2012_mid_spring_bm40002.pdf

8/19/2019 2012_Mid_Spring_BM40002.pdf

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INDI N INSTITUTE OF TECHN OlOGY, KHARAGPUR

Date FN/AN, Time: 2 Hrs., Full a r k s ~ Deptt Undergraduate students enrolled

No.

of Students: 125, Mid Spring Semester Examination

Sub. No.: BM40002, Sub Name: Introduction

to,

Financial Management

3 4

Yr.

B.Tech

H)

Dual, Instruction:

Multiple-Choice Questions:

1.

The personal liability

of

the members

is

unlimited

in

a:

a)

Cooperative Society·

b) Public Limited Company

c) Partnership.

d)

Cooperative Society

e) None of the above

2. An

example of

an

intangible asset

is

a)

Provisions

b)

Copyrights

c)

Prepaid expenses

d) Depreciation

e)

None of the above

3. Share premium is included in:

a)

Reserves and surplus

b)

Current asset

c)

Profit and loss account

d) Investments

e)

None of the above

4. Which of the following will

be

a debit entry?

a)

Increase

in

assets

b)

Decrease

in

owner s equity

c)

Increase

in

expenses

d) All of the above

e)

None of the above

(24)

5. The accrual basis of reporting of income and expenses

in

the profit and loss

account is a result of which of the following principles

of

accounting

a) Historical cost principle

b)

Separate entity assumption

c)

Matching principle

d)

Conservatism principle

e) None of the above

6.

Which among the following

is

not a leverage ratio?

a)

Acid-test ratio

b)

Interest coverage ratio

c)

Debt-service coverage ratio

d) Interest coverage ratio

e)

None of the above

8/19/2019 2012_Mid_Spring_BM40002.pdf


7. If sales are steady and no capital expenditure is to be incurred, fixed assets

turnover ratio of a firm over the years will:

a Increase

b

Decrease

c Remains steady

d Either b or c

e None of the above

8.

If you were scheduled to receive

Rs

100,000 five years hence, but you wish to sell

your contract note for its present value, which type of compounding would you

rather have the purchaser

of

your contract note to use to find the purchase price, 8

percent compounded:

a Continuously

b

Quarterly

c

Semi-annually

d Annually

e None of the above

9. Present value interest factor of a perpetuity represents

a Interest rate in percentage terms

b

Reciprocal of interest rate in percentage terms

c Reciprocal of interest rate in decimal terms

d Interest rate in decimal terms

e None of the above

10.A bond will sell above its par value when:

a The coupon rate is below the required rate of return

b The required rate of return is below the coupon rate

c

The coupon rate is likely to be changed

in

future

d Any of the above

e None of the above

11. For any given stock, which of the following must be true

?

a Market value > book value > par value

b

Book value market value par value

c

Par value > market value > book value

d Par value =book value < market value

e None of the above must be true

12.

The key inputs to the valuation of securities does not usually involve:

a

Discount rate

b

Timing

c

Purchase price

d Any of the above

e None of the above

8/19/2019 2012_Mid_Spring_BM40002.pdf


Numerical Problems

1. The summarised Profit and Loss Account

and

Balance Sheet of Biocon are given

below: (10)

Profit and oss ccount for

the

Year Ended March 31 2007

(Amounts

in Rs.million

• Total revenue

8630

• Operating profit (PBIT)

1788

• Interest and finance charges

78

•

PBT

1710

• Provision for tax

127

• PAT

1583

Balance Sheet as

at

March

31

2007

(Amounts

in

Rs.million)

Sources

o

unds

Shareholders funds

Loan funds

Deferred tax liability

Application o unds

Fixed assets

Intangible assets

Investments

Current assets, loans, and advances

Inventories : 1507

Others : 3292

Current liabilities and provisions

Net current assets

9416

1068

398

10882

6949

512

786

4799

2164

2635

10882

The paid up capital of Biocon as t March 31, 2007 is

Rs.500

million (Par value per share

is

Rs.5).

Assume

that all

of

it

is

equity. The market price per share

on

March

31

2007

was

Rs.486.20.

Find

the values for the following financial ratios.

Regard

deferred tax liability as part of

debt.

a Net profit margin

e) Interest coverage ratio

b)

Asset turnover ratio

f Price -earnings ratio

c)

Financ;ialleverage multiplier

g Market value to book value ratio

d Return on eqtJity

8/19/2019 2012_Mid_Spring_BM40002.pdf


2

You

plan to go abroad for higher studies after working for the next five years and

understand that

an

amount of Rs.2,000,000 will be needed for this purpose at that

time. You have decided to accumulate this amount by investing a fixed amount at the

end of each year in a safe scheme offering a rate of interest at 10 percent. What

amount should you invest every year to achieve the target amount? (3)

3 Surmec, Inc. has

sales

of 2.1 million last year. The company's primary business line

is

manufacturing of nuts and bolts. Since this

is

a mature industry, the analysts are

certain that the sales will grow at a steady rate of 7 percent a year for as far as they

can

tell. The company reports·net income that represents 23 percent of

sales

They

management would like to buy a new fleet

of

trucks, but

can

only do

so

only_

once

the

profit reaches 620,000 a year.

At the end

of

what year will Surmec

be

able to buy the new fleet of trucks? (3)

4

What

is

the difference between the effective rate of interest and stated rate

of

interest

in the following cases: (3)

ase A: Stated rate

of

interest is 8 percent

and

the frequency of compounding is

six times a year.

ase B

Stated rate

of

interest is 10 percent

and

the frequency of compounding is

four times a year.

case

C

Stated rate

of

interest is 12 percent and the frequency of compounding is

twelve times a year.

5

A

Rs

1000 par value bond, bearing a coupon rate of 12 % payable semi-annually will

mature after 5 years. ( 4)

i

f the required rate of return on the bond is 16 % p.a., what

is

its value?

ii. f the bond is currently selling at

Rs

965, what

is

the approximate YTM per annum?

6

The equity stock of I-LABS Ltd is currently selling for Rs 465 per share. The expected

dividend a year from now is Rs.10.00. The investors' required rate of return on the

stock

is

20%. f the constant growth model applies to I-LABS Ltd what

is

the expected

growth rate? (3)

2012_mid_spring_bm40002.pdf

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