Fundamentals of Financial Management — DU Bachelor of Business Administration (Financial Investment Analysis) Previous Year Question Papers

5. Show your working clearly on the answer sheet. 1. (a) ABC Ltd was started a year ago with a paid-up equity capital of 740,00,000. The other details are as under: Earnings of the company: 74,00,000 Dividend paid: 73,20,000 Price-earnings ratio: 12.5 Number of shares: 40,000 i. Find the company's dividend payout ratio. Find the market price of a share of the company at this payout ratio, using Walter's model. What is the mate pied a sutra of toe compaper at omal i lend payout ratio as per Walter's model? b). Discuss the MIRR technique of Capital Budgeting. (6 Marks) 2 a) Calculate the different types of leverages from the table given below for X Ltd. (Figures in millions Rs) Less: Variable Costs 21000 Less: Fixed Costs 9000 Less: Interest 5000 Profit Before Tax 25000 What will be the change on EBIT and EPS if sales increase by 10%. (12 marks) b) A project requiring a Rs.10 million investment has a profitability index of 1.21. What is its net present value? (6 marks) a) Calculate the explicit cost of debt for each of the following situations: (a) Debentures are sold at par and flotation costs are 5 per cent. (b) Debentures are sold at premium of 10 per cent and flotation costs are 5 per cent of issue price. (c) Debentures are sold at discount of 5 per cent and flotation costs are 5 per cent of issue price. Assume: (i) coupon rate of interest on debentures is 10 per cent; (ii) face value of debentures is Rs 100; (iii) maturity period is 10 years; and (iv) tax rate is 35 per cent. (12 marks) (b). How weighted average cost of capital is computed? Explain (6 marks) 4. a). A company needs Rs. 31,50,000 for the construction of a new plant. The following three plans. are feasible: The company may issue 3,15,000 equity shares at Rs. 10 per share. The company may issue 1,57,500 equity shares at Rs. 10 per share and 15,750 debentures of Rs. 100 denomination bearing a 7% rate of interest. I!! The company may issue 1,57,500 equity shares at Rs. 10 per share and 15,750 cumulative preference shares at Rs. 100 per share bearing a 7% rate of dividend. You are required to calculate: - (1) It the company's earnings before interest and tax is Rs. 8,25,000, what are the earning per share under each of three plans? Assume a corporate tax rate of 20%. (ii) Which alternative would you recommend and why? (ii) Determine the EBIT-EPS indifference points by formulae between Financing Plan I and Plan II, Plan I and Plan III. b). How does the cost of equity capital behave in the traditional theory and MM approach to capital structure? (6 marks) 5.a). With the help of a diagram, describe the Net operating income approach to capital structure in deciding about the financing mix for a company. (6 marks) b). Briefly describe the costs associated with management of receivables. (6 marks) c.) Critically analyse the EOQ model of inventory management. (6 Marks) Q6 a). Briefly discuss the Baumol's model of cash management. (6 Marks)