(Paper) IGNOU EMBA Paper - E10 : Corporate Finance (December 2007)

Paper : IGNOU EMBA Paper - E10 : Corporate Finance (December 2007)

COMMONWEALTH EXECUTIVE MBA/MPA PROGRAMME
Term-End Examination

December, 2007
E-10 : CORPORATE FINANCE

Time: 3 hours
Maximum Marks: 100 (Weightage 70%)

Note : Attempt any three questions from Section A.

Section B is compulsory All questions carry equal marks.

SECTION A

1. Distinguish between the various forms of business organisations Explain the role of finance manager in each

form of business organisation.

2. What are derivativesa nd hybrids? Explaint he difference

between Call options and Put options, giving suitable examples.

3. What do you mean by financial projections ? Explain how financial projections are made.

4. What is leasing ? Explain how lease payments are determined and how they are treated for the purpose of taxation.

5. Explain the following :

(a) Stock Purchase Warrant

(b) Securitisation

(c) Advantages of Mergers

SECTION B

6. Summarised income and expenditure forecasts for the months of March to August 2007 are given below :

Month Sales Purchase Wages Overheads
March 60,000 36.000 9,000 10,000
April 62,000 38,000 8,000 9,500
May 64,000 33,000 10,000 11,500
June 58,000 35,000 8,500 9,000
July 56,000 39,000 9,500 9,500
August 60,000 34,000 8,000 8,500

You are required to prepare a starting on 1st May, 2007 taking into account the following additional information

(i) Cash balance on 1st May, 2007, is Rs. 8,000.

(ii) Sales and purchase are on credit basis.

(iii) Plant costing Rs. 16,000 is due for delivery in July.10% is payable on delivery and the balance after 3 months.

(iv) Advance tax instalments of Rs. 8,000 each are payable in March and June.

(v) The period of credit allowed by suppliers is 2 months and that allowed to customers is 1 month.

(vi) Lag in payment of all expenses one month.

7. The Balance Sheets of Shyam Ltd. at the end of 2006 and 2007 are given below :

Balance Sheet

Liabilities 31.12.06 31.12.07 Assets 31.12.06 31.12.07
Paid up capital 1,00,000 1,00,000 Land 20,000 50,000
Debntures 60,000 70,000 Plant & machinery 1,20,000 1,50,000
Long term loans 30,000 40,000 Furniture & fitting 10,000 15,000
Bank loans 25,000 35,000 Inventory 50,000 55,000
Creditors 20,000 25,000 Debtors 20,000 35,000
Bills Payable 5,000 10,000 Bills receivable 10,000 10,000
      Cash 10,000 5,000
Total 29,000 3,40,000 Total 2,90,000 3,40,000

The sales for 2006 and 2007 were Rs. 6,50,000 and Rs. 8,00,000 respectively. All the sales are made on credit basis. Opening Stock on 1st Jan., 2006 was Rs. 40,000. Gross Profit was Rs. 1,50,000 in 2006 and Rs. 2,00,000 in 2007 .

From the above information you are required to calculate the following ratios :

(i) Current Ratio

(ii) Quick Ratio

(iii) Inventory Turnover

(iv) Average Collection Period

(V) Debt Equity Ratio