(1) N(6th Sm.)-Financial Management-G-DSE-6.

2A/CBCS

2020
FINANCIAL MANAGEMENT — GENERAL
Course : DSE-6.2A
Full Marks : 80

Candidates are required to give their answers in their own words

as far as practicable.

51 lakh 7 12%
Sinking Fund
(CVIFA 12%, 7 = 10.089)

10 Equity share 40 6
5% Equity

Sales 1,00,000 units @ ` 2 per unit = ` 2,00,000

Variable cost per unit @ ` 0.70
Fixed cost ` 1,00,000
Interest charges ` 3,000.

Please Turn Over

N(6th Sm.)-Financial Management-G-DSE-6.2A/CBCS (2)

52000

Elements of cost Amount per unit (`)

Raw materials 8
Direct Labour 2
Overhead 6
Selling price 20
4 2 6
8 4
1½ 80,000

X Ltd. Y Ltd. Z Ltd.

Return on Investment (r) 15% 10% 8%
Cost of Capital (K) 10% 10% 10%
EPS ` 10 ` 10 ` 10

Walter’s model
(dividend payout ratio) 20%, 0%

X Ltd.
Machine – 1 Machine – 2
Purchase price ` 50,000 ` 60,000
Estimated Life 4 years 4 years
Cash flows before depreciation and tax
Year – 1 Year – 2 Year – 3 Year – 4
Machine – 1 25,000 25,000 25,000 25,000
Machine – 2 45,000 19,000 25,000 27,000
40%
8% (Net present value)

8% 1
Y1 = 0.926, Y2 = 0.857, Y3 = 0.794, Y4 = 0.735
(Assume straight line method of Depreciation)
 (3) N(6th Sm.)-Financial Management-G-DSE-6.2A/CBCS

Accounting rate of return

Capital rationing

[English Version]
The figures in the margin indicate full marks.
Group - A
Answer any two questions. 15×2

1. What are the functions of financial management? 15

2. Discuss the role of retained earnings as a source of corporate finance. 15
3. A company has issued debentures of ` 51 lakh to be repaid after 7 years. How much should the company
invest at the end of each year in a sinking fund earning 12%, to repay the debentures?
(CVIFA 12%, 7 = 10.089) 15
4. The current market price of an equity share of ` 10 each is ` 40. The current dividend per share is ` 6.
If the dividend is expected to grow at the rate of 5%, find out the cost of equity capital. 15

Group - B
Answer any two questions. 25×2
5. (a) What is Trading on equity?
(b) Calculate the degree of operating leverage, degree of financial leverage and combined leverage from
the following data :
Sales 1,00,000 units @ ` 2 per unit = ` 2,00,000
Variable cost per unit @ ` 0.70
Fixed cost ` 1,00,000
Interest charges ` 3,000. 10+15

6. You are required to prepare a statement showing the working capital needed to finance a level of annual
activity of 52,000 units of output. The following information are available.
Elements of cost Amount per unit ( `)
Raw materials 8
Direct Labour 2
Overhead 6
Selling price 20
Raw materials are in stock, on an average for 4 weeks. Materials in process, on an average for 2 weeks.
Finished goods are in stock, on an average for 6 weeks. Credit allowed to customer is for 8 weeks, credit
allowed by suppliers of goods is 4 weeks. Lag in payment of wages is one and half weeks. It is
necessary to hold cash in hand or at bank amounting ` 80,000. 25
Please Turn Over
N(6th Sm.)-Financial Management-G-DSE-6.2A/CBCS (4)
7. (a) What do you mean by working capital? Why is working capital necessary for a business?
(b) Write about the financial policy of current assets of a firm which follows conservative policy of
maintaining current assets. 13+12

8. Details regarding three companies are given below :

X Ltd. Y Ltd. Z Ltd.
Return on Investment (r) 15% 10% 8%
Cost of Capital (K) 10% 10% 10%
EPS ` 10 ` 10 ` 10
By Walter’s model, you are required to calculate the value of an equity share of each of the companies
when dividend payout ratio is (a) 20%, (b) 0%. 13+12

9. X Ltd. presently considering two machines for possible purchase. Other information related to the
machines are as follows :
Machine – 1 Machine – 2
Purchase price ` 50,000 ` 60,000
Estimated Life 4 years 4 years
Cash flows before depreciation and tax :
Year – 1 Year – 2 Year – 3 Year – 4
Machine – 1 25,000 25,000 25,000 25,000
Machine – 2 45,000 19,000 25,000 27,000
Rate of tax is 40%.
Compute net present value of each machine assuming cost of capital is 8%.
Which machine the company should buy?
The present value of ` 1 at 8% is as follows :
Y1 = 0.926, Y2 = 0.857, Y3 = 0.794, Y4 = 0.735
(Assume straight line method of Depreciation). 10+10+5

10. Write short notes on the following : 13+12

(a) Accounting rate of return
(b) Capital rationing.