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.
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.
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