mba-3-sem-financial-systems-and-services-dec-2013

mba-3-sem-financial-systems-and-services-dec-2013

Master of Business Administration (MBA) Examination

III Semester

(Financial Systems and Services)

Time : 3 Hours]                                                                                               [Max. Marks : 80


Section A

1.         What do you understand by call money market and treasury bills market. Discuss their significance in the Indian money markets.

2.         Discuss the evolution of Financial services in India. What are the problems faced by financial services industry in India?

3.         Why do you think financial markets are required. What are your views on proper regulation of these markets?

4.         Describe the origin of venture capital in India. Describe the various stages of venture capital financing offered by the Indian venture capital companies.

5.         Distinguish between:

(a)        Leasing and Hire Purchase

(b)        Debit card and Credit card

(c)        Market Risk and Currency Risk

(d)       Open Ended and Close Ended Schemes of Mutual Funds

Section B

6.         ABC Ltd produces and sells a wide range of products. The fin-n is con-sidering adding a new product line.

There are two alternative ways to acquire the needed equipment: (i) purchase, or (ii) lease. The equipment can be purchased for Rs 1,25,000. The equipment has no salvage value at the end of its Useful life of 5 years. The firm can borrow to finance its purchase at a concessional rate of interest of 8 per cent. The loan repayment is as follows:

Year Year-end payment

            Interest          Principal                   Total

Rs.                 Rs.                            Rs.

1          10,000            21,307                      31,307

2          8.295              23,012                      31,307

3          6,454              24,853                      31,307

4          4,466              26,841                      31,307

5          2,320              28,987                      31 307

The yearly lease rental. would be Rs 40.000. The taxes. insurance and maintenance will be paid by the lessor. Engineering and management studies provide the following revenue and cost estimates (excluding lease payments and depreciation) for manufacturing the new product.

                                                                                      Equipment

                                                                        Leased                         Purchased

Unit selling price                                             Rs5.0                           Rs5.0

Unit production costs:                                                                       

              Materials                                            1.80                             180

              Conversion costs                               1.65                             1,65

Total                                                                3.45                             3.45

Unit contribution margin                                1.55                             1.55

Estimated unit volume                                    x 40,000                      x 40,000

Estimated total contribution                           62,000                         62,000

Other costs:                                                                                        

Supervision                                                     16,000                         16,000

Taxes and insurance                                        …..                              3,000

Maintenance                                                    …..                              3,000

Total                                                                16,000                         22,000

 

The firm uses the straight line method of depreciation. The after tax cost of capital of the firm is 10 per cent.

(a)        Should the company lease. or buy the equipment?

(b)        Analyse the financial implications of the proposal from the view point of the leasing company, assuming:

•           required rate of return at 14 per cent

•           straight line depreciation

•           tax rate of 50 per cent

(c)        Determine the lease rental if the leasing company targets

(i)         to earn Rs 25,000 from the project,

(ii)        16 per cent required IRR.