Financial Management Old Question Paper Year 2019 | Tribhuvan University | BBA
Brief answer questions: (10x 1=10)
Indicate whether the following’ statements are True or False’. Support your answer with reasons.
1) Cash management is a responsibility of treasurer
2) Operating leverage analyses the relationship between sales level and EBIT.
3) Optimal capital structure is one that maximizes cost of capital.
4) The crossover rate makes the NPV negative.
5) Increase in working capital is considered cash inflow at the beginning.
6) After a stock repurchase there are fewer shares of common stockoutstanding and therefore, all other things equal, earnings per share is increased.
7) Increase the capital intensity ratio increases the additional investment inassets.
8) The collection period is reduced by initiating lockbox system 5 days to 1day. The opportunity cost is 10% and per day amount received from customer is Rs. 500,000, annual cost of lockbox system is Rs. 120,000. The company should not initiate lockbox system.
9) The effective annual rate is 15%, when a simple annual interest rate of 12%with 20% CB.
10) You have an investment opportunity that costs Rs. 200,000 and pays Rs50,000 forever. If investment projects’ discount rate is 20 percent, the NPV is Rs. 50,000.
Short answer questions: [6×5 30]
11) Define social responsibility of a firm with suitable examples.
12) Arghakhanchi Cement Factory has a capital structure that consists solelyof debt and common equity. The company can issue debt at 11 percent. Its stock currently pays a Rs. 2 dividend per share (DO Rs. 2), and the stock’s and the stock’s price is currently Rs. 24.75. The company’s dividend is expected to grow at a constant rate of 7 percent per year, its tax rate is 35 percent, and the company estimates that its weighted average cost of capital is 13.95 percent percent. What percentage of the company’s capital structure consists of debt financing?
13) The shareholders equity account of Fewa Corporation is as follows:
|Common stock (Rs. 10 par value; 100,000 shares)||Rs. 1,000,000|
|Additional Paid in Capital||Rs. 500,000|
|Retained Earnings||Rs. 2,500,000|
|Total Shareholders equity||Rs. 4,000,000|
Selling price per share is Rs. 18. Prepare the shareholders equity account from the following:
- The company declares the stock dividend at 20%
- If the stock dividend is declared at 30%
- If the company declares a 4 for 2 stock split.
14) Piyush Mineral Company is planning to bottle mineral water. A bottle will sell for Rs. 25 with variable cost of Rs. 8. The company’s fixed cost will be Rs. 175,000 including depreciation of Rs, 25,000. What is breakeven point in bottles and in Rs. for the company?
a. What sales volume the firm must achieve to earn an after tax profit of Rs. 150,000? Assume tax rate is 35%.
b. What happens to breakeven point if fixed cost except depreciation increases by 20%.
15) Melamchi Drinking Water Company Ltd. requires Rs. 500,000 fund forcoming year. You are required to suggest best alternative among the following alternatives.
a. 9% simple interest loan with 10% compensating balance.
b. 9% discount loan.
c. Stretching accounts payable under term of 2/10, net 40 to 50 days.
16) Butwal Bakery buys 1,00,000 boxes of ice-cream annually. Order costs areRs. 100 per order, and carrying costs are Re. 0.80 per box.
a. Determine the optimal order quantity.
b. Determine the total inventory cost at EOQ level
c. The supplier offers Bakery a quantity discount of Re. 0.02 per box if it buysin order size of 10,000 boxes. Should Bakery accept the discount offer?
Comprehensive answer questions: (2×10=20]
17) Financial statement of ABC Company for 2011 is given below.
Balance Sheet as of December 32, 2011
|Assets||Amount (Rs)||Liabilities and Equity||Amount (Rs)|
|Total current assets||252000||Total current liabilities||139200|
|Fixed assets||288000||Common stock||360000|
|Total assets||540000||Total liabilities and equity||540000|
Income Statement for December, 2011
|Additional to R/E (60%)||21600|
a. If sales increase by 12 percent over 2011 sales and that 2006 dividend will increase to Rs. 16, 245. Prepare the pro-forma financial statements using the projected financial statements method. USE AFN to balance the pro-forma balance sheet. How much additional capital will be required? Assume the firm was operated at full capacity in 2011.
b. If the profit Margin were to remain at 6% and the dividend payout rate were to remain at 40%, at what growth rate sales would the additional financing requirements be exactly zero?
18) XYZ (Pvt.) Ltd. is planning to install a new production facility. The Required plant and equipment, it will have to pay Rs. 50,000 for shipment and Rs. 20,000 for installation. It will need an additional investment of Rs. 50,000 in working capital. The new production unit will generate Rs.4,00,000 sales revenue in each year for 5 years and operating costs excluding depreciation will be Rs. 250,000 in each year. Company will follow the straight line depreciation method to depreciate the plant and equipment. At the end of the fifth year, plant and equipment will have zero book value but it will be worth for Rs. 30,000 in the market. Company’s marginal tax rate is 20 percent.
a. What will be the initial cash outlay of XYZ (Pvt.) Ltd.?
b. What will be the annual depreciation on plant and equipment of new production unit?
c. What will be the annual operating cash flows of new production unit?
d. What will be terminal cash flow of the production unit?
e. Should XYZ (Pvt.) Ltd. Install new production facility? Assume that firm’s cost of capital’s is 10 percent.
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