DNYANSAGAR INSTITUTE OF MANAGEMENT & RESEARCH MBA II SEMESTER ASSIGNMENT FOR FINANCIAL MANAGEMENT (232)

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1 DNYANSAGAR INSTITUTE OF MANAGEMENT & RESEARCH MBA II SEMESTER ASSIGNMENT FOR FINANCIAL MANAGEMENT (232) Submission Date: 18 th March 2017 Faculty: Prof. Mayuri Jain Note for writing the answer: All answers need to be written on assignment sheets which are available in stationary book store. First page write your name, cell no, mail id and our Institute name, Semester and your subject name & code. All assignments should be written nicely and cleanly. All questions carry marks each and all are compulsory. Refer the books for answers Q1) Finance function is concerned with allocating funds to specific assets and obtaining the best mix of financing in relation to the overall valuation of the firm. Discuss. Q2) In what ways is the wealth maximization objective superior to the profit maximization objective? Explain. Q3) Investment, financing and dividend decisions are all inter related. Comment. Q4) Finance function of a business is closely related to its other functions. Discuss. Q5) What are the important factors to be considered in planning the capital structure of a company? Q6) Critically examine the Net income and Net operating income approaches to capital structure? Q7) Discuss in detail what are the goals of Financial Management? Q8) Describe the functions of Finance Manager. Q9) What is fund Flow statement? State its advantages & disadvantages.

2 Q 10.)X ltd has the following Capital structure Rs. Equity share capital [20,000 shares] 4,00,000 6% Preference shares 1,00,000 8% Debentures 3,00,000 The market price of equity share is Rs.20. It is expected that the company will pay a current dividend of Rs 2 per share which will forever. Rate of tax is 40%. Calculate the weighted average cost of capital. Q11)A Company issues 1,000 7% Preference Shares of Rs. 100 each at a premium of 10% Redeemable after 5 years at par. Compute the cost of Preference Capital. Q12)A company issues 1000 equity shares of Rs 100 each at a premium of 10%. The company has been paying 20% dividend to equity shareholders for the past five years and expect to maintain the same in the future also. Compute the cost of equity capital. Will it make any difference if the market price of equity share is Rs 160? Q13)From the following information,calculate: i)operating ratio ii)quick ratio iii)working capital Turnover ratio Equity Share capital Rs 1,00,000; 12% Preference Share capital Rs 80,000; 12% Debentures Rs 60,000; General reserve Rs 40,000; Revenue from operations 3,00,000;Opening Inventory Rs 10,000; Purchases Rs 1,20,000; Wages Rs 30,000; Closing Inventory Rs 30,000; Selling and distribution Expenses Rs 10,000;Quick assets Rs 2,00,000 and current liabilities Rs 1,20,000 Q14)Calculate Return on investment and debt to equity ratio from the following informations: Net profit after Interest and Tax Rs 3,00,000 10%Debentures Rs5,00,000 Tax rate 40% Capital Employed 40,00,000 Q15)Current Assets of a company are Rs 9,00,000. Its current Ratio is 3 and Liquid Ratio is 1.2. Calculate Current Liabilities, Liquid Assets and Inventory. Q16) From the following Balance sheet of X ltd,prepare Cash Flow statement. Particulars Note No. 31st March,2016 I. EQUITY AND LIABILITIES 1.Shareholder's Funds 31st 2015 March,

3 (a) Share Capital 1 6,30,000 5,60,000 (b)reserves and Surplus Surplus i.e Balance in Statement of Profit and Loss 3,08,000 1,82,000 2.Current Liabilities (a)trade payables 2,80,000 1,82,000 (b)other Current Liabilities 14,000 28,000 Total 12,32,000 9,52,000 II Assets 1.Non Current Assets Fixed Assets:Plant and Machinery 3,92,000 2,80,000 2.Current Assets (a)inventories 1,26,000 1,82,000 (b)trade Receivables 6,30,000 4,20,000 (c)cash and Cash Equivalents 84,000 70,000 Total 12,32,000 9,52,000 Notes to Accounts Particulars 31st March, st March,2015 1Share Capital Equity Share Capital 4,30,000 3,60,000 8%Preference Share Capital 2,00,000 2,00,000 Additional Information: 6,30,000 5,60,000 1.An old machinery having book value of Rs.42,000 was sold for Rs 56, Depriciation provided on machinery during the year Rs 28, Dividend paid (included prefernce dividend) during the year Rs. 56,000. Q17)Following are the Balance Sheets of Krishec Ltd. For the years ended 31 st March, 2012 and 2011: Note 31st March 31st March Particulars no I EQUITY AND LIABILITIES 1. Shareholder's Funds (a)share Capital 12,00,000 8,00,000 (b)reserves and Surplus (Surplus, I.e Balance in statement of Profit and loss 3,50,000 4,00,000 2.Non Current Liabilities

