CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
SMUAPR15
ASSESSMENT_CODE MB0045_SMUAPR15
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73181
QUESTION_TEXT
What are the motives of holding inventory? What are the costs relating to
inventory?
SCHEME OF
EVALUATION
5 marks for motives and 5 marks for costs
Motives: ● transaction motive: - for making available inventories to
facilitate smooth productions sand sale
● Precautionary motives: - fro guarding against the risk of
unexpected changes in demand and supply
● Speculative motive: - to take benefits of the changes in price,
firms increase or decrease in the inventory levels
Costs :● material cost :- is the cost of purchasing goods and related costs
such as transportation and handling costs that are associated with
it
● Ordering costs: - the expenses incurred to place orders with
suppliers and replenish the inventory of raw materials are called
ordering cost. it include, requisitioning, transportation, receiving,
inspecting and receiving at the warehouse
● Carrying cost: - costs incurred for maintaining the inventory in
warehouses are called carrying costs. they include interest on
capital locked up in inventory, storage, insurance, taxes and
expenses on maintenance of warehousing building
● Storage costs: - there are costs associated with either a delay in
meeting the demand or inability to meet the demand due to
shortage of stock
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73182
QUESTION_TEXT
What is financial management? Explain the functions of finance?
SCHEME OF
EVALUATION
Financial management of a firm is concerned with procurement
and effective utilisation of funds for the benefit of its shareholders.
It is the art and science of managing money. 2M
Finance functions
1. Financing decisions
2. Investment decisions
3. Dividend decisions
4. Liquidity decisions
2M each with explanation
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
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
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
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
SCHEME OF
EVALUATION
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.
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.