Finance Question Papers Pune University MAY 2009 (New) Instructions to the candidates: 1) Answer any three from

section-l and any two from section-II. 2) All questions carry equal marks. 3) Use of non-programmable calculator is allowed. SECTION-I Q1) Explain in detail the role and functions of finance manager of a globally diversified corporate entity. Q2) Discuss in detail the merits and limitations of following : a) Under & over capitalization. b) Trading on equity. c) Ratio Analysis. d) Capitalization of reserves. Q3) . Discuss in detail the procedural and legal formalities involved in the payment of dividend. Q4) Discuss the disclosure requirements of the following items in schedule VI format: a) Debtors. b) Equity share capital. c) Secured loans. d) Investments. SECTION-II Q5) A company is to start a new project which is having cost ofRs.50,000/- and life of 5 years. Salvage value is nil, tax rate for the company is 55% and it follows S.L.M. method of depreciation. The cash flows before tax (CFBT) are as follows: Year: 1 2 11,000 3 20,000 4 5 30,000 35,000

CFBT: (Rs.) 10,000 Compute the following: a) Payback period. b) Average rate of return. c) Internal rate of return

Q6) EBIT of the company is Rs.20,00,000/-. It is planning to add Rs.50,00,000/~additional funds through one of the following means for diversification. The present equity share capital (5,00,000 shares of RS.1 0 each) RS.50,00,000/-. Following are the alternative sources: a) Issue of 12% debentures. b) Issue of 2,5 0,000 equity shares at par & the balance by 120/0 debentures. c) Issue of ] 0% preference shares of Rs.25,00,000 and balance by 15% term loan. Advise the company as to the selection of the best alternative by giving detailed reasoning therefore. Q7) P Ltd. sells goods at a gross profit of25%. Depreciation is considered in cost of production. a) Sales (2 months credit) : RS.18,00,000. b) Material consumed (1 month credit) : RsA,50,000. c) Wages paid (1 month delay) : Rs.3,60,000.

d) Administration Expenses (1 month lag) : Rs.1,20,000. e) Sales promotion expenses paid quarterly in advance: RS.60,000. f) Income Tax payable in 4 equal instalments of which one falls due in the next year: Rs.1 ,50,000. The company also keeps one months stock of each of raw material and finished goods. It also keeps cash of RS.1 ,00,000/-. Assuming 15% safety margin compute the working capital requirement on cash basis. Finance Question Papers Pune University MAY 2009 (old ) Instructions to the candidates: 1) Q.1 is compulsory. From Q.2 to Q.9, attempt any two questions from section I and any two questions from section II. 2) Figures to the right indicate full marks. 3) Use of non programmable calculator is allowed. SECTION I Ql) What is working capital management? Explain the concept of Operating Cycle. [10) Q2) Explain the factors which affect the capital structure planning of the organization. [15) Q3) What is ratio analysis? Explain its significance. Explain the liquidity ratios. [15] Q4) What is overcapitalization? Why overcapitalization arise? Explain the corrective remedies for the overcapitalization. [15) Q5) Explain the scope of decision making in the financial management. SECTION - II Q6) The financial data of a firm is given as follows, [15) [15)

Equity shares ofRs. 100 Rs. 10,00,000 12% Pref.shares of Rs. 10 Rs. 5,00,000 Profit after Tax Rs. 4,00,000 Equity Dividend paid 200/0 Market price of Equity share Rs. 120 Calculate the following ratios. a) Dividend yield on equity shares. b) Cover for preference and equity dividend. c) EPS for equity shares. d) Price-Earning Ratio. Q7) Prepare an estimate of working capital requirements from the following information of a trading concern. [15] a) Expected annual sales 1,00,000 units b) Selling Price Rs. 10 p.u c) Cost of production & sales Rs. 7,50,000 d) Average credit allowed to customers 10 weeks e) Average credit allowed by suppliers 5 weeks f) Average stock holding (at cost price) 8 weeks

