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CORPORATE FINANCE


COMMONWEALTH EXECUTIVE


MBA/MPA PROGRAMME


Term-End Examination


June 2010


E-10: CORPORATE FINANCE



Time: 3 hours                                                     Maximum Marks: 100


                                                                                     

Note:          Attempt any three questions from Section A. Section B is


                   Compulsory. All questions carry equal marks.


SECTION-A




  1. What are different forms of business organization? Explain the role of finance manager in each form of business organization.

  2. Distinguish Between:



  • Profit Maximization and wealth maximization.

  • Current Ratio and Acid Test Ratio.

  • Political Risk and Exchange Risk

  • Convertible securities and preference shares.    



  1. What are derivatives and hybrid securities? Explain the purpose for which they are used.

  2. What is hedging? Discuss the various tools and techniques used for hedging purpose.

  3. Explain the following:



  • International Mergers

  • Securitization

  • Options

  • Primary and Secondary Markets  



  1. Prepare cash budget of a company for April, May, and June 2009 in columnar form using the following information:





























































MonthsSalesPurchaseWagesExpenses
2009Rs.Rs.Rs.Rs.
Jan (Actual)8000045000200005000
Feb (Actual)8000040000180006000
Mar (Actual)7500042000220006000
Apr (Budget)9000050000240007000
May (Budget)8500045000200006000
June (Budget)8000035000180005000


     You are further informed that:




  • 10 % of the purchase and the 20 % of sales are for cash;

  • The average collection period of the company is ½ month and the credit purchase are paid off regularly after one month;

  • Wages are paid half monthly and the rent of Rs. 500 included in expenses is paid monthly;

  • Cash and Bank balance as on April, 1 was 15000 and the company wants to keep it as the every month below Rs. 15000 (But not less than Rs. 14000), the excess cash being put in Fixed Deposits in multiples of Rs. 1000.       



  1. DLP Pvt. Ltd. Is considering the possibility of purchasing a multipurpose machine which cost Rs. 10 lakhs. The machine has an expected life of Five years. The machine generated Rs. 6 lakhs per year before depreciation and tax, and the management wishes to dispose of the machine at the end of 5 years which will fetch Rs. 1 lakh. The depreciation allowable for a machine is 25 % on written down value and the company tax rate is 50 %. The company approached an NBFC for a five years lease for financing the asset which quoted a rate of Rs. 28 per thousand per month. The company wants to evaluate the proposal with purchase option. The cost of capital of the company is 12 % and for the lease option it wants you to consider a discount rate of 16 %.
































012345
PV@12%1.0000.8930.7970.7120.6360.567
PV@16%1.0000.8620.7430.6410.5520.476
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