2010 (November)
(Financial Management)
The figures in the margin indicate full marks for the questions
(New Course)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
1.(a) “Finance
has changed from a field that was concerned primarily with the procurement of
funds to one that includes the management of assets, the allocation of capital
and valuation of the firm”. Give your views on the above statement.
Or
(b) Discuss
in detail the main functions of the modern finance manager.
2.(a) what do
you mean by cost of capital? How is it determined? What are the problems
involved in determination of cost of capital?
(b) A company
is considering the replacement of its existing machine by a new one. The
written down value of the existing machine is Rs 50,000 and its cash salvage
value is Rs20, 000. The removal of this machine would cost Rs. 5,000. The
purchase price of the new machine is Rs.20 lakh and its expected life is 10
years. The company follows straight line depreciation without considering scrap?
Value. The other expenses associated with the new machine are:
Carriage
inward and installation charges Rs 15,000 cost of training workers to handle
the new machine Rs. 5,000.
Additional
working capital Rs 10,000 (which is assumed to be received back by sale of
scraps in last year) and the fees paid to a consultant for his advice to buy the
new machine Rs. 10,000.
The annual savings (before tax)
from the new machine would amount to Rs 2, 00,000.the income tax rate is 50%
the cutoff rate of return is 10%.
Should the new machine be
bought? Present values of re 1 at 10% discount rate are as follows:
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
0.91
|
0.83
|
0.75
|
0.68
|
0.62
|
0.56
|
0.51
|
0.47
|
0.42
|
0.39
|
3.(a) Discuss
the methods usually adopted for evaluating the leasing proposals.
Or
(b) Between Equity shares and debentures, which one
is profitable form raising additional long—term capital for a manufacturing
company and why?
4(a) what is
the Modigliani—miller approach of irrelevance concept of dividends? Under what
assumptions do the conclusions hold well?
Or
(b) (I) explain
fully Walter’s formula on dividend policy.
(ii) Ramu
& co. LTD. Earns Rs 6 per share. With capitalisation rate of 10% and having
a return on investment at the rate of 20%, what according to Walter’s model
should be the price per. Share at 30% dividend payout ratio? Is this the
optimum payout ratio as per Walter?
5(a)
“Efficient inventory management is reflected in the liquidity and profitability
of the firm.” Explain.
Or
(b) Define
Receivable Management. Discuss the various dimensions of receivable management.