4 Long term Borrowings 4,40,000 3,50, Current Liabilities Trade Payables 60,000 50,000 Total 20,50,000 16,00,000 II Assets 1.Non Current Assets Fixed Assets: Tangible Assets 12,00,000 9,00,000 2.Current Assets (a)inventories 2,00,000 1,00,000 (b)trade Receivables 3,10,000 2,30,000 (c)cash and Cash Equivalents 3,40,000 3,70,000 Total 20,50,000 16,00,000 Prepare a Cash Flow Statement after taking into account the following adjustments: (a)the company paid interest Rs 36,000 on its long term borrowings. (b)depriciation charged on tangible fixed assets was Rs 1,20,000. Q18)From the following information, Calculate Cash Flow from Investing Activities: Particulars Closing Balance Opening Balance Machinery(at cost) 4,20,000 4,00,000 Accumulated depriciation 1,10,000 1,00,000 Patents 1,60,000 2,80,000 Additional Information: 1)During the year, a machine costing Rs 40,000 with its accumulated depriciation of Rs.24,000 was sold for Rs 20,000. 2)Patents were written off to the extent of Rs 40,000 and some patents were sold at a profit of Rs 20,000. Q19)From the following balance sheets as on 31 st March 2013 and 31 st March 2014 of Mahanand Ltd. You are required to prepare Fund Flow statement. Balance sheet Amount Amount Liabilities 31/03/ /03/2014 Assets 31/03/ /03/2014 Equity Capital 3,00,000 4,00,000 Goodwill 1,15,000 90,000 Land & 8% Redeemable pref. Shares 1,50,000 1,00,000 Building 2,00,000 1,70,000 General reserve 40,000 70,000 Plant 80,000 2,00,000

5 Profit &Loss A/C 30,000 48,000 Debtors 1,60,000 2,00,000 Proposed dividend 42,000 50,000 Stock 77,000 1,09,000 Bills Creditors 55,000 83,000 receivables 20,000 30,000 Bills Payable 20,000 16,000 Cash in hand 15,000 10,000 Taxation Provision 40,000 50,000 Cash at bank 10,000 8,000 Total 6,77,000 8,17,000 Total 6,77,000 8,17,000 Following additional information is provided: a)interim dividend of Rs 20,000 has been paid in b)income Tax paid during the year is Rs 35,000 Q20) Following are the summarised Balance sheet of Abhijit ltd as on 31 st March, 2014 and You are required to prepare a Fund Flow Statement for the year ended 31 st March, Balance sheet Amount Amount Liabilities 31/03/ /03/2015 Assets 31/03/ /03/2015 Share Capital 1,00,000 1,25,000 Goodwill - 2,500 Land and General reserve 25,000 30,000 Building 1,00,000 95,000 Plant & Profit and loss A/c 15,250 15,300 Machinery 75,000 84,500 Long term Bank loan 35,000 67,600 Stock 50,000 37,000 Creditors 75, Debtors 40,000 32,100 Provision for tax 15,000 17,500 Cash in hand 250 4,300 Total 2,65,250 2,55,400 Total 2,65,250 2,55,400 Additional information i)depriciation Written off on plant and machinery Rs 7,000 and on Land and Building Rs 5,000. ii)provision for Tax was made during the year Rs 16,500 iii)dividend of Rs 11,500 was paid. Q21)A project cost Rs 5,00,000 and yields annually a profit of Rs 80,000 after but before tax of 50%.Calculate the pay back period. Q22)A Company has an investment opportunity costing Rs 40,000 with the following expected net cash flow after taxes and before depriciation. Year Net Cash Flow Rs. 1 7, , ,000

6 4 7, , , , , , ,000 Using 10% as the cost of capital, determine the following: a)pay back period b)net present value at 10% discount factor c)profitability index at 10% discount factor d)internal rate of return with the help of 10% and 15% discount factor. Q23)X ltd is considering the purchase of a machine. Two machines are available, E and F. The cost of each machine is Rs 60,000. Each machine has an expected life of 5 years. Net profits before tax (after depriciation) during the expected life of the machine are given below: Year Machine E Rs. Machine F Rs. 1 15,000 5, ,000 15, ,000 20, ,000 30, ,000 20,000 Total 85,000 90,000 Following the method of return on investment ascertain which of the alternatives will be more profitable. The average rate of tax mey be taken at 50% Q24)An enterprise can make either of two investments at the beginning of Assuming required rate of return of 10%p.a. evaluate the investment proposals as under: a)return on investment b)payback Period c)discounted pay back period d)profitability index The forecast particulars are given below:

