Strategic Investment & Finance Decision M.B.A Question Paper : vardhaman.org

College : Vardhaman College Of Engineering
Degree : M.B.A
Semester : IV
Subject : Strategic Investment & Finance Decision
Document type : Question Paper
Website : vardhaman.org

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Vardhaman Finance Decision Question Paper

MBA IV Semester Regular/Supplementary Examinations
(Regulations: VCE-R11)
(Master of Business Administration)
Date : 9 June, 2014
Time : 3 Hours
Max. Marks : 60
** Answer any FIVE Questions.
** All Questions carry equal marks

Related / Similar Question Paper :
Vardhaman College MBA Management of Industrial Relations Question Paper

June – 2014

All parts of the question must be answered in one place only

1. Five projects M,N,O,P and Q are available to a company for consideration. The investment required for each project and the cash flows it yields are tabulated below. Projects N and O are mutually exclusive. Taking the cost of capital @ 10%, which combination of projects should be taken up for a total capital outlay not exceeding Rs. 3 lakhs on the basis of NPV and Benefit- Cost Ratio?
Project Investment Cash flow p.a No. of years PV @ 10% :
M – 50000 – 18000 – 10 – 6.145
N – 100000 – 50000 – 4 – 3.170
O – 120000 – 30000 – 8 – 5.335
P – 150000 – 40000 – 16 – 7.824
Q – 200000 – 30000 – 25 – 9.077

2. GFC Ltd., is considering investing in a new equipment costing Rs. 30 lakhs. The equipment is likely to provide a cash flow after taxes of Rs. 10 lakhs per year for 6 years. The unlevered cost of equity capital of the company is 16%. The company intends to finance the project with 60% debt, which will bear an interest rate of 12%. The loan will be repaid in equal annual principal payments at the end of each of the 6 years. Floatation costs on financing will be Rs. 1 lakh and the company is in a 30 % tax bracket. What is the adjusted present value of the project? Is the project acceptable?
Note: Extracted from the table of PV of Re.1 PVIF @ 12% for 0 to 6 years are: 1.000, 0.8928, 0.7972, 0.7118, 0.6355, 0.5674, 0.5066 PVIF for 6 years @ 16%=3.6847.

3. Select the following project and compute NPV and IRR using Terminal value method
Initial out lay – Rs. 10000
Life of the project – 5 years
Cash inflows – Rs. 4000 p.a. for 5 years
Cost of capital (K) Expected interest rates at which – 10%

cash inflows will be reinvested:
End of the year
1 – 6%
2 – 6%
3 – 8%
4 – 8%
5 – 8%
You are required to analyse the feasibility of the project using Terminal value method

4. UJwal Lamps Company is considering an investment project which has an estimated life of four years. The cost of the project is 10000 and the possible cash flows are given below:
Year 1 Year 2 Year 3 Year 4
Cash flow (Rs.) Prob. Cash flow (Rs) Prob. Cash flow (Rs.) Prob. Cash flow (Rs.) Prob.
2000 0.2 3000 0.4 4000 0.3 2000 0.2
3000 0.5 4000 0.3 5000 0.5 3000 0.4
4000 0.3 5000 0.3 6000 0.2 4000 0.2
i. The cash flows of various years are independent and risk free discount rate (post tax) is 6%. What is the expected NPV
ii. If the NPV is approximately normally distributed, what is the probability that NPV will be zero or less?
iii. What is the probability that profitability index will be greater than 1.2? 12M

5. Discuss the relationship between the financial leverage and firm’s required rate of return to equity shareholders as per MM proposition. 12M
6. Discuss the various steps involved in a merger. 12M
7. Discuss the procedure for comparing ‘leasing’ with ‘borrowing and buying’ option. 12M
8. How does corporate restructuring helps in economic development of a particular nation strategically? 12M

May – 2013

Two Year MBA IV Semester Regular Examinations
(Regulations: VCE-R11)
STRATEGIC INVESTMENT AND FINANCE DECISION
(Master of Business Administration)
Time: 3 hours
Max Marks: 60
** Answer any FIVE Questions.
** All Questions carry equal marks

All parts of the questions must be answered in one place only

1. A project involves an outlay of Rs.1,00,000. Its expected cash inflow at the end of year 1 is Rs.40,000. Thereafter it decrease every year by Rs.2,000. It has an economic life of 6 years. The certainty equivalent factor is at= 1 –0.05t.Calculate the net present value of the project if the risk- free rate of return is 10percent. 12M

2. Matrix Associates is evaluating a project whose expected cash flows are as follows:
Year: 0 1 2 3 4
Cash flow(Rs in lakhs): (23) 6 8 9 7
What is the MIRR of the project if the reinvestment rate is 18 percent? 12M

3. The initial outlay on a security system would be Rs.20,00,000. The operating costs are expected to be as follows:
Year: 1 2 3 4 5
Operating costs (Rs): 5,00,000 7,20,000 8,60,000 5,30,000 4,00,000
The estimated salvage value at the end of five years is Rs.600,000. What is the equivalent annual cost If the cost of capital is 12 percent?

4. Skylark airways is planning to acquire a light commercial aircraft for flying class clients at an investment of Rs.50,00,000. The expected cash flow after tax for the next three years is as follows:
Year 1 Year 2 Year 3
Cash Flow (Rs. in laks) Prob. Cash Flow (Rs. in laks) Prob. Cash Flow (Rs. in laks) Prob.
14 0.1 15 0.1 18 0.2
18 0.2 20 0.3 25 0.5
25 0.4 32 0.4 35 0.2
40 0.3 45 0.2 48 0.1

The company wishes to take into consideration all possible risk factors relating to an airline operations. The company wants to know:
i. The expected NPV of this venture assuming independent probability distribution with 6 per cent risk free rate of interest.
ii. The possible deviation in expected value, How would standard deviation of the present value distribution help in capital budgeting decisions? 12M

5. Discuss the relationship between dividend policy and value of the firm. 12M
6. Discuss the theories of mergers. 12M
7. What is lease financing? Distinguish between leasing and hire purchase. 12M
8. What is meant by sell offs? Explain the motives behind sell offs. 12M