Consider 10% contingencies in your estimate. Q8) ABC Ltd. is planning to purchase a machinery & at present evaluating 2 mutual quotations for the same. The details are as follows, [15] Particulars Machinery A (Rs.) Machinery B (Rs.) Purchase cost 27,00,000 30,00,000 Salvage value Nil Nil Depreciation Straight line Straight line Cash Inflows in years 1 6,50,000 9,75,000 2 7,25,000 10,<>0,000 3 8,75,000 11,00,000 4 9,50,000 1 0,25,000 5 9,00,000 9,50,000 6 8,00,000 8,50,000 Assume 50% as tax rate. Cost of capital @ 15% & Present values are, Years P. V factor for 15% 1 .870 2 .756 3 .658 4 .572 5 .497 6 .432 Calculate Pay Back Period, Net Present Value at 15% cost of capital & Average Rate of Return. Q9) Write Short Notes (any 3): [15] a) Advantages of Joint Stock Company. b) Hire Purchase c) Turnover Ratios. d) Financial Leverage e) Optimum capital structure. Finance Question Papers Pune University MAY 2008 Instructions: 1) Q.J. is compulsory. From Q.2. to Q.9. answer any two questions from section I and any two questions from section IL 2) Figures to the right indicate full marks. 3) Use of non programmable calculator is allowed. SECTION I Q l) Explain Factoring, and hire purchase. [10] Q2) What are the characteristics of various formss of business organization? [15] Q3) Explain the role of finance executive. Q4) Explain the role of players in the financial system. Q5) Write Short Notes on (Any Three): a) Time value of Money. b) Financial Leverage. c) Operating Cycle. d) Undercapitalization. e) Venture Capital. [15] [15]

[15]

SECTION II Q6) The management of Virgo Ltd has called for a statement showing the working capital needed to finance a level of activity of 3,00,000 units of output for the year. The cost structure for the company is as follows:

Cost per Unit Rs. Raw material Direct Labour Overheads ____________ Total Cost Profit _____________ Selling Price

20 5 15 40 10 50

Past tends indicates that raw materials are held in stock on an average for two months. Work in progress (50% complete) will approximate to half a monthly production. Finished goods remain in the warehouse on an average for one month. Suppliers for materials extend one months credit. For debtors two months credit is usually allowed. A minimum cash balance of Rs. 25000 is expected to be maintained. The production pattern is assumed to be uniform throughout the year. [15] Q7) Shree Ltd has equity share capital of Rs. 5,00,000 divided into shares of Rs.100 each. It wants to raise further Rs. 3,00,000 for modernization plans. The company plans the following financing schemes. a) All equity shares (Face Value Rs. 100 per share). b) Rs. 1,00,000 in equity shares (Face Value Rs. 100 per share) and Rs. 2,00,000 in debt @ 10% p.a. c) All debt @ 10% p.a. The company is estimating an EBIT ofRs. 2,00,000. The corporate rate of tax is 50%. Calculate the earning per share in each case. Give a comment as to which capital structure is suitable? [15] Q8) Following is the Balance Sheet of a limited company as on 31 st March 2008. Liabilities Rs. Asset Rs. Share Capital 2,00,000 Land and Building 1,40,000 Reserves And Surplus 70,000 Plant and Machinery 3,50,000 12% Debentures 4,20,000 Stock in trade 2,00,000 Creditors 1,00,000 Dbtors 1,00,000 Bills Payables 50,000 Bills Receivables 10,000 Bank Balance 40,000 Total 8,40,000 Total 8,40,000 The Sales of the company were Rs. 4,00,000. The Gross Profit was Rs. 25,000 And Net Profit was Rs. 20,000. Calculate: Current Ratio. Quick Ratio. Debt Equity Ratio. Gross Profit Ratio. Net Profit Ratio. [15] Q9) A firm is considering a two mutually exclusive projects [15] Project P and Project Q the details are as follows. Year Project P Project Q Cash Flows Rs. Cash Flows Rs. 0 (15,00,000) (18,00,000) 1. 1,00,000 6,00,000 2. 2,50,000 6,00,000 3. 3,50,000 6,00,000 4. 5,50,000 5,75,000 5. 7,50,000 5,25,000 Calculate: 1. NPV @ 14%

2. Pay Back Period. 3. Profitability Index. Give your opinion as to which project is to be selected. Finance Question Papers Pune University December 2008 1) Q. 1 is compulsory. From Q. 2 to Q. 9, attempt any two questions section I and any two questions from section II. 2) Figures to the right indicate full marks. 3) Use of non programmable calculator is allowed. SECTION I Q. l) Define Capital Budgeting. Explain the following techniques of capital budgeting with their respective merits and demerits. [10] a) Pay Back Period, b) Net Present Value. c) Average Rate of Return. Q. 2) Explain the factors that affect the planning o.f the capital structure of the Organization. [15] Q. 3) Distinguish between overcapitalization and undercapitalization. Q. 4) Which are the characteristics of a good financial plan? [15] [15]

