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040001E482052001

PART B
Answer any two full questions, each carries 15 marks.

What are the steps followed in calculating Weighted average cost of capital?

Calculate the weighted average cost of capital from the following data

Number of Market price per
items Book value | each

−−

65000 3000000
preferred stock | 15000 600000

retained
earnings 800000 ச 13

Distinguish between the perpetual debt and redeemable debts.

Explain the dividend capitalization method in cost of equity calculations.
What are the assumptions of Modigliani Miller Model of Dividend theory? What
is his basic postulate? How does the total value of shareholders affect when
company 1. Pays dividends 2. Abstain from paying dividends according to this
theory.
Explain Gordon’s model on dividend theories. What are the assumptions of this
model? What are the major criticisms?
What are the common factors that affect dividend policy of organizations?
PART C

Answer any two full questions, each carries 20 marks.
Calculate the working capital requirement of an organization with 8 operating
cycles per year with Minimum cash balance held by the organization INR 50
Crores. The cost of sales is 728 Crores per year.
How does the variation of operating cycle affect the working capital management?
What are the factors that affect the composition of working capital?
Explain the concept of capital rationing. What are the factors affecting capital
rationing. Define the hard capital and soft capital rationings.
A company invests INR 35000 for a new project and receives INR 8000, 9000,
20000, 14000, 16000, 15000 respectively in the next six years. Calculate the
payback period.
What are the advantages and disadvantages of IRR method of evaluation for
capital budgeting?
Company ABC has the functional data of opening and closing balances of

different current assets and current liabilities as follows. Calculate the operating

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