Birla Institute of Technology & Science, Pilani

Work-Integrated Learning Programmes Division

First Semester 2017-2018

Mid-Semester Test
(EC-2 Regular)

Course No. : MM ZG627

Course Title : MANAGERIAL CORPORATE FINANCE
Nature of Exam : Closed Book
Weightage : 30% No. of Pages =1
Duration : 2 Hours No. of Questions = 6
Date of Exam : 23/09/2017 (FN)
Note:
1. Please follow all the Instructions to Candidates given on the cover page of the answer book.
2. All parts of a question should be answered consecutively. Each answer should start from a fresh page.
3. Assumptions made if any, should be stated clearly at the beginning of your answer.

Q.1 (a) Briefly outline the agency problem and explain how it can be mitigated. [3]
Q.1 (b) Write briefly about the critical factors in financial decision making? [3]

Q.2 (a) You pay three instalments of $50 each at the beginning of each quarter into a savings
account yielding 12% per year interest compounded quarterly. What is the future value
of your investment at the end of four years? [3]
Q.2 (b) You bought a painting for $ 8000 and sold it after 6 years for $13,600 what is your
annual rate of return? [2]

Q.3 (a) HUDCO has issued bonds earning a 7% p.a. coupon rate. The interest is paid semi-
annually and the bonds mature in eight years. The bond’s face value is $1,000. If your
required rate of return is 8% p.a., what is the price you should pay for each of these
bonds? [3]
Q.3 (b) Is this bond selling at a premium or a discount? Explain your answer. [2]

Q.4 (a) Hindalco has just paid a dividend of 25 cents per share and this is expected to grow at
4% per annum indefinitely. What price should you pay for the Hindalco shares if your
required rate of return on the investment is 10% p.a.? [3]
Q.4 (b) Tata Capital Financial Services Ltd (TCFSL), the financial services arm of the Tata
group, is raising Rs 150 crore through preference stocks. The face value of these
shares is Rs 1,000 each at a dividend of 12.5% on face value. The required rate of
return is 11%. The value of this preferred stock is? [2]

Q.5 (a) What are outlay cost, opportunity cost, and expense? [2]
Q.5 (b) What are the components of Product costs? Explain. [3]

Q.6 (a) What is Cost allocation? Describe the 3 step process. [3]
Q.6 (b) Information of Tata chemicals is given for the year 2016:
Sales 15,00,000
Less: Cost of Sales 7,50,000
Gross Profit 7,50,000

Calculate Gross Profit Margin [1]

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