Financial Management question, Hons 4th Year Exam-2020

Financial Management question

Hons 4th Year Exam-2020

National University

Management

Subject Code: 242603

Financial Management (In English)

Time—-4 hours

Full Marks —–80

[N.B. Different parts of the question must be anawered sequentially.]

 

Group A

Marks-1×10-10

 

1. Answer any ten questions:

a. What do you mean by wealth maximization? Ans: Wealth maximization means maximizing the net present value or wealth of a course of action to shareholders.

 

b. What is agency problem?

 

Ans: The possibility of conflict of interest between the shareholders and the management of a company is known as agency problem.

 

c. What do you mean by capital rationing?

 

Ans:

 

d. What is bankruptcy costs?

Ans: Bankruptcy costs include out of pocket expenses to lawyers, accountants, appraisers, trustees, and others as well as the loss of economic value that other occurs as a company approaches bankruptcy and is not able to operate efficiently.

 

e. What is optimum capital structure?

 

Ans: The is capital structure having overall cost of capital is minimum and by which value of the firm is maximized is called optimum capital structure.

 

f. What is levered firm?

 

Ans: A firm that uses debt in its capital structure. The term often refers to firms that have a large percentage of debt relative to equity when compared against peers is the same industry.

g. What is lease financing? Ans: A contract between a lease, who acquires the services of a leased asset by making a series of

 

rental payments to the lessor, who is the owner of the asset.

 

h. What is retained earnings? Ans: A contract between a lease, who acquires the services of a leased asset by making a series of

 

rental payments to the lessor, who is the owner of the asset. i. What is primary market?

 

Ans: A market where new securities are bought and sold for the first time (a “new issues market).

 

”

 

j. Write down full meaning of BSEC.

 

Ans: The Bangladesh Securities and Exchange Commission. k. What is simulation?

 

Ans: A simulation is the imitation of the operation of a real-word process on system over time.

 

l. What do you mean by flotation costs?

 

Ans: The costs associated with issuing securities such as underwriting, legal, listing and printing fees are called floatation costs.

 

Group B

(Answer any five questions)

Marks —4×5=20

 

2. Show distinctions between profit maximization and wealth maximization.

 

3. Briefly explain the three key activities of the financial manager.

 

4. The risk-free rate of return is 9% and the market return is 14%. The beta of the project is 1.4, net cash flows estimated to be Tk. 1500 per year for 5 years. The investment outlay on the project is Tk. 4,500. What is the risk adjusted discount rate and net present value of the project?

 

5. Write down the features of optimum capital structure.

 

6. X Ltd., is considering a rights offer. The company has determined that ex-rights price would be Tk.74. Subscription price is Tk. 44. One new share of stock can be purchased for each five shares currently owned.

 

You are required to calculate market price share.

 

7. What are the differences between stock dividend and stock split?

 

8. A firm has 10 million shares outstanding with a market price os Tk. 20 per share. The firm has Tk. 25 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt.

How many shares will remain after the repurchase?

 

 

9. Reza Brother’s Company expected EBIT Tk. 50,000. The company has 10% debt of Tk. 2,00,000 The Ke of the company is 12.50%. The number of common stock of the company is 2000. Find out the total value of the firm and overall cost of capital of the firm.

Group C

 

(The figures in the right margin indicate full marks. Answer any five questions)

 

Marks-10×550

 

Marks

 

10

 

10. a. Discuss the objects of financial management. পৃষ্ঠা-১৪, অধ্যায়-১, প্রশ্ন-১৬১

 

b. Briefly discuss major corporate decisions that financial manager must take.

 

উত্তর সংকেত। পৃষ্ঠা-১২, অধ্যায়-১, প্রশ্ন-১০।

 

11. Abrar Enterprize is considering investment in one of the mutually exclusive projects. A and B. The firm’s cost of capital (K) is 15% and the risk free rate (RE) is 10%. The firm has gathered the following cash flow and risk index data for each project:

 

Project

 

A Taka 15,000

 

B Taka 11,000

 

Initial investment

 

Year

 

Cash inflows

 

Taka

 

Taka

 

1

 

6,000

 

6,000

 

2

 

6,000 6,000

 

4,000 5,000

 

6,000

 

2,000

 

Risk index

 

1.80

 

1.00

 

Required:

 

a. Find the NPV of each project using the firms cost of capital. b. Determine the RADR using CAPM.

 

c. Use the RADR for each project of determine its risk-adjusted NPV.

 

Which project is preferable in this situation? উত্তর সংকেত -, -, Problem-331

 

10

 

12. Suppose that the present capital sturcture of Annesha Enterprize Ltd. is as follows:

 

Taka

 

Common stock capital (Tk. 100 per share) 10,00,000

 

12% debt capital

 

15,00,000 The company wishes to raise Tk. 6,00,000 for expansion programs. The following alternatives

 

are

 

available:

 

a. Issuing 10% debenture b. Issuing 11% preferred stock

 

c. Issuing common stock at Tk. 100 per share The expected EBIT is Tk. 4,00,000 and corporate tax rate is 40%.

– U

Calculate the EPS and which one would you prefer.

 

13. a. Write down the arguments for dividend payout mattering.

 

b. A company’s current stockholders’ equity account is as follows:

Taka

10% Preferred stock capital 4,00,000

Common stock (6,00,000 shares at          Tk. 3 per share)                      18,00,000

Paid-in capital in excess of par 2,00,000

Retained earrings                   8,00,000

Total stockholders Equity     32,00,000

Required:

i. Indicate the change, if any, expected if the firm declares a 2-for-1 stock split.

ii. Indicate the change, if any, expected if the firm declares a 3-for-1 stock split.

 

14. You have 10 shares of Nafiu Wasiu Corporation. The current market price of the stock is Tk. 50. You also have Tk. 80 in cash. You have just received a news of rights offering from the One new share can be purchased at Tk. 40 for each five shares currently owned by you.

Calculate:

a. What is the value of a right?

b. What is the value of share at ex-right?

c. What is the value of your assets before right offering?

d. What will be the value of your assets if you sell the rights?

e. What will be the value of your assets if you do not exercise your rights?

 

15. Shadman Company is thinking to purchase a machine for Tk. 12,500. The company can borrow Tk. 12,500 at an interest rate of 12% to be repaid in 5 equal installments or it can take the machine for an annual lease payment of Tk. 3,000. Straight line basis of depreciation is allowed. The company pay tax@40%, which alternative should the company accept?

 

16. a. What is financial market?

 

b. Mention the significance of capital market?

 

17. Rakibul Traders Ltd. provides their following date. Annual sales during the year 2020, Tk. 1,20,000. The anticipated ratios of cost to selling price are:

Material          60%

Expenses        15%

Profit               25%

Average credit period allowed to debtors 2 months. Average credit period allowed by creditors 1 month. Raw materials are to remain in store on average 1 month. Material will stay in process for 2 months. Finished goods are to remain in warehouse on average 3 months. Bank overdrafit Tk. 60,000 and undrawn profit Tk. 25,000. Cash in hand for contingencies Tk. 10,000.

You are required to determine the working capital requirement of Rakibul Traders Ltd. on the basis of the above information.