CHRIST (Deemed to be University), Bengaluru – 560 029

Department of Professional Studies

END SEMESTER EXAMINATION – MAY2023
UG IV Semester

Programme Name: BBA Finance and Accountancy Max. Marks: 100

Course Name: Advanced Financial Management Time: 3 Hrs
Course Code: BBF434
General Instructions:

 All rough work should be done in the answer script. Do not write or scribble in the question
paper except your register number.
 Verify the Course code / Course title & number of pages of questions in the question paper.
 Make sure your mobile phone is switched off and placed at the designated place in the hall.
 Malpractices will be viewed very seriously.
 Answers should be written on both sides of the paper in the answer booklet. No sheets
should be detached from the answer booklet.
 Answers without the question numbers clearly indicated will not be valued. No page should
be left blank in the middle of the answer booklet.

Course Outcomes (COs):The students will able to

CO1 Apply relevant knowledge, skills and exercise professional judgments to evaluate the role
and responsibility of the senior financial executive or advisor in meeting conflicting needs of
stakeholders.
CO2 Manage international trade and finance for multinational organizations
CO3 Evaluate potential investment decisions and assessing their financial and strategic
consequences
CO4 Analyze valuation of Mergers and Acquisition and able to interpret pre and post mergers
and acquisition
CO5 Gain knowledge about the current trends in finance and financial management

SECTION A
Answer ALL the questions 5*7 = 35
Q. Questions C RBT
No O
1 While formulating investment strategy, Explain the factors to be considered? 1 L2
2 What is free trade? Explain the practical reasons and problems of free trade. 2 L2
3 A) A company’s ENPV of a project is $ 200 million with a standard 3 L3
deviation of $ 19 million. Establish VAR using 95% and 99%
confidence level.
B) A project has an ENPV of Rs 400000 with a standard deviation of Rs
210000. Calculate the following:

BBF434_Page 1 of 4
 i) The probability that the NPV of the project will be greater than 0
ii) The probability that the NPV will be greater than Rs 450000
4 Briefly explain the various ways in which foreign exchange risks are 5 L2
managed.
5 What do you mean by treasury management? Briefly explain the roles of 5 L2
treasury management function in a business.

SECTION B
Answer ALL the questions 3*15 = 45
Q. Questions C RBT
No O
1 (a) What is hostile takeover? Explain in detail the various defensive 4 L2
tactics employed against hostile takeovers.
OR
(b) Explain in detail with suitable examples the following terms
i. Sell-off
ii. Spin off
iii. Divestiture
2 (a) Illustrate and explain the calculation of WACC covering various 1 L3
sources of long-term finance
OR
(b) Illustrate and explain the relevance and the methods of calculation
of the following items
i) Total Shareholders return
ii) P/E ratio
iii) Earnings growth

3 (a) Mr. Pixel is an entrepreneur and has recently set up manufacturing unit 2 L4
of Gloves. He currently sells 2 million Gloves a year at Rs 10 each. His
variable cost to produce the Glove is Rs 6 per Glove and he has Rs 30
lakh in fixed costs. His sales to assets ratio is 5 times and 40% of his
assets are financed with 8% debt with the balance being financed by
ordinary shares of Rs 10 per share. The tax rate is 35%. His newly
appointed finance manager, Mr. Boomer, feels that Mr. Pixel is doing
it all wrong. By reducing his price to Rs 9 per Glove, he could increase
his sales volume of Gloves by 40%. Fixed costs would remain constant
and variable costs would remain Rs 6 per unit. His sales to asset ratio
would be 6.3 times. Furthermore, he could increase his debt to assets
ratio to 50% with the balance in shares. It is assumed that the interest
rate would go up by 1% and the price of the shares would remain
constant.
a) Compute EPS under Pixel as well as Boomer plans
b) Mr. Pixel’s partner does not think that fixed costs would remain
constant under the Boomer Plan but they would go up by 15%.
If this is the case, should Pixel shift to Boomer plan based on
EPS?
c) What is the effect on the total risk (leverage) of the firm on

BBF434_Page 2 of 4
 switching from one plan to another?
OR
(b) A. Sodrux is a pharmaceutical firm that posses a patent on a drug
called Acidex. It is an approved drug, and Sodrux can produce and
market it. The firm has the patent on drug for 15 years, and after this
period, any pharmaceutical company can produce it. The firm
estimates that it will have to incur Rs 125 million to develop and
market the drug. Based on the estimates of potential market and price,
the present value of the expected cash flow from the sale of the drug is
Rs 167 million. A simulation study shows that the average variance in
the value of the project is 0.268. The current yield on 15-year
government bonds is 7.8 per cent. What is the value of the patent to the
company? Use Black-Scholes Model. (Hint: d1 = 1.2318 and d2 = -
0.7732) (5 Marks)
B. ARR company has four projects, P, Q, R and S. Below is the extract
data table. The life of all the projects are 5 years. The applicable
discount rate is 12%
Projects Outlay Annual
Cash
Inflows
P (40000) 16000
Q (80000) 24000
R (100000) 32000
S (120000) 40000
The company has only Rs 240000 to invest. Rank the projects, evaluate
the ranks and decide how the company needs to make the investment
when
i) The projects are divisible
ii) The projects are indivisible
(10 Marks)

SECTION – C
Compulsory Question 1*20 = 20
Q. C RBT
No Problems O
1 A. A company is considering investing in a new product with an expected 3 L5
life of 3 years. The cost of the project is Rs 100000 and the possible
cashflows are as follows:
Year 1 Year 2 Year 3
CF in CF in CF in
Rs Probability Rs Probability Rs Probability
- 0.1 10000 0.15 - 0.15
20000 0.2 40000 0.2 15000 0.2
40000 0.4 70000 0.3 30000 0.3
60000 0.2 100000 0.2 45000 0.2
80000 0.1 130000 0.15 60000 0.15

BBF434_Page 3 of 4
 The risk free rate of 8%. Assuming a normal distribution, what is the
probability that the project will provide an NPV of a) 0 or less, b) Rs 30000
or more and c) between 20000 and 32000 [15 Marks]
B. How and why inflation is adjusted in to NPV calculations? Explain with
an example [ 5 Marks]

Revised Bloom’s Taxonomy (RBT) Levels :

L1 – Remembering L2 – Understanding L3 – Applying
L4 – Analyzing L5 – Evaluating L6 - Creating

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