Bangalore University 2008-1st Sem B.Com VESTER , - Question Paper

VI SEMESTER B.COM. EXAMINATION, JUNE 2008

( Semester Scheme)

COMMERCE (ELECTIVE PAPER – 3(b)

Corporate Financial Policy

Time : three Hours Max. Marks : 90

Instructions : ans should be completely either in English or in Kannada.

part – A [10x2=20]

ans any ten of the subsequent in not exceeding 4 lines for every sub-question. every sub-question carries 2 marks :

1.a) What is meant by Mission?

b) What is meant by Exchange Rate?

c) provide any 4 advantages of Equity Shares.

d) What is meant by financial policy?

e) State any 2 functions of finance manager.

f) What is Dividend-Pay-Out ratio?

g) provide the meaning of NOI approach.

h) State the meaning of zero coupon bond.

i) provide any 2 example for mergers in India.

j) What is meant by convertible debentures?

k) What is EPS? How is it calculated?

l) Mr. Anand has an irredeemable preference share of Rs. 100. He receives an annual dividend of Rs. 8. What will be its value if the needed rate of return is 10%.

part – B [5x5=25]

ans any 5 of the subsequent. every ques. carries 5 marks.

2.What is meant by profit maximization? elaborate its limitations?

3. discuss any 2 kinds of merger.

4. discuss the three financial decisions.

5.What are intangible assets? How they are valued?

6.Mr. X is considering the purchase of a 7% preference share of Rs. 1000, redeemable after five years at par. What should he be willing to pay now to purchase the share assuming that the needed rate of return is 8%?

7.A Co. problem 10% debentures for Rs. 2,00,000. Rate of tax is 55%, compute the cost of debt
(after tax) if the debenture is issued
a)at par b) at a discount of 10%

8.Following info is available in respect of ABC Ltd. And XYZ Ltd.:

ABC Ltd. XYZ Ltd.
current earnings (Rs.) 2,00,00,000 40,00,000
No. of shares (No.) 10,00,000 1,00,000
Price earning ratio (Times) 18 10

In case, ABC Ltd. And XYZ Ltd. Were to merge and the exchange ratio is 1:1, what would be the initial impact on EPS of the 2 Co.’s? What is the market value based exchange ratio?

9.A company expects a net income of Rs. 1,00,000. It has Rs. 2,00,000, 8% debentures. The equity capitalization rate of the Co. is 10%. compute the value of the firm and overall capitalization rate. According t o the Net Income Approach, (ignore income tax).

part – C

ans any 3 of the subsequent. every ques. carries Fifteen marks. [3x15=45]

10.You are given with the subsequent financial data of 2 Companies :
T Ltd. A Ltd.
Earning after taxes (Rs.) 7,00,000 10,00,000
Equity shares outstanding (No.) 2,00,000 4,00,000
Earning per share (Rs.) 3.50 2.50
P/E Ratio ( Times ) 10 14
Market Price Per share (Rs.) 35 35

A Ltd. Is acquiring the Co. T Ltd., exchanging its shares on a one-to-one basis for T’s shares. The exchange ratio is based on the market prices of the shares of the 2 Co.’s.
a) What will be the EPS following to merger?
b) What is the change in EPS for the shareholders of Co.’s A and T?
c) Determine the market value of the post-merger firm.

11. Distinguish ranging from Equity shares and debentures.

12. Explain the different forms of financing merger.

13. Determine the earning per share of a company which has an operating profit (EBIT) of
Rs. 2,00,000. Its capital structure consists of the subsequent securities :
10% Debentures Rs. 6,00,000
12% Preference share Rs. 2,00,000
Equity Shares of Rs. 100 each Rs. 5,00,000
The Co. is in the 50% tax-bracket. Determine the percentage change in EPS associated with 25% increase and 25$ reduce in operating profit.

14. From the particulars presented below, compute the total market value of every of the subsequent firms and ascertain their weighted avg. cost of capital, assuming that there is no corporate tax.
Firms Earning before Interest & Taxes Interest @ 10% Cost of capital Ke
(EBIT) Rs. equity
Rs.

A 50,000 5,000 12%
B 75,000 15,000 16%
C 1,25,000 50,000 15%

Earning:   Approval pending.