M.Com-M.Com Management 1st Sem Financial Management(Osmania University (OU)-2009)

Time : 3hours
Max. Marks :80

SECTION-A (5*4=20 marks)
Answer all questions not exceeding 2 lines each.
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)
Answer all the questions using internal choice.
6. (a) Breifly explain and illustrate the concept of 'time value of money'. State its relevance in different 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)? Discuss the problems associated with IRR in evaluating the capital budgeting projects.
(OR)
(b) Your company is considering two 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 6 years.Project-B calls for an outlay of Rs.13 milion per year for 6 years. The company's cost of capital is 12percent.
Calculate the NPV and IRR each project.

8. (a) What are the advantages of employing the probability distributions of key factors underlying investment decisions?
(OR)
(b) Following are the details regarding the capital structure of a company:
Type 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 required to calculate the weighted average 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 issue of debentures at the rate of 10%. Calculate operating, financial and combine leverages.

10 (a) What are the different approaches to financing of working capital requirements? Explain in detail.
(OR)
(b) From the following information 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) Average raw material in stock: One month
(ii)Average materials in process (50% completion stage): Half a month
(iii) Average finished goods in stores: One month
(iv) Credit allowed by suppliers: One month
(v) Credit alloed to customers: Two months
(vi) Time lag in payment of wages: Half month
?(vii) Overhead expenses: One month.
One fourth of the sale is on cash basis. Cash balance is expected to be Rs.215000. You may assume that production is carried on evenly throughout the year and wages and overhead expenses accrue similarly.

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