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Examination Paper Semester I: Financial Management

IIBM Institute of Business Management

IIBM Institute of Business Management

Semester-1 Examination Paper MM.100

Financial Management

Section A: Objective Type (30 marks)

· This section consists of multiple choice & Short Notes.

· Answer all the questions.

· Part One carries 1 mark each & Part two carries 5 marks each.

Part one:

Multiple choices:

1. The approach focused mainly on the financial problems of corporate enterprise

a. Ignored non-corporate enterprise

b. Ignored working capital financing

c. External approach

d. Ignored routine problems

2. These are those shares, which can be redeemed or repaid to the holders after a lapse of the

stipulated period

a. Cumulative preference shares

b. Non-cumulative preference shares

c. Redeemable preference shares

d. Perpetual shares

3. This type of risk arise from changes in environmental regulations, zoning requirements, fees,

licenses and most frequently taxes

a. Political risk

b. Domestic risk

c. International risk

d. Industry risk

4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment

proposal

a. Future cost

b. Specific cost

c. Spot cost

d. Book cost

5. This concept is helpful in formulating a sound & economical capital structure for a firm

a. Financial performance appraisal

b. Investment evaluation

c. Designing optimal corporate capital structure

d. None

Examination Paper Semester I: Financial Management

IIBM Institute of Business Management

6. It is the minimum required rate of return needed to justify the use of capital

a. From investors

b. Firms point

c. Capital expenditure point

d. Cost of capital

7. It arises when there is a conflict of interest among owners, debenture holders and the management

a. Seasonal variation

b. Degree of competition

c. Industry life cycle

d. Agency costs

8. Some guidelines on shares & debentures issued by the government that are very important for the

constitution of the capital structure are

a. Legal requirement

b. Purpose of finance

c. Period of finance

d. Requirement of investors

9. It is that portion of an investments total risk that results from change in the financial integrity of

the investment

a. Bull- bear market risk

b. Default risk

c. International risk

d. Liquidity risk

10. _____________ measure the systematic risk of a security that cannot be avoided through

diversification

a. Beta

b. Gamma

c. Probability distribution

d. Alpha

Part Two:

1. What is Annuity kind of cash flow?

2. What do understand by Portfolio risk?

3. What do you understand by ‘Loan Amortization’?

4. What is the Difference between NPV and IRR?

END OF SECTION A

Examination Paper Semester I: Financial Management

IIBM Institute of Business Management

Section B: Case lets (40 marks)

· This section consists of Case lets.

· Answer all the questions.

· Each Case let carries 20 marks.

· Detailed information should form the part of your answer (Word limit 150 to 200 words).

Case let 1

This case provides the opportunity to match financing alternatives with the needs of different companies.

It allows the reader to demonstrate a familiarity with different types of securities. George Thomas was

finishing some weekend reports on a Friday afternoon in the downtown office of Wishart and Associates,

an investment-banking firm. Meenda, a partner in the firm, had not been in the New York office since

Monday. He was on a trip through Pennsylvania, visiting five potential clients, who were considering the

flotation of securities with the assistance of Wishart and Associates. Meenda had called the office on

Wednesday and told George's secretary that he would cable his recommendations on Friday afternoon.

George was waiting for the cable. George knew that Meenda would be recommending different types of

securities for each of the five clients to meet their individual needs. He also knew Meenda wanted him to

call each of the clients to consider the recommendations over the weekend. George was prepared to make

these calls as soon as the cable arrived. At 4:00 p.m. a secretary handed George the following telegram.

George Thomas, Wishart and Associates STOP Taking advantage of offer to go skiing in Poconos STOP

Recommendations as follows: (1) common stock, (2) preferred stock, (3) debt with warrants, (4)

convertible bonds, (5) callable debentures STOP. See you Wednesday STOP Meenda. As George picked

up the phone to make the first call, he suddenly realized that the potential clients were not matched with

the investment alternatives. In Meenda's office, George found folders on each of the five firms seeking

financing. In the front of each folder were some handwritten notes that Meenda had made on Monday

before he left. George read each of the notes in turn. APT, Inc needs $8 million now and $4 million in

four years. Packaging firm with high growth rate in tri-state area. Common stock trades over the counter.