7 Proposal A Proposal B Cost of investment Rs.20,000 Rs 28,000 Life 4years 5years Scrap value Nil Nil Net income(after depriciation and tax) Rs. Rs. End of Nil End of ,000 3,400 End of ,500 3,400 End of ,500 3,400 End of ,400 Q25) A Proforma Cost sheet of a company provides the following particulars: Element of cost Cost per sheet (Rs) Raw Material 80 Direct labour 30 Overheads 60 Total cost of production 170 Profit 30 Selling Price 200 Following further particulars are available: i)raw materials are in stock for one month. ii)credit allowed by suppliers is one month. iii)credit allowed to customers is two months. iv)lag in payment of wages 1.5 months. v)lag in payment of overheads one month. vi)materials are in process for an average of half a month. vii)finished goods are in stock for an average of one month. viii)1/4 th of output is sold against cash. ix)cash in hand and bank is expected to be Rs.25,000.

8 You are required to prepare a ststement showing the working capital needed to finance a level of activity of 60,000 units of production annually. The production is carried out evenly through out the year. Q26)A Client of yours Swift Ltd. is about to commence a new business and finance has been provided in respect of fixed assets. They ask your advice about the working capital requirements of the company. The following information is available for your information. Particulars Average credit period Estimate for first year (Rs) Purchase of materials 6 weeks 26,00,000 Wages 11/2 weeks 19,50,000 Overheads: Rent 6 months 1,00,000 Directors and Manager s 1 month 3,60,000 salaries Office salaries 2 weeks 4,55,000 Traveler s commission 3 months 2,00,000 Other overheads 2 months 6,00,000 Cash sales - 1,40,000 Credit sales 7 weeks 65,00,000 Average amount of stock & - 3,00,000 W.I.P Average amount of undrawn - 3,10,000 profits Sales were made at an even rates through out the year. Calculate the working capital requirements for the company. Q27) Kiran gold ltd. Is a leading manufacturing industry. Following activity ratios are calculated by the finance manager of the company.you are required to analyse the ratios and interpret the asset management efficiency position of the company. Particulars 2015(Rs) 2016(Rs) Debtors Turnover ratio 12 times 8 times Creditors Turnover ratio 7 times 7 times Inventory Turnover Ratio 9 times 11 times Working Capital Turnover 3 times 4 times Ratio Fixed Asset Turnover Ratio 2.5 times 1.5 times

9 Q28) Under which major sub- headings the following items will be placed in the Balance sheet of a comapny as per revised Schedule VI, Part I of the Companies Act, 1956 (Schedule III, Part I of the Companies Act, 2013) i) Accrued incomes ii)loose tools iii)provision for employees Benefits iv) Unpaid Dividend v)short term Loans vi)long term loans Q 29)From the following given below calculate i)current ratio ii)debt to equity ratio Net profit of the year Rs 80,000; Fixed assets Rs 2,00,000;Closing Inventory Rs 10,000;Other Current Assets Rs 1,00,000; Current liabilities Rs 30,000; Equity Share Capital Rs 1,00,000; 10% Preference Share Capital Rs 70,000; 12%Debentures Rs 60,000 and Revenue from operations,i.e,net Sales during the year Rs 5,00,000. Q 30.) Assume that a firm has owner s equity of Rs The ratios of the firm are: Short term debt to total debt = 0.4 Total Debt to Owner s equity = 0.6 Fixed Assets to owner s equity = 0.6 Total assets turnover ratio = 2 times Inventory Turnover ratio = 8 times Compute the following Balance sheet: Q31. Following details are made available to you: Particulars Project X(Rs.) Project Y(Rs.) Project Cost Cash Inflows : Year Year Year Year Year Total Assume no residual values at the end of the fifth year. The firms cost of capital is 10%. Required in respect of each of the two projects. 1) Payback period 2) Net present Value, using 10% as discounting factor 3) Internal rate of return 4) Profitability Index Q32. Following are the details of three projects A, B and C. Particulars A B C

