CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
OCTOBER15
ASSESSMENT_CODE MB0045_OCTOBER15
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73184
QUESTION_TEXT
What are the factors affecting capital structure? Also explain the
feature of an Ideal capital structure?
Features of an Ideal Capital Structure
a.
b.
c.
d.
Profitability
Flexibility
Control
Solvency 1 each
Factors Affecting Capital Structure
SCHEME OF
EVALUATION
1.
Leverage 2M
2. Cost of capital
3. Cash flow projections of the company
4. Dilution of control
5. Floatation costs
1M each with explanation
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
125909
QUESTION_TEXT
Write a short note on Net Income approach and net Operating
Income approach.
Net Income approach explanation and formula
SCHEME OF
EVALUATION
(5 marks)
Net Operating Income approach
explanation and formula
(5 marks)
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
125913
Write short note on sensitivity analysis and simulation analysis
QUESTION_TEXT
Sensitivity analysis: - 5 marks: - analyzing the change in the project’s
NPV or IRR on account of given change in one of the variable is called
sensitivity analysis
It is a tool to ensure the risk surrounding a capital expenditure project. it
measure the sensitivity of NPV of as project with respect to a change in
one or more of the input variables of NPV
Merits: - it helps management to identify the underlying variables and
their inert relationships
It indicates how robust or vulnerable a project is to the changes in the
underlying variables
It indicates where further work if required. If the NPV or IRR is highly
sensitive to changes in certain variables it is desirable to gather more
information on them.
SCHEME OF
EVALUATION
Demerits: 1. it may fail to provide leads. if such analysis merely presents
a complicated set of switching values, it may not highlight the risk
characteristics of the project
2. the study of the impact of variation in one factor at a time, holding
other factors constant, may not very meaningful
Simulation analysis: - is the analysis of cash flows and returns on
investments, when more than one uncertain element is considered. it
allows the fiancé manager to develop probability distribution of
possible outcomes , given a probability distribution froe ach variable that
may change .this is more realistic than sensitivity analysis , as it
introduces uncertainty fro many variables in the analysis .simulation is a
mathematical technique which is used to predict the expected outcome
when several outcomes are possible
Merits: - it is versatile
It forces the decision maker to explicitly consider the interdependencies
and uncertainties lining the project
Demerits: - it tend to look at a project in isolation, ignoring the
diversification effects of projects and focusing on a single project’s total
risk
It is difficult to model the project and specify the probability distribution
of external variables
It tends to be inherently imprecise.
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125914
QUESTION_TEXT
What do you mean by capital rationing? Mention the types of capital
rationing. Explain the different approaches to capital rationing
Meaning:- 2 marks; types 2 marks; approaches 6 marks (3 each)
Meaning: - capital rationing refers to a situation in which the firm is
under a constraint of funds, limiting its capacity to take up and execute
all the profitable projects
Types: - hard capital rationing
Soft capital rationing
Approaches:SCHEME OF
EVALUATION
Programming approach: - there are mainly two programming
approaches: - linear and integer programming. Linear programming
approach to capital rationing, tries to achieve maximum NPV subject to
many constraints. Here the objective function is maximization of sum of
the NPVs of the projects
Integer programming: - LP may give an optimal mix of projects in
which there may be a need to accept the fraction of project. Accepting a
fraction of a project of a project is not feasible. Therefore the optimum
may not be attainable. The actual implementation of the projects may be
suboptimal