PART – C

CASE STUDY-COMPULSORY (1 x 16 = 16)

13. As the company’s ad says, “ You’re in good hands with Allstate!” Allstate Insurance has
used this famous phrase to attract customers for some time. This mainstream market
approach has served the company well. But even though the company is one of the
industry’s leaders, observers began to notice an erosion of market share in some non-
traditional sectors. Lifestyle strategies had not received much attention at Allstate.
Motorcycle riders, for example, chose competitors Progressive and Geico over Allstate
and other conservatively oriented companies. Why would Allstate be interested in
targeting motorcycle riders?
The motorcycle market is growing thanks to increased interest from baby boomers and
Generation Y consumers. In 2006, 1.2 million motorcycles were sold according to the
Motorcycle Industry Council, and sales have been steadily climbing for the last five years.
Allstate decided it was time to conduct targeted marketing research or risk losing this
growing market. In addition to learning some interesting facts about today’s motorcycle
riders, the company’s market research also found that over 600 of its 14,800 agents
were devout motorcycle riders themselves. This interesting fact led the company to
completely revamp some of its advertising and marketing strategies.
To target motorcycle riders, Allstate has begun featuring some of their bike-riding agents
in their ads. The ads indicate that Allstate knows the needs of motorcycle riders better
than competitors because the “ good hands” are on handle bars. And who knows the
needs of bikers better than other bikers? Acting on additional research information, the
company has also begun sponsoring motorcycle rallies and music downloads via Rolling
Stone magazine for those people who love the feel of the open road. Follow-up research
will determine the success of Allstate’s attempt to bond with this market segment.

1. Why did Allstate see an erosion of its market share in non-traditional

markets such as motorcycles?
2. What marketing research facts led Allstate to review its advertising and
marketing strategies with respect to the motorcycle market.
3. What strategies has Allstate implemented based on marketing research
data?
 M.B.A DEGREE EXAMINATIONS, FEBRUARY 2009.

SECOND SEMESTER

FINANCIAL MANAGEMENT

COURSE CODE: 102004

TIME: 3 HOURS MAXIMUM MARKS: 100

PART – A

ANSWER ANY FIVE QUESTIONS (5 x 4 =20)

1. What is capital budgeting?

2. Define cost of capital.
3. What is a profitability index?
4. Name the various categories of ratio analysis.
5. What do you mean by the term the hybrid financing instruments?
6. What are the determinants of a dividend policy?
7. Name the different sources of funds ?
8. Define venture capital.

PART – B

ANSWER ALL QUESTIONS (4 x 16 = 64)

9. a) Define corporate restructuring. Explain the characteristics of corporate restructuring.

OR

b) Explain with suitable example the concept of discounted pay-back period. Explain the
merits and demerits of this concept.

10. a) List down the various long-term and short-term sources of working capital ? Explain
how maximum permissible Bank Finance shall be determined as per each of the three
methods recommended by Tondon committee? Support your answer with suitable
example.
OR

b) Explain the various concepts of working capital such as permanent and variable
working capital? Also explain the various Factors which influence the working capital
requirements of an industrial concern?
11. a) As the director of capital budgeting for XYZ Corporation, you are evaluating two
mutually exclusive projects with the following net cash flows:

Project X Project Z
Year Cash Flow Cash Flow
0 Rs 100,000 Rs 100,000
1 50,000 10,000
2 40,000 30,000
3 30,000 40,000
4 10,000 60,000

If XYZ’s cost of capital is 15 percent, which project would you choose?

OR

b) Explain in detail theories of dividend policies.

12. a) What do you mean by financial management? Explain in detail evolution, scope ad
objectives of financial management.

OR

b) i. From the following figures calculate the debt equity ratio:

Equity share capital - Rs1,100,000

Capital reserve - Rs 500,000

Profit and loss account - Rs 200,000

6% debentures -Rs 500,000

Sundry creditors - Rs 240,000

Bills payable Rs -120,000

Provision for taxation - Rs180,000

Outstanding creditors - Rs 160,000

ii) From the following information of a company, calculate the liquid ratio. Cash
Rs180; Debtors Rs1,420; inventory Rs1,800; Bills payable Rs270; Creditors
Rs500 Accrued expenses Rs150; Tax payable Rs750.

Liquid Assets = 180 + 1,420 = 1.600

Current Liabilities = 270 + 500 + 150 + 750 = 1,670

Calculate Liquid ratio.