Section - A: Each question carries 05 marks.

[15 Marks]
1
2
3

What do you mean by Shareholders wealth maximization (SWM)? How

Shareholders wealth maximization is different than profit maximization?
What do you mean by Financial system? Discuss the components of formal financial
system.
What is capital budgeting? Discuss the process of capital budgeting.

Section B:
Marks]
4

[10

A firm borrows Rs. 20,00,000 at an interest rate of 15% and the loan is to be repaid
in five equal installments payable at the end of each of the next five years. Answer
the following
a Calculate annual installment payment amount.
b Prepare loan amortization table showing the breakup of Interest and Principle
amount in each installment and balance of loan left to be paid every year.

Section - C:

[15

Marks]
5

Ashish limited is a leading manufacturer of automotive components. It supplies to

the original equipment manufacturers as well as the replacement market. Its
projects typically have a short life as it introduces new models periodically.
As a Financial Analyst of the company you are provided with the following
information of three projects.
Project A - Extension of an existing line.
Project B - New product.
Project C - sponsoring a pavilion at a Trade fair.
The expected net cash flows of the three projects are as follows:
Year

Project A

(30,000)

1
2
3

22,000
14,000
9,600

Project
B
(30,000
)
7,000
16,000
26,000

Project C
(30,000)
84,000
(4,000)
-----

CFO of the company believes that all three projects have risk characteristics similar
to the average risk of the firm and hence the firm's cost of capital, viz. 12 percent,
will apply to them.
You are required to evaluate the projects under following:
a) What is pay back period (PBP) and discounted pay back period (DPBP)?
Calculate the PBP and DPBP for Project A and B.
b) What is Net present value (NPV)? Calculate the NPV for all three projects.
c) What is profitability Index (PI)? Calculate PI for all three projects.

d) What do you mean by Accounting/Average rate of return (ARR)? Calculate

ARR
for
Project
A
and B. (Projected Profit after tax (PAT) of project A is Rs. 12,000, Rs. 4,000,
and Rs. (400) for first, second and third year respectively. And for Project B
projected PAT is Rs. (3,000), Rs. 6,000 and Rs. 16,000 for first, second and
third year respectively).

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