Table of Contents
Business Finance Old Question Paper Year 2017
Group “A”
Brief answer questions: [10*1=10]
Indicate whether the following statements are “True’ or ‘False’. Support your answer with reason.
 Wealth maximization goal is superior to profit maximization.
 Present value of Rs.1,000 due in four year, at 10 percent discount rate isRs.683.
 If the equity multiplier is 2.0, the debt ratio must be 04.
 Value of shortterm bond changes more than the value of longterm bond for a given change in discount rate.
 Return on equity (ROE) is the product of net profit margin and total asset turnover.
 Value of Rs.100, 12 percent preferred stock at 10 percent required rate will be Rs.83.33
 When IRR equals to cost of capital, NPV equals to zero.
 Higher day’s sales outstanding (DSO) is desirable.
 If we combine positively correlated assets, we can eliminate the significant portion of risk.
 A firm’s current asset and fixed assets are Rs.100,000 and Rs.200,000respectively. If firm’s current liabilities is Rs.70,000 amount of net working capital will be Rs.30,000
Group ‘B’
Short Answer Questions: [6×5= 30]
11. How does the agency problem between shareholders and manager arise and how can it be solved? Explain.
12. What is working capital management? Describe the importance of working capital management.
13. The management of Jaya Publishing Company Limited decided to buy Printing Press by taking a loan of Rs.80,000 for 4 years from Sanima Bank Limited. The loan bears a compound annual interest of 10 percent and calls for annual instalment payments at the end of each of the 4 years.
 What is the amount of annual payment?
 Prepare a loan amortization schedule.
14. National Park has just issued bonds with an annual coupon rate of 8percent, 10 years maturity and Rs.1,000 par value. The bond sells at a yield to maturity of 10 percent. [2+2+1]
 What interest payments do bondholders receive each year? What is the current yield?
 What should be the value of bond at present?
 What will happen to the bond price if the yield to maturity falls to 6percent?
15. The Nepalgunj Argo Company has just paid a cash dividend of Rs. 10 per share. Investors require a 15 percent return from investments such as this. The dividend is expected to grow at a steady 6 percent per year for ever.
 What is the current value of the stock?
 What will the stock be worth in five years?
 What should be the value of the stock if the dividend remains Rs.10per share forever? [12+2+1]
16. The following information for inventory purchase and storage cost has been given for Biratnagar Trade Centre.
 Orders must be placed in multiples of 100 units.
 Requirements for the year are 500,000 units assuming 50 weeks in a year.
 The purchase price per unit is Rs.50.
 The carrying cost is 20 percent of inventory value
 The cost per order placed in Rs.1000.
 Desired safety stock is 5,000 units (on hand initially).
 One week is required for delivery
 What is the most economical order quantity?
 What is the optimal number of orders to be placed?
 At what inventory level should a reorder be made? [13+1+1]
Group ‘C’
Comprehensive answer questions: [12x 10= 20]
17. Consider the following information related to Stock A and Stock B:
Scenario  Probability 
Rate of Returns 

Stock A  Stock B  
Recession  0.30  5%  30% 
Normal economy  0.40  10  15 
Boom  0.30  15  0 
 Calculate the expected rate of return and standard deviation for each stock.
 Calculate portfolio return and standard deviation if 60 percent is invested in Stock A and rest in Stock B.
 Would you prefer to hold Stock A or Stock B or Portfolio? Why? [14+4+2]
18. You are a financial analyst for the Star Company. The director of capital budgeting has asked you to analyze two proposed capital investments. Project X and Project Y. Each project has a cost of Rs.10,000,000, and the cost of capital for each project is 12 percent. The expected net cash flows are as follows:
Year  Expected net cash flows ( in 000)  
Project X  Project Y  
0  (Rs 10000)  ( Rs 10000) 
1  4000  3000 
2  4000  4000 
3  4000  5000 
4  4000  5000 
 Calculate each project’s payback period, net present value and internal rate of return.
 Which project or projects should be accepted if they are independent?
 Which project should be accepted if they are mutually exclusive?
Related Post: