Section A

Answer All 7 questions 7 x 5 = 35

1)Briefly explain the features of capital budgeting decisions

2)RR & Company is considering the purchase of a machine. Two Machines A and B each costing Rs.50,000 are available. Cash inflows
are expected to be as under. Calculate pay back period and advise

Year 1 2 3 4 5

Machine A 15,000 20,000 25,000 15,000 10,000

Machine B 5,000 15,000 20,000 30,000 20,000

3)A publishing house purchases 2,000 units of a particular item per year at a unit cost of Rs 20, the ordering cost per order is Rs 50 and
the inventory carrying cost is 25%. Ascertain (a) EOQ (b) Number of orders to placed in a year

4)Illustrate the concept of operating cycle

5)Explain the significance of cost of capital

6)What are the assumptions of CAPM

7)Compare and contrast the functions of treasurer and controller

Section B

Answer any three questions 3 X 15 = 45

8)Explain the various functions of a finance manager

9). A project costs Rs.1,00,000 with estimated cash inflow of Rs.30,000, Rs.40,000, Rs.40,000, Rs.50,000

and Rs.60,000. For years 1 to 5.

Calculate (a) Net present value (b) Profitability Index.

Apply discount rate of 10% which are 0.9091, 0.8264, 0.7515, 0.6830, 0.6209 for years 1 to 5.

10) The Data relating to 2 companies are given below

Particulars Company X Company Y

Sales 50,000 1,00,000

Variable cost 15,000 25,000

Contribution 35,000 75,000

Fixed cost 15,000 35,000

EBIT 20,000 40,000

Interest 5,000 10,000

Profit 15,000 30,000

Calculate all the three leverages for both the companies

11)Explain the various determinants of working capital.

12)What are the major factors that influence the dividend policy of a company?

Section C ( Compulsory)

13) Case Study 1 X 20 = 20

A firm has an investment proposal requiring and outlay of 1,50,000. The investment proposal is expected to have 2 years of economic
life, with no salvage value.

In year 1, there is 0.6 probability that cash inflow after tax will be 75,000 and 0.4 probability that cash inflow after tax will be 85,000. The
probability assigned to cash inflow after tax for the year 2 is as follows:

The cash inflow year 1 Rs.75,000 Rs.85,000

The cash inflow year 2 Rs Probability Rs. Probability
30,000 0.3 35,000 0.4
35,000 0.4 40,000 0.3
40,000 0.3 45,000 0.3

The firm uses a 10% discount rate for this type of investment.

Required:

(i)Construct a decision tree for the proposed investment project and calculate the expected net present value (NPV).

(ii)What net present value will the project yield, if worst outcome is realized? What is the probability of occurrence of this NPV?

(iii)What will be the best outcome and the probability of that occurrence?

(iv)Will the project be accepted?

(Note: 10% discount factor 1 year 0.909; 2 year 0.826)