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1. AEREN FOUNDATION’S Maharashtra Govt. Reg. No.: F-11724
SUBJECT : Financial Management
COURSE : MBA 2nd
semester Total Marks : 80
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AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL

2. Question – A (1) Mr. Nimish holds the following portfolio.
Share Beta Investment
Alpha 0.9 Rs.12, 00,000
Beta 1.5 Rs. 3, 50,000
Carrot 1.0 Rs. 1, 00,000
What is the expected rate of return on his portfolio, if the risk rate is 7 per cent and the expected return
on the market portfolio is 16 per cent?
Answer – A (1): For given bata (β), the required rate of return is obtained as
E(rp) = rf + β (rm – rf)
Question – A (2) A share is selling for Rs.60 on which a dividend of Rs.4 per share is expected at the end
of the year. The expected market price after dividend declaration is to be Rs.70. Compute the following:
-
(i) The return on investment ® in shares.
(ii) Dividend yield
(iii) Capital Gain Yield
Answer – A (2):
(i) Return on Investment per share = Net profit after taxes – Dividend X 100
Average ordinary share or net worth
Dividend Yield = Dividend per ordinary share (DPS) X 100
Market Value per Share

3. (ii) Capital Gain Yield = Earnings per share (EPS) X 100
Market value per share
Question – B: DIC Ltd. provides the following data:
Comparative trial balance
March 31 year 2 March 31 year 1 Increase(Decrease)
Debit Balance
Cash 20 10 10
Working capital (other than cash) Rs.190 Rs. 90 Rs.100
Investment (Long term) 100 200 (100)
Building and equipment 500 400 100
Land 40 50 (10)
Total 850 750 100
Credit
Accumulated Depreciation 200 160 40
Bonds 150 100 50
Reserves 350 350 ---
Equity Shares 150 140 10
Total 850 750 100
Income Statement
For the period ending March 31, year 2
(Amount in Rs lakh)
Sales Rs.1000
Cost of Goods Sold 500
Selling Expense Rs.50
Administrative Expenses 50 100
Operating Income 400
Other charges
Gain on sale of building and equipment Rs 5
Loss on sale of investments (10)
Interest (6)

4. Taxes (189) (200)
Net Income after taxes 200
Notes: (a) The depreciation charged for the year was Rs.60 Lakh
(b) The Book value of the building and equipment disposed was Rs 10 Lakh
Prepare a Cash Flow Statement (Based on AS-3)
Answer – B:
Cash Flow Statement of DIC Limited (Indirect Method)
Particulars Amount in Rs. Lakh
Cash flow from operating activities:
Net profit before taxation and extraordinary items 389
Adjustment for
Depreciation 60
Gain on sale of building and equipment (5)
Interest expense 6
Question – C (1) - A. Ltd. produces a product which has a monthly demand of 4,000 units. The product
requires a component X which is purchased at Rs.20. For every finished product one unit of component
is required. The ordering cost is Rs.120 per order and the holding cost is 10 per cent per annum. You are
required to calculate:
(i) Economic order quantity
(ii) If the minimum lot size to be supplied is 4, 000 units, what is the extra cost, the company
has to incur?
(iii) What is the minimum carrying cost, the company has to incur?
Answer – C (1):
(i) Determination of EOQ
EOQ = 2 AB A = Annual usage of inventory (units)
C B = Buying cost per order
C = Carrying cost per unit

5. Question – D - A stock is currently trading for Rs.29. The risk less interest is 7 % p.a continuously
compounded. Estimate the value of European call option with a strike price of Rs.30 and a time of
expiration of 4 months. The standard deviation of the stock’s annual return is 0.45. Apply BS model.
Answer – D:
Spot price of the share S Rs. 29.00
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6. Question – D - A stock is currently trading for Rs.29. The risk less interest is 7 % p.a continuously
compounded. Estimate the value of European call option with a strike price of Rs.30 and a time of
expiration of 4 months. The standard deviation of the stock’s annual return is 0.45. Apply BS model.
Answer – D:
Spot price of the share S Rs. 29.00
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