Q. 5) What is working capital? Explain the factors affecting the working capital management of the organization. [15] SECTION II Q6) From the given information calculate: a) Debtors Turnover and b) Average collection period. Particulars 31 st Mar.2007 31 st Mar.2008 Debtors opening balance Rs.70,000 Rs.80,000 Debtors closing balance Rs.90,000 Rs.I,OO,OOO Credit Sales Rs.6,00,00O Rs.7,00,000 Consider 360 days a year. Q7) A firm having cost of capital of 10% is presently considering two exclusive proposals X and Y for the investment. The details are as follows. [15] Particulars Project X (Rs.) Project Y (Rs.) Investments 15,00,000 15,00,000 Cash Inflows at the end of years :1 1,00,000 6,50,000 2 2,50,000 6,00,000 3 3,50,000 6,00,000 4 5,50,000 5,75,000 5 7,50,0 00 5,25,000

P:V. Factors @ 10% cost are, pt year 0.909, 2nd year 0.826, 3rd year 0.751, 4th year 0.683, 5th year 0.621. Calculate (1) Pay Back period, (2) N.P.V at 100/0 and (3) Profitability Index and suggest about the best proposal for investment. Q. Siscon Ltd. has a capital structure comprising equity capital only. It has 1,00,000 equity shares ofRs.10 each. Now the company wants to raise the funds Rs.2,50,000 for its expansion purpose. They have following alternatives to raise these funds. a) Issue 25,000 equity shares of Rs.l0 each. b) Borrow a debt of Rs.2, 50,000 at 10%. c) Issue 2,500, 10% preference shares ofRs.100 each. Show the workings when the EBIT is Rs.3,20,000 and taxation rate is 50%. Which is the best alternative on the basis of EPS valuation? [15] Q9) Write short notes (any three): a) Financial Leverage. b) Operating Cycle. c) Cost of debt capital d) Advantages of sole trading concern. e) Time value of money. May 2007 ECTION-I Q1) Explain the significance of net profit ratio and debt equity ratio. [10] [15] [15] [15]

Q2) What are the characteristics of various forms of business organization? Q3) Explain Factoring, Hire purchase and venture capital? Q4) Explain the different methods of evaluating capital expenditure decision Q5) Write Short Notes on (Any Three):a) Time value of Money. b) Cash Budget. c) Bonus Shares. d) Commercial Papers. e) Current Ratio. Q6) Following information is given for two companies A ltd. and B Ltd.

Particulars A Ltd. B ltd. Current Ratio 1.25 1.01 Liquid Ratio 0.96 0.69 Gross Profit Ratio 26.7% 33.3% Debt Equity Ratio 0 0.33 Net Profit Ratio 15% 10% Analyze the financial position of the two companies.

Q7) Calculate Operating leverage, Financial Leverage, and Combined Leverage from the following: Particulars Amount(Rs) Sales 500000 Variable cost 200000 Contribution 300000 Fixed Cost 150000 Earning before interest & Tax 150000 Interest 50000 Earning before tax 100000 [15] Q8) From the following Balance sheet of M/s AB for the year ended 31st Dec 2000 and 2001 prepare fund flow statement. Liablities 2000 2001 Assets 2000 2001 Share Capital 40000 57500 Plant 7500 10000 Creditors 10600 7000 Stock 12100 13600 P & L Co. 1400 3100 Debtors 18100 17000 Cash 14300 27000 Total 52000 67600 Total 52000 67600 [15] Q9) XY ltd had a capital structure of Rs. 10 Lakhs consisting of equity shares of Rs. 10/each. The company was into the business of manufacturing Automobile spare parts. The company is thinking of starting a new product line. For this it is gong to need Rs. 10 Lakhs more. The EBIT of the company is Rs.8 Lakhs and income tax rate is 50%. Compute the following alternatives. a) To raise the entire amount of additional funds by floating equiy shares of Rs. 10/- each. b) To raise 50% of the amount by way of equity shares capital of Rs. 10/- per share and 50% by way of term loan carrying interest of 10%. c) To raise the entire amount by way of term loan carrying interest of 10% [15]. October 2006 N.B. : 1) Question No.1 is compulsoly. 2) From Q.2 to Q.9 answer any two questions from Section I and two questions from Section II. 3) Figures to the right indicate full marks. 4) Use of non programmable calculator is allowed. SECTION I Ql) Explain the characteristics of various forms of Business. Q2) What is the significance of following ratios? a) Net Profit Ratio. b) Debt Equity Ratio. c) Current Ratio. Q3) State and explain merits and limitations of a) Hire Purchase b) Lease Finance c) Bank Tenn Loans.

