IIMS EXECUTIVE FPM ANSWER SHEETS Give reasons because of w

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Financial Management

Q1) Shalini, after acquiring a degree in Hotel Management and Business administration took over her family food processing company of manufacturing pickles, jams and squashes. The business was established by her great grandmother and was doing reasonably well. However the fixed operating costs of the business were high and the cash flow position was week. She wanted to undertake modernization of the existing business to introduce the latest manufacturing processes and diversify into the market of chocolates and candies. She was very enthusiastic and approached a finance consultant, who told her that approximately Rs. 50 lakhs would be required for undertaking the modernization and expansion programme. He also informed her that her stock market was going through a bullish phase.
1. Keeping the above considerations in mind, name the source of finance Shalini should not choose for financing the modernization and expansion of her food processing business. Give reasons in support of your answer. (10)
2. Explain any four other factors, apart from those stated in the above situation, which Shalini should keep in mind while taking this decision. (10)

Q. 2. Adwitiya is a company enjoying market leadership in the food brands segment. Its portfolio includes three categories in the Foods business namely Snack Foods, Juices and Confectionery. Keeping in the with the growing demand for packaged food it now plans to introduce ready-To-Eat Foods. Therefore, the company has planned to undertake investments of nearly Rs. 450 crores for its new line of business. As per the current financial report, the interest coverage ratio of the company and return on investment is higher. Moreover, the corporate tax rate is high. In context of the above case:
1. As a financial manager of the company, which source of finance will you opt for debt or equity, to raise the required amount of capital? Explain by giving suitable reasons in support of your answer. (10)
2. Why the shareholder is s of the company like to gain from the issue of debt by the company? (10)

Q 3. Computer Tech Ltd., is one of the leading information technology outsourcing services providers in India. The company provides business consultancy and outsourcing services to its clients. Over the past five years the company has been paying dividends at high rate to its shareholders. However, this year, although the earnings of the company are high, its liquidity position is not so good. Moreover, the company plans to undertake new ventures in order to expand its business.
In context of the above case:
1. Give reasons because of which you think Computer Tech Ltd. has been paying dividends at high rate to its shareholders over the past five years. (10)
2. Comment upon the likely dividend policy of the company this years by stating any two reasons in support of your answer. (10)

Q 4. Write Short Notes: (Any 4)
I. Gordon model
II. Sensitivity analysis
III. Wealth maximization
IV. Decision tree.
V. Provisioning norms for NPA

Q 5) A) What are the various techniques of capital budgeting. (10 )
B) What are the factors influencing the capital budgeting decisions. (10)

For answersheets contact
[email protected]
+91 95030-94040