Stock is depressed but should rise in year to 18 months. Willing to accept any type of security. Good

management. Expects moderate growth. New machinery should increase profits substantially. Recently

retired $7 million in debt. Has virtually no debt remaining except short-term obligations.

Sandford Enterprises

Needs $16 million. Crusty management. Stock price depressed but expected to improve. Excellent growth

and profits forecast in the next two year. Low debt-equity ratio, as the firm has record of retiring debt

prior to maturity. Retains bulk of earnings and pays low dividends. Management not interested in

surrendering voting control to outsiders. Money to be used to finance machinery for plumbing supplies.

Sharma Brothers., Inc.

Needs $20 million to expand cabinet and woodworking business. Started as family business but now has

1200 employees, $50 million in sales, and is traded over the counter. Seeks additional shareholder but not

willing to stock at discount. Cannot raise more than $12 million with straight debt. Fair management.

Good growth prospects. Very good earnings. Should spark investor's interest. Banks could be willing to

lend money for long-term needs.

Sacheetee Energy Systems

The firm is well respected by liberal investing community near Boston area. Sound growth company.

Stock selling for $16 per share. Management would like to sell common stock at $21 or more willing to

Examination Paper Semester I: Financial Management

IIBM Institute of Business Management

use debt to raise $ 28 million, but this is second choice. Financing gimmicks and chance to turn quick

profit on investment would appeal to those likely to invest in this company.

Ranbaxy Industry

Needs $25 million. Manufactures boat canvas covers and needs funds to expand operations. Needs longterm

money. Closely held ownership reluctant surrender control. Cannot issue debt without permission of

bondholders and First National Bank of Philadelphia. Relatively low debt-equity ratio. Relatively high

profits. Good prospects for growth Strong management with minor weaknesses in sales and promotion

areas. As George was looking over the folders, Meenda's secretary entered the office. George said, "Did

Meenda leave any other material here on Monday except for these notes?” She responded, "No, that's it,

but I think those notes should be useful. Meenda called early this morning and said that he verified the

facts in the folders. He also said that he learned nothing new on the trip and he sort of indicated that, he

had wasted his week, except of course, that he was invited to go skiing at the company lodge up there".

George pondered over the situation. He could always wait until next week, when he could be sure that he

had the right recommendations and some of the considerations that outlined each client's needs and

situation. If he could determine which firm matched each recommendation, he could still call the firms by

6:00 P.M. and meet the original deadline. George decided to return to his office and match each firm with

the appropriate financing.

Question:

1. Which type of financing is appropriate to each firm?

2. What types of securities must be issued by a firm which is on the growing stage in order to meet

the financial requirements?

Case let 2

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct

decision. Perluence International is large manufacturer of petroleum and rubber-based products used in a

variety of commercial applications in the fields of transportation, electronics, and heavy manufacturing.

In the northwestern United States, many of the Perluence products are marketed by a wholly-owned

subsidiary, Bajaj Electronics Company. Operating from a headquarters and warehouse facility in San

Antonio, Strand Electronics has 950 employees and handles a volume of $85 million in sales annually.

About $6 million of the sales represents items manufactured by Perluence. Gupta is the credit manager at

Bajaj electronics. He supervises five employees who handle credit application and collections on 4,600

accounts. The accounts range in size from $120 to $85,000. The firm sells on varied terms, with 2/10, net

30 mostly. Sales fluctuate seasonally and the average collection period tends to run 40 days. Bad-debt

losses are less than 0.6 per cent of sales. Gupta is evaluating a credit application from Booth Plastics, Inc.,

a wholesale supply dealer serving the oil industry. The company was founded in 1977 by Neck A. Booth

and has grown steadily since that time. Bajaj Electronics is not selling any products to Booth Plastics and

had no previous contact with Neck Booth. Bajaj Electronics purchased goods from Perluence

International under the same terms and conditions as Perluence used when it sold to independent

customers. Although Bajaj Electronics generally followed Perluence in setting its prices, the subsidiary

operated independently and could adjust price levels to meet its own marketing strategies. The Perluence's

cost-accounting department estimated a 24 per cent markup as the average for items sold to Pucca

Electronics. Bajaj Electronics, in turn, resold the items to yield a 17 per cent markup. It appeared that

these percentages would hold on any sales to Booth Plastics. Bajaj Electronics incurred out-of pocket

expenses that were not considered in calculating the 17 per cent markup on its items. For example, the

contact with Booth Plastics had been made by James, the salesman who handled the Glaveston area.

