Table of Contents
Business Finance Old Question Paper Year 2018
Group “A”
Brief answer questions: [10*1=10]
Indicate whether the following statements are True or False. Support your answer with reason. [10*1=10]
- The investment decision of a firm is concerned with deciding on which financing sources are to be used to finance an asset.
- Preferred stockholders have prior claim to debt holders.
- If we deposit Rs 1000 today at an annual interest rate of 10 percent, it is compounded to Rs 1331 at the end of year 3.
- The risk-free rate and expected market return are 6 percent and 12respectively. If Star Company’s stock has a beta of 15, required rate of return should be 15 percent.
- When required rate of return is greater than the coupon rate, the bond will sell at premium.
- Standard deviation is used to compare systematic risk associated with the securities.
- Increase in the working capital is considered as cash inflow at the beginning.
- Net cash flow differs from net income
- Effective annual rate is always higher than nominal rate when compounding period is less than a year.
- Higher day’s sales is outstanding desirable.
Group ‘B’
Short Answer Questions: [6×5=30]
11. Who is financial manager? Describe the role of financial manager of a firm.
12. The management of Nepali patra Limited decided to buy a Printer by taking a loan of Rs 100,000 for 3 years from City Bank Limited. The loan bears a compound annual interest of 10 percent and calls for equal annual instalment payments at the end of the each of the 3 years.
- What is the amount of annual payments?
- Prepare a schedule showing the fraction of interest and principal payment for each year.
- What fraction of payment made in year 2 represents the principal?[2+2+1]
13. Consider the following scenario analysis:
| Scenario | Probability | Rate of Returns | |
| Stock S | T-Bonds | ||
| Recession | 0.20 | 0% | 10% |
| Normal economy | 0.60 | 10 | 8 |
| Boom | 0.20 | 20 | 6 |
- Calculate the expected rate of return and standard deviation for each investment
- Which investment would you prefer?
- If you invest equal amount of money in each stock what will be your portfolio return? [3+1+1]
14. Mechi company has just paid the cost dividend of Rs. 2.4 per share Dividend expected to grow at a steady rate and percent per year forever. Investors require 18 percent return from investment what should be the value of stock at present? What will be the stock worth at the end of the fourth year, P4?
15. National Development Bond issued by Nepal Government carries an annual coupon rate of 8 percent, has 10 years until maturity, and sells at a yield to maturity of 6 percent.
- What interest payments to bondholders receive each year?
- At what price does the bond sell? What is the current yield?
- What will happen to the bond price if the yield to maturity falls to 6percent? [1+3+1]
16. What do you mean by working capital? Describe the importance of working capital management
Group ‘C’
Comprehensive Answer Questions: [2×10=20]
17. Following are the data available for Wild Life Resort and Industry average
Balance Sheet of Wild Life Resort as, on December 31, 2017
| Account payable | 64500 | Cash | 38750 |
| Notes payable | 42000 | Inventory | 168000 |
| Other current liabilities | 58500 | Receivables | 120750 |
| Total current liabilities | 165000 | Total current asset | 327500 |
| Long term debt | 128250 | Net fixed asset | 146250 |
| Common equity | 180000 | ||
| Total liabilities and equity | 473750 | Total assets | 473750 |
Income statement of Wild Life Resort for the year ended December 31, 2017
| Sales revenue | 803750 | |
| Less: cost of goods sold | ||
| Material | 358500 | |
| Labor | 226500 | |
| Heat, light and power | 34000 | |
| Indirect labor | 56500 | |
| Depreciation | 20750 | 696250 |
| Gross profit | 107500 | |
| Less: selling price | 57500 | |
| General expenses | 15000 | 72500 |
| Earnings before interest and tax | 35000 | |
| Interest expenses | 12250 | |
| Earnings before tax | 22750 | |
| Less: tax 40% | 9100 | |
| Net income after taxes | 13650 |
Industry average
- Current Ratio =2 times
- Days sales outstanding =50 days
- Total assets turnover =2 times
- Profit margin =1.25%
- Return on assets =2.5%
- Return on equity =5%
- Debt ratio =50%
Required:
- Calculate the indicated ratios for Wild Life Resort.
- Assess the strengths and weaknesses of Wild Life Resort.
18.You are a financial analyst for the Himalaya Herbal Industry. The director of capital budgeting has asked you to analyze two proposed capital investments: Project X and Project Y. Each project has a cost of10,00,000, and the cost of capital for each project is 10 percent. The expected net cash flows are as follows:
| Year | Expected net cash flows ( in 000) | |
| Project X | Project Y | |
| 0 | (1000) | (1000) |
| 1 | 400 | 300 |
| 2 | 400 | 500 |
| 3 | 400 | 500 |
| 4 | 400 | 400 |
- 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? [8+1+1]
Similarly,
Business Finance Old Question Paper Year 2017 – Tribhuvan University | BBA