Thapar University 2010 M.B.A Information Technology PIT 203 : Financial Management - Question Paper

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ThaparUniversity, Patiala LMTSchool of Management

MBA (IT) (II Semester) Mid Semester    PIT-203: Financial Managemeni

March, 2010

Time: 2:00 Hrs. MM: 30    Name of Faculty: Dr. Jouni/ Dr. Shailendra Kumar

Note: There are two sections in the question paper i.e. Section A & B. Attempt all Questions.

Section A

1.    Value creation

When companies create value, they attempt to do something for their shareholders that they cannot do themselves. In the lectures, we discussed four different ways how a business organization can create value for the shareholders(4 Marks)

However, these four ways are no longer that self evident ways to create value for shareholders. Discuss why that is so and what, perhaps, seems to be the most important way companies create value for their shareholders (i.e. what is often a company's most important asset in the eyes of the investors?) (2 Marks)

2.    Financial Ratios

Companies have different stakeholders who use financial information to evaluate companies. Identify six groups of stakeholders and the reason why they are interested in the financial performance of companies (3 Marks)

There are different kinds of ratios for analyzing different things. What are the three main ways of using these ratios (i.e. what are the tree ways to apply these in practice?)(3 Marks)

3.    Analyzing investments

A company is considering an investment option (new production line) resulting in the cash inflow and outflow stated below. The company usually accepts investment proposals providing positive NPV with 12 % interest. Do you think that, based on the NPV analysis, the company should proceed with the investment proposal (4 Marks)

! Sales 1 Costs
Initial Investment		600 000
Cash flows year 1	350 000	300 000
year 2	550 000	400 000
year 3	750 000	550 000
year A	900 000	650 000
year 5	750 000	550 000

Would the situation change if the company will be able sell part of the equipment in the production line to some smaller company with the estimated sales price of 100 000 (2 Marks)after the five years of use?

Profit and Cost Budget

Below you can see the cost budget of another company. Calculate the overhead burden rates and define sales price for the two products when the company wishes to make 15 % profit(4 Marks)?

Direct material    1000 000 Material overhead 90 000

Direct manufacturing    1 000 000

Manufacturing overhead    160 000

Sales and administration    675 000

Products	A	B
Direct Material	100	100
Material Overhead
Direct Manufacturing	100	200
Manufacturing Overhead
Total
Administration Overhead
Total Costs
Sales Price

TABLE I

Present value interest factor for 1 Euro at \% for n periods

	1%	2%	3%	4 %	S%	6%	7%	8 %	9%	10 %	11%	12 %	13%	14%	i9*	16%	17%	16%	19%	20%
1	0.990	0.980	0.971	0362	0,952	0,943	0,935	0.926	0,917	0.909	0401	0493	0.885	0477	0470	0462	0455	0.847	0.840	0433
2	0.9*0	0.961	0.9*3	0525	0,907	0490	0473	0457	0.842	0426	0412	0,797	0.783	0.769	0.756	0.74J	0.731	0.718	0.706	0.694
3	0.971	0,942	0,915	0489	0464	0440	0416	0.794	0.722	0.751	0,731	0.712	0.693	0.675	0458	0.64)	0.624	0.609	0493	0479
4	0,961	0,924	0,888	0.855	0423	0.792	0,763	0.735	0.708	0.683	0.659	0.636	0.613	0492	0.572	0422	0.534	0416	0499	0,482
S	0.951	0,906	0*63	0422	0.784	0.747	0.713	0.681	0.650	0.621	0493	0467	0443	0419	0.497	0.476	0.456	0437	0419	0402
6	0,924	0488	0,837	0,790	0,746	0,705	0.666	0.630	0496	0464	043S	0407	0.490	0.456	0.432	0410	0490	0470	0452	0435
7	0.9)3	0,871	0413	0.760	0,711	0465	0,623	0.583	0447	0419	0,482	0,452	0/425	0400	0476	04S4	0433	0414	0496	0479
8	0,923	0453	0.789	0,731	0477	0427	0482	0440	0402	0,467	0434	0.404	0476	0.351	0427	0405	0,285	0.266	0,249	0.233
9	0414	0437	0,766	0,703	0,645	C492	0444	0400	0.460	0.424	0491	0.361	0433	0.308	0.284	0.263	0.243	0,225	0,209	0.194
10	0.905	0,820	0.744	0,676	0.614	C.SS8	0,508	0463	0,422	0486	0452	0422	0,295	0.270	0,247	0.227	0.208	0,191	0,176	0.162

Question No. 4

You are an avid investor in fixed income securities. Your portfolio of bond does not have bonds from AAA rated companies. You are considering purchase of an AAA rated bond. Two such bonds from AAA rated companies, Bond A and Bond B are available in the market that have following features:

Particulars	Bond A	Bond B
Face Value	Rs. 100.00	Rs. 120.00
Coupon Rate	16%	12%
Periodicity of Coupon	Semi-annual	Semi-annual
Time Remaining for Maturity	3 years	4 years
Current Market Price	Rs. 110.00	Rs. 130.00

Your expectation of return from the investment in AAA rated bond is 10%. Which of the bond should you buy and why? Assume that you are indifferent to the investment horizon of 3 or 4 years.

Question No. 5    {3+3= 6 Marks)

Write Short Notes on any Two of the following, with example:

(I)    Over Capitalisation Vs. Under Capitalisation

(II)    Trading on Equity

(III)    Capital Market Vs. Money Market

5

Attachment: thapar-university-2010-m-b-a-information-technology-26285-1.pdf

Earning:   Approval pending.