Osmania University (OU) 2009-2nd Sem M.Com Accounting and Finance 1st semester , , Financial Management, finance. - exam paper

Time : 3hours
Max. Marks :80

SECTION-A (5*4=20 marks)
ans all ques. not exceeding two lines every.
1.Define finance function?
2.What is Internal Rate of Return(IRR)?
3.What do you mean by cost of capital?
4.What is indifference point of EBIT?
5.What is operation cycle?

SECTION-B (5*12=60 marks)
ans all the ques. using internal option.
6. (a) Breifly discuss and illustrate the concept of 'time value of money'. State its relevance in various areas of financial decision making.
(OR)
(b) Mr.Krishna Kumar deposits Rs.100000 in a bank now. The interest rate is 12percent and compounding is done in semi-annually.What will the deposit grow to after 10 years? If the inflation rate is 10percent per year, what will be the value of the deposit after 10 years in terms of the current rupee?

7. (a) What is Internal Rate of Return (IRR)? explain the issues associated with IRR in evaluating the capital budgeting projects.
(OR)
(b) Your company is considering 2 mutually exclusive projects, A and B. Project-A involvesan outlay of Rs.100 million, which will generate an expected cash inflow of Rs.25 million per year for six years.Project-B calls for an outlay of Rs.13 milion per year for six years. The company's cost of capital is 12percent.
compute the NPV and IRR every project.

8. (a) elaborate the advantages of employing the probability distributions of key factors underlying investment decisions?
(OR)
(b) subsequent are the details regarding the capital structure of a company:
kind of Capital Book Value Market Value Specific Cost
Debentures Rs.800000 Rs.760000 6%
Preference Capital 200000 220000 10%
Equity Capital 1200000 2400000 16%
Retained Earnings 400000 9%

You are needed to compute the weighted avg. cost of capital using.
(i) Book Value.
(ii) Market Value.

9. (a) Compare and contrast the Net Income(NI)and Net Operating Income(NOI) theories of capital structure.
(OR)
(b) TVS Company has sales of Rs.40lakhs, variable cost 70%of the sales and fixed cost is Rs.800000. The firm has raised Rs.20 lakhs funds by problem of debentures at the rate of 10%. compute operating, financial and combine leverages.

10 (a) elaborate the various approaches to financing of working capital requirements? discuss in detail.
(OR)
(b) From the subsequent info of KGR company limited estimate the working capital needed to finance a level of activity of 110000 units of production.

Cost per unit(Rs)
Raw materials 78
Direct labour 29
Overheads 58
Total costs 165
Profit 24
Selling price 189

Additional information:
(i) avg. raw material in stock: 1 month
(ii)Average materials in process (50% completion stage): Half a month
(iii) avg. finished goods in stores: 1 month
(iv) Credit allowed by suppliers: 1 month
(v) Credit alloed to customers: 2 months
(vi) Time lag in payment of wages: Half month
?(vii) Overhead expenses: 1 month.
One 4th of the sale is on cash basis. Cash balance is expected to be Rs.215000. You may presume that production is carried on evenly throughout the year and wages and overhead expenses accrue similarly.

Earning:   Approval pending.