Examination Paper Semester I: Financial Management

IIBM Institute of Business Management

James would receive a 3 per cent commission on all sales made Booth Plastics, a commission that would

be paid whether or not the receivable was collected. James would, of course, be willing to assist in

collecting any accounts that he had sold. In addition to the sales commission, the company would incur

variable costs as a result of handling the merchandise for the new account. As a general guideline,

warehousing and other administrative variable costs would run 3 per cent sales. Gupta Holmstead

approached all credit decisions in basically the same manner. First of all, he considered the potential

profit from the account. James had estimated first-year sales to Booth Plastics of $65,000. Assuming that

Neck Booth took the, 3 per cent discount. Bajaj Electronics would realize a 17 per cent markup on these

sales since the average markup was calculated on the basis of the customer taking the discount. If Neck

Booth did not take the discount, the markup would be slightly higher, as would the cost of financing the

receivable for the additional period of time. In addition to the potential profit from the account, Gupta was

concerned about his company's exposure. He knew that weak customers could become bad debts at any

time and therefore, required a vigorous collection effort whenever their accounts were overdue. His

department probably spent three times as much money and effort managing a marginal account as

compared to a strong account. He also figured that overdue and uncollected funds had to be financed by

Bajaj Electronics at a rate of 18 per cent. All in all, slow -paying or marginal accounts were very costly to

Bajaj Electronics. With these considerations in mind, Gupta began to review the credit application for

Booth Plastics.

Question:

1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth

Plastics and give your views to increase the profit.

2. Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of

credit limit that electronics give to Booth Plastics.

Section C: Applied Theory (30 marks)

· This section consists of applied theory questions.

· Answer all the questions.

· Each question carries 15 marks each.

· Detailed information should form the part of your answer (Word limit 200-250 words).

1. Honey Well Company is contemplating to liberalize its collection effort. Its present sales are Rs.

10 lakh, its average collection period is 30 days, its expected variable cost to sales ratio is 85 per

cent and its bad debt ratio is 5 per cent. The Company’s cost of capital is 10 per cent and tax are

is 40 per cent. He proposed liberalization in collection effort increase sales to Rs. 12 lakh

increases average collection period by 15 days, and increases the bad debt ratio to 7 percent.

Determine the change in net profit.

2. Explain the concept of working capital. What are the factors which influence the working capital?

S-1-91110

END OF SECTION B

END OF SECTION C

Examination Paper Semester I: Human Resource Management

IIBM Institute of Business Management

IIBM Institute of Business Management

Semester-1 Examination Paper MM.100

Human Resource Management

Section A: Objective Type (30 marks)

· This section consists of multiple choice & Short Notes type questions.

· Answer all the questions.

· Part one carries 1 mark each & Part two carries 5 marks each.

Part One:

Multiple choices:

