BBA/B.Com Financial Management June 2024

Description

Financial Management

June 2024 Examination

 

 

1. Mr. Ratan has two alternative proposals under consideration.

Project	Capital Outlay
Big Basket	30,00,000
Tata max	60,00,000

 

Both are estimated to provide a cash flow for five years:

Project	Cash Inflows
Big Basket	15,00,000
Tata max	28,00,000

 

Cost of capital           11%

Show which of the two projects is preferable from the view point of

(i) Net present value method

(ii) Profitability Index       (10 Marks)

Ans 1.
Introduction

Financial management involves making strategic decisions that ensure optimal utilization of financial resources to maximize shareholder value. Two fundamental tools commonly employed in financial management are the Net Present Value (NPV) method and the Profitability Index (PI). These tools assist in evaluating the viability and profitability of investment projects by considering the time value of money. This analysis is crucial, as it helps in determining whether an investment will yield returns that exceed the cost of capital. Here, we examine two investment proposals for Mr. Ratan: “Big Basket” with a capital outlay of ₹30,00,000 and “Tata max” requiring ₹60,00,000. By applying NPV and PI calculations, we aim to discern which project offers better financial returns relative to their costs, thus guiding Mr. Ratan in making an informed investment It is only half solved

 

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2. A company named Renuka Pvt. Ltd raised capital from the market by using below given sources:

Bank Loan	40,00,000
Equity Share Cap	60,00,000
Total Capital	1,00,00,000
Interest rate on Loan	11%
Beta of Renuka	1.55
Rf	7%
Rm	14.0%
Tax Rate	25%

 

Compute the overall cost of capital of Renuka Limited     (10 Marks)

Ans 2.

Introduction

The overall cost of capital for a company is a crucial metric used to evaluate the efficiency with which a company utilizes the capital it acquires to generate returns. For Renuka Pvt. Ltd, understanding this metric is essential as it raises capital through a mix of equity and debt. This combined cost, known as the Weighted Average Cost of Capital (WACC), provides a comprehensive picture of the expense the company incurs in financing its operations. WACC is particularly significant for investment decisions, pricing of financial instruments, and corporate valuation. It integrates the cost of equity and the cost of debt, adjusting for the tax shield benefits of debt financing. By calculating the WACC, Renuka Pvt. Ltd can assess how much interest the company owes for every rupee it finances, guiding

 

3a. Kindly suggest the factors which are used to access the working capital requirement of mid- size restaurant located in tier 2 city on India.   (5 Marks)

Ans 3a.

Introduction

Assessing the working capital requirements of a mid-size restaurant in a Tier 2 city in India involves a detailed analysis of various financial and operational factors. This analysis ensures that the restaurant can meet its day-to-day expenses efficiently, support smooth operations, and maintain a buffer for unforeseen expenditures. Identifying these factors is crucial for the financial health and sustainability of the business.

Concept and

 

3b. ABC Retailers operates a chain of grocery stores in a Tier 2 city in India. They purchase goods from suppliers on credit terms of 30 days and sell them to customers on cash terms. On average, it takes 10 days for the goods to be sold after they are received from the suppliers. The company takes an additional 5 days to collect payments from customers. Calculate the operating cycle for  ABC Retailers.  (5 Marks)

Ans 3b.

Introduction

The operating cycle is a critical financial metric for ABC Retailers, a grocery store chain operating in a Tier 2 city in India. This measure reflects the length of time taken from purchasing inventory to collecting cash from sales. Understanding this cycle helps the company manage its cash flow efficiently, ensuring they have adequate resources to meet business needs and maintain operational stabilit