Tribhuvan University
Bachelor of Business Administration
Semester 4 · TU Board 2023
Course Title: Financial Management (FIN207)
Full Marks: 50Pass Marks: 100Time: 3hrs
Candidates are required to give their answers in their own words as for as practicable.
Group A
Brief Answer Questions(10 × 2 = 20)
- 1.2
Write the meaning of financial management.
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- 2.2
What do you mean by financial plan.
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- 3.2
Assume present actual sales of Delta Corporation are Rs 7.5 million. Delta has used only 75 percent of its fixed assets. What are Delta's full capacity sales?
- 4.2
Assume expected total present value of project Alpha is Rs 25 million with its initial investment of Rs 20 million. What is profitability index? Is the project Alpha profitable?
- 5.2
Write about the efficient portfolio.
- 6.2
How does accounting BEP differ from cash BEP?
- 7.2
Write a short note on capital assets pricing model (CAPM).
- 8.2
Axel Steel Company's current net income is Rs 20 million. Present debt ratio of Axel is 50 percent. Axel has Rs 30 million of inves<|fim_output_mask|>ment opportunity. If residual dividend policy is adopted, what would be dividend payout ratio?
- 9.2
How does liquidity position of a firm affect the dividend policy?
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- 10.2
Suppose you have USD 10,000 and want to sell in Kathmandu Exchange Center where exchange rate is NPR 133.33 per USD. How much Nepali Rupees do you receive with change of USD 10,000?
Group B
Short Answer Questions: (answer any SIX)(6 × 5 = 30)
- 11.5
Who is financial manager? Describe the responsibility of financial manager of a business firm.
- 12.5
Explain the reasons for companies going global.
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- 13.5
Describe the significance of cash management.
- 14.5
Six months US T-bills has nominal rate of 4 percent, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2.5 percent. In the spot exchange market, JPY 1 equals to USD 0.013. If the interest rate parity holds, what is the 6 month forward exchange rate? Also interpret the result.
- 15.5
Delta Metal House (DMH) is considering changing its credit terms from net 40 to net 50, in order to increase sales. Past average collection period is 60 days and it will be 75 days under proposed plan. The change will also affect in the present percent level of bad debt to 2 percent on all sales. Due to change in credit terms it is expected to increase in sales from Rs 6 million to Rs 7.5 million per year. The variable cost ratio is 80 percent, the cost of funds invested in accounts receivable is 12 percent and the marginal tax rate is 30 percent. Should the DMH change its credit terms?
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- 16.5
Consider the following income statement of Bhaktapur Sport Manufacturing Company (BSMC): ParticularsAmount RsSales (10,000 units @ Rs 20 per unit)200,000Less: Variable costs @ Rs 10 per unit100,000Contribution margin100,000Less: Fixed costs50,000EBIT50,000Less: Interest10,000EBT40,000Less: Tax @ 20 percent8,000Earnings after tax or net income32,000 BSMC has 10,000 shares outstanding. a. What is the EPS of BSMC? b. Calculate the accounting BEP for BSMC. c. Calculate the degree of operating leverage, degree financial leverage, and the degree of combined or total leverage.
- 17.5
Star Toys Company produces dolls using flesh colored cloth in its doll production process. Annual requirements of flesh colored cloth are 2,500,000 square yards for smooth production and sales of dolls. The fixed cost of placing an order is Rs 4,000 which includes Rs 3,000 of setup charges. The cost price of the cloth is Rs 1,000 per square yard. The annual cost of carrying this inventory is 20 percent of its price. Star Toys maintains a 15,000 square yards as safety stock, the cloth supplier requires 2 weeks of lead time from order to delivery of cloth. a. What is the economic order quantity of cloth for Star Toys? b. What is the total cost of inventory for Star Toys? c. Calculate re-order point for the Star Toys.
Group C
Long Answer Questions: (answer any THREE)(3 × 10 = 30)
- 18.10
What is capital structure? Explain the factors affecting the capital structure of a business firm.
- 19.10
Shareholders' equity account of Kathmandu Publishing Corporation (KPC) as on December 31, 2023 is given below: ParticularsAmount (Rs)Common stock (20,000 shares @ Rs100 par)2,000,000Additional paid in capital1,000,000Retained earning1,500,000Total shareholders' equity4,500,000 The current market price of the stock is Rs 300 per share. a. Show the effect of 10 percent stock dividend on shareholders' equity account position. b. At what price common stock should be traded after declaration of 10 percent stock dividend in the absence of signaling effect? c. What would be effect on number of shares, market price per share and shareholders' equity position after 2-for-1 stock split?
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- 20.10
The balance sheet of Sunrise Battery Company (SBC) of the year 2023 is given below:
Balance Sheet of Sunrise Battery Company (SBC) as on December 31, 2023 AssetsAmount (Rs)Liabilities and EquityAmount (Rs)Cash50,000Accounts payable60,000Accounts receivables70,000Accruals20,000Inventory80,000Notes payable50,000Total current assets200,000Total current liabilities130,000Net fixed assets400,000Common stock250,000Retained earnings220,000Total Assets600,000Total600,000 The sales are expected to increase from Rs 1,000,000 in 2023 to Rs 1,200,000 in 2024. The profit margin of the company is 10 percent and dividend payout ratio is 60 percent. All the assets of SBC are expected to increase in the proportion to the sales. a. Use additional fund needed (AFN) equation and estimate the AFN of SBC for the year 2024. b. Prepare projected balance sheet of the SBC for the year 2024 using percentage on sales forecasting method to estimate additional financing needed (AFN).
- 21.10
Consider the following historical returns of Stock A and B: YearReturn of stock A (%)Return of stock B (%)2021530202210152023150 a. Calculate the average rate of return of stock A and stock B of the period 2021 through 2023. b. Determine standard deviation of returns of stock A and stock B. c. Compute covariance and correlation coefficient between returns of stock A and stock B. d. Calculate the return and standard deviation of the portfolio if equal amount of money is invested in each stock. Also interpret the results.
Group D
- 22.
Financial manager has responsibility to perform various financial decisions of any business company. Suppose you are BBA graduates from Tribhuvan University with finance specialization. Kathmandu Manufacturing Company (KMC) has just appointed you as financial manager and your responsibilities are to make financial planning and forecasting, capital investment, financing, working capital and dividend decisions, dealing with financial markets, managing financial risk, controlling of financial resources etc. At present, the Chief Financial Officer (CFO) of KMC asks you to analyze two proposed projects: Project A and Project B with their expected cash flows for the sound capital investment decisions. Initial cost of each project is Rs 1,000,000. The cost of capital of each project is 10 percent. The expected net cash flows of each project are as follows: YearCash Flow of Project A (Rs)Cash Flow of Project B (Rs)0(1,000,000)(1,000,000)1700,000950,0002700,000750,0003700,000300,000 Based on the above information, you are asked to answer the following questions: a. Calculate payback period of each project. b. Calculate net present value (NPV) of each project. Which project/projects should be accepted based on NPV if projects are independent? c. Calculate internal rate of return (IRR) of each project. Which project should be accepted based on IRR if projects are mutually exclusive? d. What are the merits and demerits of payback period, net present value, and internal rate of return?
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