Ms-42 Question bank (3)
Ms-42 Question bank
MS 42 JUNE 2015
Written by sales@mbaonlinepapers.com sales@mbaonlinepapers.com
MANAGEMENT PROGRAMME
Term-End Examination
June, 2015
MS-42 : CAPITAL INVESTMENT AND
FINANCING DECISIONS.
1. What is meant by cost of capital ? How is cost of long term debt and preference share capital
calculated ? Explain.
2. What is meant by a firm's capital structure ? Explain the Modigilian - Miller (MM) theory and
Traditional approach to capital structure of a firm.
3. Explain the concept of project life cycle ? How are the work breakdown structure and linear
responsibility chart prepared ?
4. What is Project Risk ? Briefly explain the techniques used for the measurement of project
risk.
MS-42 1 P.T.O. 5. (a) What do you understand by Asset Securitisation ? Explain the process involved in asset securitisation and its advantages to the parties concerned.
MS-42 JUNE 2012
Written by sales@mbaonlinepapers.com sales@mbaonlinepapers.comDecember, 2012
MS-42 : CAPITAL INVESTMENT AND FINANCING DECISIONS
1. The existing capital structure of ABC Ltd. is as follows :
|
Equity shares of Rs.100 each |
Rs. 40,00,000 |
|
Retained earnings |
Rs. 10,00,000 |
|
9% Preference shares |
Rs. 25,00,000 |
|
7% Debentures |
Rs. 25,00,000 |
Company earns a return of 12% and the tax rate on its income is 50%. Company wants to raise Rs. 25,00,000 for its expansion project for which it is considering following alternatives :
(a) Issue of 20,000 equity shares at a premium of Rs. 25 per share
(b) Issue of 10% preference shares and
(c) Issue of 9% debentures.
It is Projected that the company's P/E ratios in the case of equity, preference and debentures financing are 20,17 and 16 respectively. Which alternative would you consider to be the best. Give reasons for your choice.
2. A company is considering raising of additional funds of Rs. 100 lakhs by one of the two alternative, methods, viz. 14% institutional term loan and 13% non convertible debentures. The term loan option would attract no major incidental cost. The debentures would have to be issued at a discount of 2.5% and would involve floatation cost of Rs. 1 lakh. Advise the company as to the better option based on the effective cost of capital in each case. Assume a tax rate of 50%.
3. What do you understand by Economic Appraisal of a project ? Discuss the various aspects of economic appraisal and explain their significance.
4. What is Certainty Equivalent ? Explain the relationship between certainty equivalent and risk adjusted discount rate.
5. List the various instruments through which corporates can procure finance and discuss the circumstances under which they are used to procure finance.
6. Write short notes on the following :
(a) Asset securitisation
(b) Venture Capital
(c) Sensitivity analysis
(d) Internal rate return method of capital budgeting
7. What are the different payout methods of dividends ? Explain the Modigliani-Miller hypothesis regarding dividend policy.
8. What is Financial Engineering ? Explain the factors which motivate the finance managers to undertake financial engineering.
MS-42 JUNE 2013
Written by sales@mbaonlinepapers.com sales@mbaonlinepapers.comJune, 2013
MS-42 : CAPITAL INVESTMENT AND FINANCING DECISIONS
1. What do you understand by Financial Reconstruction ? How does it differ from reorganisation of Capital ? Discuss the steps involved in the formulation of Reconstruction Plan for a company.
2. What do you understand by Securitisation of Assets ? Discuss the procedure involved in Securitisation and point out its advantages to the parties concerned.
3. Distinguish between :
(a) Global Depository Receipts and Euro -Bonds.
(b) Commercial Paper and Convertible Debentures
(c) Collateral Security and Contract of Guarantee
(d) Factoring and Discounting of Bills.
4. (a) What do you understand by Earned Value Chart ? For what purpose is it used ? Explain with a diagram.
(b) Discuss the three main types of control systems used in controlling a project.
5. What do you understand by Venture Capital ? What are its special features ? Discuss the stages at which a Venture Capitalist provides finance to a project. In what form is Venture Capital provided ?
6. Write notes on :
(a) Accounting Rate of Return and Internal rate of Return
(b) Leveraged Buyout
(c) Corporate Governance
(d) Supplier's Credit
7. S. Co. Ltd, has the following capital structure on 31st March 2012 :
|
Ordinary Shares (2,00,000 shares) |
Rs. 40,00,000 |
|
10% Preference shares |
Rs. 10,00,000 |
|
14% Debentures |
Rs. 30,00,000 |
|
|
80,00,000 |
The share of the Co. sells for Rs. 20/- . It is expected that the Co. will pay next year a
dividend of Rs. 2 per share, which will grow at 7% forever. Assume a 50% tax rate.
You are required to :
(a) Compute weighted average cost of Capital based on existing capital structure.
(b) Compute new weighted average cost of capital if the Co. raises an additional Rs. 20 lakh debt by issuing 15% debentures. This would result in increasing the expected dividend to Rs. 3 and leave the growth rate unchanged, but the price of the shares will fall to Rs. 15 per share.
(c) Compute the cost of capital if in (b) above the growth rate increases to 10%
8. M.C. Ltd. requires Rs. 25,00,000 for a new plant. This plant is expected to yield earnings before interest and taxes of Rs. 5,00,000. While deciding about the financial plan, the company considers the objective of maximising earnings per share. It has three alternatives to finance the project - by raising debt of Rs. 2, 50, 000 or Rs. 10, 00, 000 or
Rs. 15, 00, 000 and the balance, in each case, by raising equity shares. The company's share is currently selling at Rs. 150, but is expected to decline to Rs. 125 in case the funds are borrowed in excess of Rs. 10,00,000. Funds can be borrowed at the rate of 10% upto Rs. 2,50,000, at 15% over Rs. 2,50,000 and upto Rs. 10,00,000 at 20% over 10,00,000. The tax rate applicable to the company is 50%. Which form of financing should the company choose ?
