Roll No.

MB 204

MBA
Mid Semester Examination 2018
(Second Semester)
CORPORATE FINANCE

Time: 1:30 Hrs MM: 50

Note:

(i)This question paper contains three Sections – Section A, B & C.

(ii)All sections are compulsory.

Section A

Q1. Fill in the blanks/True False /Multiple Choice Questions (1 x 10 = 10 marks)

(a) Corporate wealth maximization is the value maximization for_____
Equity shareholders
Stakeholders
Employees
Debt capital owners
b) Shareholders wealth increases with the increase in ___
EPS
Market value of the firm
Dividend & market value of the firm
Market price of the equity share
c) What is the value of the firm usually based on?
The value of debt and equity.
The value of equity.
The value of debt.
The value of assets plus liabilities.
(d) Time value of money supports the comparison of cash flows recorded at different time
period by

Discounting all cash flows to a common point of time

Compounding all cash flows to a common point of time
Using either a or b
None of the above.
Which one of the
following is defined as
a firm's short-term
assets and its short-
term
liabilities?
A. working capital
B. debt
C. investment capital
D. net capital
E. capital structure
Which one of the
following is defined as a
firm's short-term assets
and its short-term
liabilities?
A. working capital
B. debt
C. investment capital
D. net capital
E. capital structure
e) A business owned by a solitary individual who has unlimited liability for its debt is called
Sole Properietership
Partnership
Corpoaration
Limited Company
(f) If the nominal rate of interest is 10% per annum and there is quarterly compounding, the
effective rate of interest will be: ---------------
(g) Bond which is offered below its face value is classified as --------
(h) You expect to receive Rs. 100000 after five years. If your required rate of return is 10%,
what is the present value of Rs. 100000?
(i) Working Capital is defined as firm’s short term assets and short term liabilities. (T/F)

(j) Leasing of machinery can be categorized as Financing Decision (T/F)

SECTION – B
This section contains two questions with three parts a, b & c each. Attempt any two parts of
choice from each question.

Q2. (5 x 2 = 10 marks)
(a) Explain the term ‘Corporate Finance’ and its significance for a business organization.
What are its main objectives?
(b) “Investment, Financing and Dividend decisions are all inter-related.” Comment & explain
the decisions with suitable examples.
(c) Mr. K deposits Rs. 65000 at the end of each year for 10 years. Calculate the value of his
money at the end of 10 years at 7%, 8% and 10% rate of interest.
(CVAF @6%=11.491, 7%=11.978, 09%=13.021)

Q3. (5 x 2 = 10 marks)
(a) What do you understand by valuation of securities? Explain the methods for valuation of
bonds.
(b) An investor makes a deposit of Rs. 143500. Calculate the future value of this investment
in following cases:
Interest Rate No. of years of deposit
7% 5
8% 7
9% 9
10% 11

(c) What do you understand by Capital Asset Pricing Model? Explain with suitable
examples.
SECTION - C

Q4. Case study: (20 marks)

Assume that you are nearing graduation and have applied for a job with a local bank. As part of
the bank's evaluation process, you have been asked to take an examination that covers several
financial analysis techniques. The first section of the test addresses discounted cash flow
analysis. See how you would do by answering the following questions.

a) Draw time lines for

 a $100 lump sum cash flow at the end of Year 2,
 an ordinary annuity of $100 per year for 3 years, and
 an uneven cash flow stream of -$50, $100, $75, and $50 at the end of Years 0 to 3.

b)
 What's the future value of an initial $100 after 3 years if it is invested in an account
paying 10% annual interest?
 What is the present value of $100 to be received in 3 years if the appropriate interest
rate is 10%?
c) If a company's sales are growing at a rate of 20% per year, how long will it take sales to
double?
d) If you want an investment to double in three years, what interest rate must it earn?
N 3
PV -1
FV 2