Birla Institute of Technology & Science, Pilani

Work-Integrated Learning Programmes Division

First Semester 2018-2019
Comprehensive Examination (EC-3 Regular)

Course No. : BA ZG521

Course Title : FINANCIAL MANAGEMENT
Nature of Exam : Open Book
Weightage : 45% No. of Pages =2
Duration : 3 Hours No. of Questions = 8
Date of Exam : 25/11/2018 (AN)

Q.1. If the risk-free rate of return, market return and the required rate of return by invest are 8%, 15%,
18% respectively, find the beta of the corresponding security. [3]

Q.2. Evan Soft Ltd. has assets of Rs.2,80,000 which have been financed with Rs.64,000 of debt and
Rs.1,10,000/- of equity and a general reserve of Rs.18,000. The firm's total profits after interest
and taxes for the year ended 31st March 2004 were Rs.25,700. It pays 13% interest on borrowed
funds and is in the 60% tax bracket. It has 1,000 equity shares of Rs.100 and selling at a market
price of Rs.125 per share. The firm pays 60% of its earnings as dividends.
(i) Find earnings per share (ii) Find the cost of debt
(iii) Find the cost of equity (iv) Find the weighted average cost of capital
[2 x 4 = 8]
Q.3. The sales and profits during the two periods are given as follows:
Years Sales (in Rs.) Profits (in Rs.)
2004 40,00,000 4,00,000
2005 60,00,000 8,00,000
Calculate
(i) P/V Ratio (ii) Fixed Cost (iii) Break-even Point (iv) Sales to earn a profit of Rs. 6,00,000
(v) Profit when sales are Rs. 50,00,000 [3 X 5 = 15]

Q.4. A multi-product firm wants to rank its products.

The total sales = 7000 units.
Total fixed costs = Rs. 28,000
Find the (1)total contribution in Rs and(2) Rank the product on basis of contribution to selling
price. [3 + 3 = 6]
Product A B C
Sales mix (in units) 20% 50% 30%
Selling Price Rs. 10 21 25
Variable cost 8 14 18
Contribution 2 7 7
Contribution as a percentage of selling price. 20% 33.33% 28%

Q.5. Find the Degree of operating leverage from the following data [3]
Sales Rs. 50,000
Variable cost 60%
Fixed costs Rs, 12,000

Q.6. Find the Degree of Financial leverage from the following data. [3]
Net worth Rs. 25,00,000
Debt/Equity 3:1
Interest rate 12%
Operating profit Rs. 2,00,000

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Q.7. The supreme & Co. Ltd., given the following information: Find the Degree of combined Leverage.
[3]
Equity earnings 2,30,000
Quantity produced (Q) 7500 units
Variable cost per unit (V) Rs.300
Selling price per unit (S) Rs.600
Number of equity share holders (N) 7,00,000
Fixed expenses (F) Rs.10,00,000
Interest (I) Rs.95,000
Preference dividend (D,) Rs.35,000
Corporate tax (T) 40%

Q.8. Consider two firms Ram Ltd., and Raj Ltd., which are identical in all respects except in the degree
of leverage employed by them. The following is the financial data for these firms.
Ram Ltd., Raj Ltd.,
Net operating income Rs. 45,000 Rs. 45,000
Interest on debt Rs.0 Rs. 10,000
Equity earnings Rs. 45,000 35,000
Cost of equity capital 14% 14%
Cost of debt capital 10% 10%
Market value of equity (E/k0) Rs. 3,00,000 Rs.2,33,333
Market value of debt Rs.0 Rs.50,000
Total value of the firm Rs.3,00,000 Rs.2,83,333

(a) Find the average cost of capital for Ram Ltd. [2]
(b) Find the average cost of capital for Raj Ltd. [2]

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