more financial risk? (&) art aftrenaraot ait oe aftercare ST Fae ae Ae AH a aa faa wie S fore Aeae afta afar 2? (6) (@) peafefert ar sat aS Hot St wafer atta oT Proffta afer : (i) WH ART Ai, SR (i) Prafeatea wrrant & BUA WC ATI HET ATIF: at aa Wear fedex (2 100 ofa fea) noon aiftiarett ear (2 100 wf SR) oe afraér Nex (= 10 wf aR) 1 my