CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
SMUAPR15
ASSESSMENT_CODE MB0045_SMUAPR15
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
73180
QUESTION_TEX
Critically examine the NPV method.
T
SCHEME OF
EVALUATION
(4 + 2 + 1 + 2 marks)
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
SCHEME OF
EVALUATION
a.
b.
c.
d.
Profitability
Flexibility
Control
Solvency 1 each
Factors Affecting Capital Structure
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
125904
QUESTION_TEXT
Explain the concepts of working capital.
a.
b.
SCHEME OF EVALUATION
c.
d.
Gross working capital
Net working capital
Permanent working capital
Temporary working capital
(3 marks)
(3 marks)
(2 marks)
(2 marks)
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125908
QUESTION_TEXT
Explain the steps in Financial Planning.
There are six steps in Financial Planning
1. Establish corporate objectives
(2 marks)
2. Formulate strategies
(1 mark)
3. Assign responsibilities
SCHEME OF EVALUATION
(1 mark)
4. Forecast financial variables
(2 marks)
5. Develop plans
(2 marks)
6. Create flexible economic environment
(2 marks)
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