MS-042: Capital Investment And Financing Decisions last 3 yrs paper
June, 2021
- ‘‘The major portion of Project Finance is raised either through the capital market or/and from the financial institutions.’’ Explain the main instruments through which companies raise finance from these two sources. Who provides Venture Capital? What are its salient features? Discuss.
- Explain the Internal Rate of Return method and the Net Present Value method of evaluation of investment proposals and point out the differences between them. Which one would you prefer and why? Why is Profitability Index prepared? Explain.
- What are the major global sources of financing? Discuss the meaning and significance of (a) External Commercial Borrowings; and
(b) Depository Receipts, in this regard.
- Distinguish between Mergers and Take-overs and explain different forms of mergers. What factors motivate the companies to merge? Discuss.
- What do you understand by Project Monitoring? How is the Monitoring System designed? Discuss the application of Earned Value Chart in Project Monitoring.
- Any successful project plan must contain nine key elements. List these elements and briefly describe the composition of each.
- Write notes on the following:
(a) Corporate Governance
(b) Leveraged Re-capitalisation
(c) Floating Rate of Interest
(d) Convertible Debenture
- A company’s capital structure consists of the following:
Equity Shares of 100 each 10,00,000 Retained Earnings 5,00,000 9% Performance Shares 6,00,000 7% Debentures 4,00,000 25,00,000 The company earns 12% on its capital. Income Tax Rate is 50%. The company requires a sum of< 12,50,000 to finance its expansion programme for which the following alternatives are available: Issue of< 10,000 Equity Shares at a premium of< 25 per share.
Issue of 10% Preference Shares. Issue of 8% Debentures It is estimated that P/E Ratio after Equity, Preference Shares and Debenture finance would be 21·4, 17 and 15·7 respectively. Suggest the best alternative of financing the expansion programme.
December, 2020
- (a) Discuss the basic factors that influence the long-term financing decisions of a firm.
(b) “Optimising positive NPV implies the same thing as minimising the cost of capital.” Explain this statement with examples.
- (a) Explain the reasons for dissatisfaction with the IRR approach of capital budgeting as compared with NPV method.
(b) What are differential voting rights shares? Why are they issued? How do they differ from bonus shares?
- What do you understand by Financial Engineering? Why is it considered necessary? Describe the important steps taken in this regard in the field of fixed income securities.
- Explain the terms ‘Merger’ and ‘Take-over’ and distinguish between horizontal merger and vertical merger. How would you assess a merger as a source of value addition? Explain with an example.
- What is Venture Capital? How does it differ form project finance provided by term lending institutions? Explain the salient features of Venture Capital Financing. How does it benefit the venture capital provider?
- (a) What is the role of systems integration in project management? Discuss the major objectives of systems integration.
(b) Explain, what do you understand by the term project cycle?
- Write explanatory notes on the following:
(a) Portfolio investment
(b) Cumulative convertible preference shares
(c) Leveraged buyout
(d) Factoring service
- The existing capital structure of ABC Ltd. is as follows:
Equity shares of 100 each 40,00,000 Retained Earnings 10,00,000 9% Performance Shares 25,00,000 7% Debentures 25,00,000 Company earns a return of 12% and the tax on income is 50%. Company wants to raise ` 25,00,000 for its expansion project, for which it is considering the following alternatives:
(i) Issue of 20000 equity shares at a premium of ` 25 per share.
(ii) Issue of 10% preference shares.
(iii) Issue of 9% debentures
The projected P/E ratio in case of equity, preference shares and debenture financing is 20,17 and 16 respectively. Which alternative would you consider to be the best? Give reasons also for your choice
June, 2020
- What do you understand by Term Loans? For what purpose are such loans granted and by whom? Discuss the salient features of term loans and the risks involved therein for the lenders.
- What is meant by Assets Securitisation? Explain the procedure adopted for this purpose and point out its benefits to the parties concerned with it.
- What do you understand by Financial Reconstruction? How does it differ from reorganisation of capital? Discuss the steps that are the to be taken for the formulation of a reconstruction plan.
- “While selecting a project, not only the financial considerations have to be taken into account but also the overall impact it has on the economy.” Explain this statement and discuss the various aspects of economic and social appraisal of a Project.
- What is the purpose of Project Control? What tools are available to the project manager to use in controlling a project? Describe characteristics of a good control system.
- . Write notes on any four of the following:
(a) Global Depository Receipts
(b) Weighted Average Cost of Capital
(c) Differential Voting Rights Shares
(d) Leveraged Buyout
(e) Scenario Analysis
- (a) What are different pay-out methods? How do shareholders react to these methods?
(b) Explain profitability index and discuss its significance in capital budgeting decisions.
- A company needs 12,00,000 for the installation of a new factory which would yield an annual EBIT of 7 2,00,000. The company has the objective of maximising the earnings per share. It is considering the possibility of issuing equity shares plus raising a debt of 2,00,000; 6,00,000 or 10,00,000. The current market price per share is 40 which is expected to drop to 25 per share if the market borrowings were to exceed ! 7,50,000. Cost of borrowings are as indicated below:
Upto 2,50,000/- 10% p.a Between 2,50,001 and 6,25,000 14% p.a. Between 6,25,001 and 10,00,000 16% p.a.
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