[10] [15]

[15]

Q4) Cost of capital of each source is significant for capital structure planning Comment with suitable examples. [15]

Q5) Write short notes on (Any Three) a) Time value of money b) Constant Dividend Policy c) Cash Budget d) Commercial Paper. e) Discloser of Fixed Assets according to schedule VI. f) Bonus Shares.

[15]

SECTION-II Q6) The existing capital structure of a company consists of Equity share capital (of Rs. 10/- each) is of Rs. 10 lakhs. The company has an opportunity to enter into Global markets but it calls for additional funds of Rs. 15/-lakhs. Companys EBIT is Rs. 8 Lakhs and Income Tax rate is 50%. Show your working in table form, by computing EPS under each of the following alternatives. I To raise entire amount of additional funds by floating equity capital of Rs. 10/- each. II To raise 50% of amount by way of Equity and balance by Term Loan, bearing 16% interest p.a. III To raise 6lakhs from Equity, 6 lakhs from 14% Preference shares and balance by 13 % Debentures. [15] Q7) a) Following are Industry Standard Ratios and Actual Ratio of a company. Give your comments on working of a company. Particulars Industry Standard Actual Company Ratio 1. Current Ratio 2.50 1.90 2. G.P. Ratio 0.30 0.35 3. Sales/Capital 3.00 4.00 4. Fixed Assets to Long Term Funds 1.00 0.90 5. R.O.I. 15% 12% [09] b) Debtors are five times of Inventory of finished goods. W.I.P. is Rs. 1,00,000. Stock of raw materials is Rs. 30,000/- which is half of inventory of finished goods. Current liabilities are Rs. 1,00,000/ Compute [06] i) Amount of working capital. ii) Current Ratio. Q8) a) The sales of Gam Ltd is projected to increase every year by 20% :in quantity, associated with fall in price by 10% every year. Presently the company is selling 10,000 units at Rs. 30/- per unit. The trend shall continue for next five years. All sales are on credit. The company offers 2 months credit to its distributors. What is the amount of receivables (in the form of Sundry Debtors) at the end of each year. [12] b) Fill in the gaps Cash Inflow i) 25,000 [3] . Plv Factor .. P. v of Inflow 22,725

ii) . iii) 15,000

0.822

12,180 12,390 [15]

Q9) Prepare Income Statement of A, Band C from the following details. A Plv Ratio 40%, Tax rate 50%, Financial Leverage 4, Interest Exp Rs. 3,0001-. Operating Leverage 5, Sales Rs. 50,000, Fixed cost 16,000.

B Operating Leverage 6, Tax rate 50%, Financial Leverage 5, P/v Ratio 25%, Sales Rs. 1,20,000, Interest Exp Rs. 4,000. Fixed cost 25,000. C Sales Rs. 24,000, Plv Ratio 50%, Operating Leverage 4, Interest Exp Rs. 2,000, Financial Leverage 3, Tax rate 50%; Fixed cost Rs. 9,000. MAY 2006 NEW Q1) Describe the scope and importance of finance function in the management of Corporation. Q2) Exp-lain the following forms of organization in which business can be carried Outa) Proprietory firms, b) Partenership firms, c) Company. Q3) What are the basic considerations required to be made in formulating financial plan of a business concern from the view point of capital budgeting? Q4) What are the elements that constitute the working capital of a company? Write a note on management of each element. Q5) What is meant by the concept Financial risk? What is relationship between leverage and cost of capital? Explain. Q6) The following statements give quantitative consideration relavant for rank of project A and B Criteria Project A Project B Investment Rs 400 Rs 300 Internal rate of discount factor 18% 20% PV @ 6% discount factor Rs542.70 Rs 421.20 NPV @ 6%discount factor Rs 142.70 Rs 121.20 NPV @ 12% discount factor Rs 60.50 Rs 60.50 Project Are required an investment of Rs 400 and expected to have cash inflow of Rs 110,Rs120,Rs130,Rs140,Rs 150 over its five economic life .Project B involved all investment of Rs300 and expected have cash inflows of Rs 100 each over its five year economic life. Which of the two projects will you select if cost of capital is a) 10% b) 12% c) 15 give reason in support of your decision.