10 Cost 50,000 70,000 70,000 Life 1 0 years 12 years 14 years Estimated Scrap (Rs.) 5,000 10,000 7,000 Annual Profit Less Taxation (Rs.) 5,000 6,000 5,500 Select the best one using: - a) Payback period b) Surplus life over payback period c) Surplus cash flow as the decision criteria. Q33. A Performa Cost Sheet of a Company is given below: Particulars Cost per unit Rs. a) Raw Material 52 b) Direct Labor 26 c) Overheads 32 Total Cost 110 Profit 20 Selling Price 130 Additional Information: (1) Average Raw Material in stock is one month. (2) Average Material in process half a month. (3) Average finished goods for a month. (4) Credit allowed by suppliers one month. (5) Credit allowed to debtors two months. (6) Time lag in payment of wages one and half weeks, overheads one month. (7) 1/4th of the sales are on cash basis. (8) Expected Cash Balance Rs. 1,20,000. Prepare a Statement showing Working Capital requirements to finance of activity of 45,000 units at Output. Q 34. ABC Ltd sells its products on a gross profit of 20 % on sales. Prepare an estimate of working capital requirements from the following information of the trading concern. Sales at 3 months credit 40,00,000 Raw materials 12,00,000 Wages paid- average time lag15 days 9,60,000 Manufacturing expenses paid one month in arrears 12,00,000 Administrative expenses paid one month in arrears 4,80,000 Sales Promotion expenses payable half year in advance 2,00,000 The company enjoys 1 month credit from suppliers of raw materials & maintains a 2 months stock of raw materials & 1.5 months stock of finished goods. The cash balance is maintained at Rs. 1,00,000 as a precautionary measure. Consider 10% contingencies in your estimate. Q 35. Explain Modigliani and Miller theory (MM approach). Q 36. A limited company is considering different methods to finance its investment proposal. It is estimated that initially Rs. 40,00,000 will be needed. Two alternative methods are available for raising of funds: i. To raise Rs. 20,00,000 be sale of equity shares of Rs. 100 each and balance at 18% term loan. ii. To raise the entire amount by sale of equity share of Rs. 100 each The existing capital structure consists of: a) equity shares of Rs. 100 each and b) 17% term loan of Rs. 20,00,000

11 The expected EBIT is Rs. 15,00,000. Advice the company on the basis of EPS in each alternative. Q11. Mr. True Development wishes to develop a kiosk model for banking sector. The estimated cost of development will be Rs /-. salvage value at the end of the project will be 25%. The Expected Cash Flow are as follows. Year Cash Flows Depreciation 1 8,25,650 1,25, ,25,000 1,75, ,50,000 2,25, ,35,000 3,34, ,00,000 4,50,000 Evaluate project using NPV Method, assuming Tax 30% and Discounting Rate of 10%. Q 37. Sweet Sugar Ltd. wishes to build new factory whose initial cost will be Rs /-. Following are the cash flow after depreciation but before tax. Year 1: Rs , Year 2: Rs , Year 3: , Year 4: , Year 5: Depreciation is calculated on WDV 15%. Tax and Evaluate project through NPV and PI Model. Q 38. Following are the summarized balance sheet of ABC Ltd. as on 31 st December 2014 & 15. You are required to prepare a fund flow statement for the year ended 31 st December 2015 Liabilities 2014 (Rs.) 2015 (Rs.) Assets 2014 (Rs.) 2015 (Rs.) Share Capital 1,00,000 1,25,000 Goodwill - 2,500 General Reserve 25,000 30,000 Building 1,00,000 95,000 Profit and 15,250 15,300 Plant 75,000 84,500 Loss Account Bank Loan 35,000 27,600 Stock 50,000 37,000 (Long Term) Creditors 75,000 40,000 Debtors 40,000 32,100 Provision for 15,000 17,500 Bank - 4,000 Tax Cash ,65,250 2,55,400 2,65,250 2,55,400 Additional information: Dividend of Rs. 11,500 was paid. Depreciation written off on plant Rs and on building Rs Q39. Krishna Gold Ltd. is a leading manufacturing industry. Following activity ratios are calculated by the finance manager of the company. You are required to analyze the ratios and interpret the asset management efficiency position of the company. Particulars 2014 (Rs.) 2015 (Rs.) Debtors Turnover Ratio 12 times 8 times Creditors Turnover Ratio 7 time 7 timess

12 Inventory Turnover Ratio 9 times 11 times Working Capital Turnover 3 times 4 times Ratio Fixed Asset Turnover Ratio 2.5 times 1.5 times Q40) Calculate WACC using the following data, under the following methods : a)book value weights b) Market value weights Equity shares(rs. 100 per share) 10,00,000 Debentures (Rs 100 per Debenture) 5,00,000 Preference shares(rs 100 per share) 5,00,000 Market price of the above mentioned securities are: Equity shares 24 Debentures 105 Preference Shares 110 Additional information: 1.Rs 100 per debenture, redeemable at par,10% coupon rate, 4% floatation cost, 10 year maturity. 2.Rs 100 per preference share, redeemable at par, 5% coupon rate, 2% floatation cost, 10 year maturity. 3.Equity share has Rs 4 floatation cost and market price Rs 24 per share. 4. Expected dividend for the next year is Rs. 10 with annual growth of 5%. The firm has practice of paying all earnings in the form of dividends. 5. Corporate tax rate is 50%.

MG 177 Third Year B. B. A. Examination April / May 2003 Advanced Financial Management

MG 177 Third Year B. B. A. Examination April / May 2003 Advanced Financial Management Seat No. Time : 3 Hours] [Total Marks : 70 Instructions : (1) All the calculations-work sheet should be a part of your