1. It is a cultural attitude marked by the tendency to regard one’s own culture as superior to others

a. Geocentrism

b. Polycentrism

c. Ethnocentrism

d. Egocentrism

2. It is the systemic study of job requirements & those factors that influence the performance of

those job requirements

a. Job analysis

b. Job rotation

c. Job circulation

d. Job description

3. This Act provides an assistance for minimum statutory wages for scheduled employment

a. Payment of Wages Act, 1936

b. Minimum Wages Act, 1948

c. Factories Act, 1948

d. Payment of Gratuity act, 1972

4. __________ is the actual posting of an employee to a specific job

a. Induction

b. Placement

c. Attrition

d. None

5. Broadening an individual’s knowledge, skills & abilities for future responsibilities is known as

a. Training

b. Development

c. Education

d. Mentoring

Examination Paper Semester I: Human Resource Management

IIBM Institute of Business Management

6. Change that is designed and implemented in an orderly and timely fashion in anticipation of

future events

a. Planned change

b. Technology change

c. Structural change

d. None

7. It is a process for setting goals and monitoring progress towards achieving those goals

a. Performance appraisal

b. Performance gap

c. Performance factor

d. Performance management system

8. A method which requires the rates to provide a subjective performance evaluation along a scale

from low to high

a. Assessment centre

b. Checklist

c. Rating scale

d. Monitoring

9. It is the sum of knowledge, skills, attitudes, commitment, values and the liking of the people in an

organization

a. Human resources

b. Personal management

c. Human resource management

d. Productivity

10. A learning exercise representing a real-life situation where trainees compete with each other to

achieve specific objectives

a. Executive development

b. Management game

c. Programmed learning

d. Understudy

Part Two:

1. Explain the importance of Career Planning in industry.

2. Write the features of HRM.

3. Briefly explain the concept of Performance Appraisal.

4. Explain On-Job and Off Job Training.

END OF SECTION A

Examination Paper Semester I: Human Resource Management

IIBM Institute of Business Management

Section B: Case lets (40 marks)

· This section consists of Case lets.

· Answer all the questions.

· Each Case let carries 20 marks.

· Detailed information should form the part of your answer (Word limit 150-200 words).

Case let 1

Trust them with knee-jerk reactions," said Vikram Koshy, CEO, Delta Software India, as he looked at the

quarterly report of Top Line Securities, a well-known equity research firm. The firm had announced a

downgrade of Delta, a company listed both on Indian bourses and the NASDAQ. The reason? "One out

of every six development engineers in the company is likely to be benched during the remaining part of

the year." Three analysts from Top Line had spent some time at Delta three weeks ago. Koshy and his

team had explained how benching was no different from the problems of excess inventory, idle time, and

surplus capacity that firms in the manufacturing sector face on a regular basis, "Delta has witnessed a

scorching pace of 30 per cent growth during the last five years in a row," Koshy had said, "What is

happening is a corrective phase." But, evidently, the analysts were unconvinced.

Why Bench?

Clients suddenly decide to cut back on IT spends Project mix gets skewed, affecting work allocation

Employee productivity is set to fall, creating slack working conditions. High degree of job specialization

leads to redundancy

What are the options?

Quickly cut costs in areas which are non-core look for learning’s from the manufacturing sector Focus on

alternative markets like Europe and Japan Move into products, where margins are better. Of course, the

Top Line report went on to cite several other "signals," as it said: the rate of annual hike in salaries at

Delta would come down to 5 per cent (from between 20 and 30 per cent last year); the entry-level intake

of engineers from campuses in June 2001, would decline to 5 per cent (unlike the traditional 30 per cent

addition to manpower every year); and earnings for the next two years could dip by between 10 and 12

per cent. And the loftiest of them all: "The meltdown at Nasdaq is unlikely to reverse in the near future."

"Some of the signals are no doubt valid. And ominous," said Koshy, addressing his A-Team, which had

assembled for the routine morning meeting. "But, clearly, everyone is reading too much into this business

of benching. In fact, benching is one of the many options that our principals in the US have been pursuing

as part of cutting costs right since September, 2000. They are also expanding the share of off-shore jobs.

Five of our principals have confirmed that they would outsource more from Delta in India-which is likely

to hike their billings by about 30 per cent. At one level, this is an opportunity for us. At another, of

course, I am not sure if we should be jubilant, because they have asked for a 25-30 per cent cut in billing

rates. Our margins will take a hit, unless we cut costs and improve productivity." "Productivity is clearly a

matter of priority now," said Vivek Varadan, Vice-President (Operations). "If you consider benching as a

non-earning mode, we do have large patches of it at Delta. As you are aware, it has not been easy to

secure 70 per cent utilization of our manpower, even in normal times. I think we need to look at why we

have 30 per cent bench before examining how to turn it into an asset." "There are several reasons,"

remarked Achyut Patwardhan, Vice-President (HR). "And a lot of it has to do with the nature of our

business, which is more project-driven than product-driven. When you are managing a number of

overseas and domestic projects simultaneously, as we do at Delta, people tend to go on the bench. They

wait, as they complete one project, and are assigned the next. There are problems of coordination between

projects, related to the logistics of moving people and resources from one customer to another. In fact, I

am fine-tuning our monthly manpower utilization report to provide a breakup of bench costs into

Examination Paper Semester I: Human Resource Management

IIBM Institute of Business Management

specifics-leave period, training programmes, travel time, buffers, acclimatization period et al." "It would

be worthwhile following the business model used by US principal Techno Inc," said Aveek Mohanty,

Director (Finance). "The company has a pipeline of projects, but it does not manage project by project.