Q7) Calculate the working capital from the following particulars: i) Annual Expenses Amt.(Rs.) Wages 52000 Stores and Materials 9600 Office Salaries 12480 Rent 2000 Other expenses 9600 ii) Average amount of stocks to be maintained finished goods stock Rs. 1000 material/stores stock Rs. 1600 iii) Expenses paid in advance (Quarterly advance) Rs. 1600 p.a iv) Annual sales Home market Foreign market

Rs.62000 Rs 15600

v) Lag in payment of Wages 1.5 weeks stores & material 1.5 months office salaries 0.5 months Rent 6 months other expenses. 1.5 months, Q8) The existing capital structure of xyz is as under: Equity shares of Rs. 100 each Rs. 40,00,000 Retained earnings Rs. 10,00,000 9% preference shares Rs. 25,00,000 7% Debentures Rs. 25,00,000 The existing rate of return on the companys capital employed is 12% and the income tax rate is 50%. The company requires a sum of Rs. 25,00,000 to finance its expansion programme for which it is considering the following alternative: a) Issue of 20,000 equity shares at a premium of Rs.25 per share, which is best alternative? b) Issue of 10% preference shares c) Issue of 8% debentures. [12] Q9) xyz corporation is considering relaxing its present credit policy and is in the process of evaluating two proposed policies. Currently, the firm has annual. credit sales of Rs. 50 lakh and accounts receivable turnover ratio of 4 times a year. The current level of loss due to bad debts is Rs. 1,50,000. The firm is required to give a return of25% on the investment in new account receivables. The companys variable costs are 70% of the selling price. Given the following information, which is the better option? Present Policy Policy option I II Annual credit sales (Rs.) 50,00,000 60,pO,000 67,50,000 Tumover Ratio 4 times 3 times. 2,4 times Bad Debt losses (Rs.) 1,50,000 3,00,000 4,50,000 MAY 2006 OLD SECTION I

Q1) Explain the terms Over capitalisation and Under capitalisation. Out of the two which one is better for the economy and why? Q2) Explain the various objectives Financial management. Q3) What factors affect the level of working capital in hotel industry? Q4) Write short notes on (Any three) : i) Cost of retained earnings ii) Solvency ratios iii) Credit policy iv) Pvt. Ltd. Company v) Commercial paper SECTION II Q5)A companys collection pattern is as follows 10% of the sales in the same month 20% of the sales in the 2nd month 40% of the sales in the 3rd month 30% of the sales in the 4th month The sales of the company for the year 2005 are as follows: Month QI Q2 Q3; Q4 First 2,00,000 1,00,000 1,50,000 2,25,000 Second 2,00,000 2,00,000 2, 00,000 2,00,000 Third 200000 3,00,000 2,50,000 1,75,000 Total 6,00,000 6,00,000 6,00,000 6,00,000 Working days 90 90 90 90 Calculate the average age of receivables and comment upon the results. Q6) ABC company Ltd. is willing to purchase a machine for the expansion their existing factory. With this end in view they seek your advise as to one of the following machines would be more profitable. Cost of each machine Rs. 1,00,000 Discount rate 10% CASH FLOWS Years Machine A Machine B Machine C A B C Rs. Rs. Rs. 1 30,000 10,000 20,000 2 40,000 30,000 40,000 3 50,000 40,000 50,000 4 30,000 60,000 35,000 5 20,000 40,000 30,000 Calculate 1) Pay back period 2) Net present value 3) Profitability index Q7) X Ltd. a newly started company wishes to prepare cash budget from 2006. Prepare a cash budget for the three months from the following revenue and expenses. MONTH SALE MATERIALS WAGES PROD. SELG OVER OVER

HEADS January February March April

HEADS 40,000 44,000 56,000 72,000

40,000 28,000 28,000 44,000

80,000 8,800 8,600 9,200

6,400 6,600 6,800 7,000

1,60,000 1,80,000 1,80,000 2,00,000

Estimated cash balance on 1 January 2006 will be Rs. 20,000. Anew machine is to be installed at Rs. 40,000 on credit, to be repaid by two equal installation in March, 06 & April, 06. Sales commission at 5% total sales in to period within a month following the actual sales. Rs. 24,000 being the amount of 2nd call may be received in March. Period of credit allowed by suppliers - 2 months. Period of credit allowed to customers 1 month. Delay in payment of overheads 1 month. Delay in payment of wages - 1/2 month. Assume cash sales to be 50% of total sales. Q8) The balance sheet of Well Established Co. is as .follows. Liabilities Rs. Assets Rs. Equity Capital 60,000 Net fixed assets 1,50,000 (Rs. 10 per share) 10% long term debt 80,000 Current assets 50,000 Retained Earnings 20,000 Current liabilities 40,000 2,00,000 2,00,000 The companys total assets turnover ratio is 3, Its fixed operating costs are Rs. 1,00,000 and its variable cost ratio is 40%. The income tax rate is 40% and turnover ratios are based on sales. i) Calculate for the company the different types of leverage. ii) Prepare the vertical operating stat