DISTANCE EDUCATION
M.B.A. DEGREE EXAMINATION, MAY 2017.
Third Semester
CORPORATE FINANCE AND TAX MANAGEMENT
(Upto 2012-13 Academic Year and 2013 Calendar Year)
Time Three hours Maximum 100 marks
PART A — 8 40 marks)
Answer any FIVE questions.
1. Distinguish between tax avoidance and tax evasion.
2. Explain the different types of debentures.
3. How will you calculate before tax and after tax cost of
debentures?
4. Compare and contrast IRR and ARR.
5. What are the risks associated with excess working
capital?
6. Explain the assumptions of Gordon's theory of dividend.
7. What are the major three functions of financial
management?
8. Discuss the tax implications of leasing.
Sub. Code
36
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wk12
PART B — 15 60 marks)
Answer any FOUR questions.
9. Discuss the scope of financial management.
10. Explain the factors determining working capital of a
manufacturing firm.
11. Describe the usage of decision tree analysis as a capital
budgeting technique.
12. You are given the following facts about a firm
Risk free rate of return is 11%
Beta co-efficient of the firm is 1.25.
Compute the cost of equity using CAPM assuming a
market return of 15%.
13. The Alpha Company limited is considering the purchase
of a new investment 2 alternative investments are
available each costing Rs. 2,00,000. Cash inflows are
expected to be as follows
Year A B
1 80,000 1,00,000
2 70,000 80,000
3 50,000 60,000
4 40,000 60,000
The company has a target return on capital employed
of 10%. Risk premium rates are and for A and B.
Which investment should be preferred?
DE-829
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wk12
14. Calculate the working capital requirement of R Ltd. from
the following.
Projected annual sales Rs. 9,00,000
Percentage of net profit on cost of sales 20%
Average credit allowed to debtors 1 month
Average credit allowed by creditors 2.5 months
Average stock carrying 2 months
Add 10% to allow for contingencies.
15. A company decides that it will not pay any dividends for
20 years. After that time it is expected that the company
could pay dividend of Rs. 15 per share indefinitely.
However, the company at present could pay Rs. 3 per
share. The required rate of this company's shareholders
is 10%. What is the loss to each shareholder as a result of
the policy of the company?