What it does is to slice each project into what it calls 'activities'. For example, communication

networking; user interface development; scheduling of processes are activities common to all projects.

People move from one project to another. It is somewhat like the Activity Based Costing. It throws up the

bench time straightaway, which helps us control costs and revenue better." "I also think we should reduce

our dependence on projects and move into products," said Praveen Kumar, Director (Marketing). "That is

where the opportunity for brand building lies. In fact, now is the time to get our technology guys involved

in marketing. Multiskilling helps reduce the bench time." "Benching has an analogy in the manufacturing

sector," said Girish Shahane, Vice-President (Services). "We could look for learning's there. Many firms

have adopted Just-In-Time (JIT) inventory as part of eliminating idle time. It would be worthwhile

exploring the possibility of JIT. But the real learning lies in standardization of work. It is linked to what

Mohanty said about managing by activities." "At a broader level, I see several other opportunities," said

Koshy, "We can fill in the space vacated by US firms and move up the value chain. But before we do so,

Delta should consolidate its position as the premier outsourcing centre. Since there are only two ways in

which we can generate revenue-sell expertise or sell products-we should move towards a mix of both.

Tie-ups with global majors will help. Now is the time to look beyond the US and strike alliances with

firms in Europe- and also Japan-as part of developing new products for global markets."

Questions

1. Should benching be a matter of concern at Delta?

2. What are the risks involved in moving from a project-centric mode to a mix of projects and

products?

Case let 2

The contexts in which human resources are managed in today's organizations are constantly, changing.

No longer do firms utilize one set of manufacturing processes, employ a homogeneous group of loyal

employees for long periods of time or develop one set way of structuring how work is done and

supervisory responsibility is assigned. Continuous changes in who organizations employ and what these

employees do require HR practices and systems that are well conceived and effectively implemented to

ensure high performance and continued success.

1. Automated technologies nowadays require more technically trained employees possessing multifarious

skills to repair, adjust or improve existing processes. The firms can't expect these employees (Gen X

employees, possessing superior technical knowledge and skills, whose attitudes and perceptions toward

work are significantly different from those of their predecessor organizations: like greater self control,

less interest in job security; no expectations of long term employment; greater participation urge in work

activities, demanding opportunities for personal growth and creativity) to stay on without attractive

compensation packages and novel reward schemes.

2. Technology driven companies are led by project teams, possessing diverse skills, experience and

expertise. Flexible and dynamic organizational structures are needed to take care of the expectations of

managers, technicians and analysts who combine their skills, expertise and experience to meet changing

customer needs and competitive pressures.

3. Cost cutting efforts have led to the decimation of unwanted layers in organizational hierarchy in recent

times. This, in turn, has brought in the problem of managing plateau employees whose careers seem to

have been hit by the delivering process. Organizations are, therefore, made to find alternative career paths

for such employees.

Examination Paper Semester I: Human Resource Management

IIBM Institute of Business Management

4. Both young and old workers, these days, have values and attitudes that stress less loyalty to the

company and more loyalty to oneself and one's career than those shown by employees in the past,

Organizations, therefore, have to devise appropriate HR policies and strategies so as to prevent the flight

of talented employees

Question

1. Discuss that technological breakthrough has brought a radical changes in HRM.

Section C: Applied Theory (30 marks)

· This section consists of applied theory Questions.

· Answer all the questions.

· Each question carries 15 marks.

· Detailed information should form the part of your answer (Word limit 150-200 words).

1. Several types of interviews are commonly used depending on the nature & importance of the

position to be filled within an organization. Explain the different types of Interviews.

2. Explain the legal provisions regarding safety of workers.

S-1-191110

END OF SECTION B

END OF SECTION C