CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
SMUJAN15
ASSESSMENT_CODE MB0045_SMUJAN15
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
9547
QUESTION_TEXT
What is capital budgeting decision? Highlight its types
SCHEME OF
EVALUATION
Meaning of capital budgeting: Capital budgeting is a blue–print of
planned investments in operating assets. Thus, capital budgeting is the
process of evaluating the profitability of the projects under
consideration and deciding on the proposal to be included in the
capital budget for implementation.
Types:
●Decision to replace the equipments for maintenance of current level
of business or decisions aiming at cost reductions, known as
replacement decisions
●Decisions expansion through improved network of distribution or on
expenditure for increasing the present operating level
●Decisions for production of new goods or rendering of new services
●Decisions on penetrating into new geographical area
●Decisions to comply with the regulatory structure affecting the
operations of the company, like investments in assets to comply with
the conditions imposed by Environmental Protection Act
●Decisions on investment to build township for providing residential
accommodation to employees working in a manufacturing plant
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73185
QUESTION_TEXT
What is risk? Explain the types of risk?
SCHEME OF
EVALUATION
Risk may be termed as a degree of uncertainty. It is the possibility
that the actual result from an investment will differ from the
expected result. 2M
Types
1. Stand-alone risk
2.
3.
Portfolio risk
Market risk
4. Corporate risk
2M each with explanation
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125905
QUESTION_TEXT
SCHEME OF
EVALUATION
What is Receivable Management? Examine the costs of maintaining
receivables.
Management of account receivable may be defined as the process of
making decision related to the investment of funds in receivables for
maximising the overall return on the investment of the firm. ( 2
Marks)
Costs of maintaining receivables: (Each point gets 2 marks along with
explanation)
a.
b.
c.
d.
Capital cost
Administration cost
Delinquency cost
Bad-debt or default costs
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125907
QUESTION_TEXT
What do you mean by “valuation of shares”? Explain the features and
methods of valuation of preference shares and ordinary shares.
SCHEME OF
EVALUATION
A company’s shares can be categorized in to ordinary or equity shares
and preference shares.
The following are some important features of preference and equity
shares
Dividends – Rate is fixed for preference shareholders. They can be
given cumulative rights, that is, the dividend can be paid off after
accumulation. The dividend rate is not fixed for equity
shareholders. They change with an increase or decrease in profits.
During the years of big profits, the management may declare a
high dividend. The dividends are not cumulative for equity
shareholders, that is, they cannot be accumulated and distributed
in the later years. Dividends are not taxable.
Claims – In the event of the business closing down, the preference
shareholders have a prior claim on the assets of the company.
Their claims shall be settled first and the balance, if any, will be
paid off to equity shareholders. Equity shareholders are residual
claimants to the company’s income and assets.
Redemption – Preference shares have a maturity date on which the
company pays off the face value of the shares to the holders.
Preference shares are of two types – Redeemable and
irredeemable. Irredeemable preference shares are perpetual.
Equity shareholders have no maturity date.
Conversion – A company can issue convertible preference shares.
After a particular period, as mentioned in the share certificate, the
preference shares can be converted into ordinary shares.
Valuation of preference shares – Preference shares like bonds carry a
fixed rate of dividend or return. Symbolically, this can be
expressed as
P0 – Dp/{1+Kp)n} + Pn/{1+Kp)n}
Or
P0 = Dp * PVIFA (Kp, n) + Pn * PVIF (Kp, n)
Where P0 = Price of the share
Dp = Dividend on preference share
Kp = Required rate of return on preference share
n = Number of years to maturity
Valuation of ordinary shares – People hold common stocks:
*
To obtain dividends in a timely manner
*
To get a higher amount when sold
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125910
QUESTION_TEXT
Explain the phases of capital Expenditure Decisions.
The various phases of capital expenditure decisions are
1. Identification of investment opportunities
(2 marks)
2. Evaluation of each investment proposal
3. Examination of the investment required for each investment
4. Preparation of the statement of costs & benefits of investment
proposal
SCHEME OF
EVALUATION
5. Estimation & comparison of the net present value of the
investment proposals the have been cleared of the management as
the based of screening criteria
6. Examinations of the govt policies and regulatory guidelines
7. Budgeting for capital expenditure for approval by the management
8. Implementation
9. Post completion audit
(2-9 pt caries 1 mark)
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125912
QUESTION_TEXT
What is Credit policy of a firm? Examine the variables of credit policy
SCHEME OF
EVALUATION
The credit policy of a firm can be termed as a trade-off between
increased credit sales leading to increase in profit and the cost of
having large amount of cash locked up in the form of receivables
along with the loss due to the incidence of bad debts. ( 2 Marks)
Variables are: (Each point gets 2 marks along with explanation)
a.
Credit standards
b.
Credit period
c.
Cash discount
d.
Collection programme