6 Register Number :

company’s profitability. The net profit Name of the Candidate :

of Rs. 172 Crores in 1989 dropped to
7 1 4 1
Rs. 14 Crores in 1991 - 1992. The
Rs. 1,119 Crores Euro Dollar loan has M.B.A. (Business Applications)
appreciated to Rs. 2,667 Crores inspite DEGREE EXAMINATION, 2009
of having repaid Rs. 644 Crores. Due to ( SECOND YEAR )
profitability and liquidity problem and hit
by the depreciating rupee and t he ( PAPER - XVII )
liberalised exchange mechanism, t he 270. FINANCIAL DECISION MAKING
co mpany is fo r ce d to r eschedule
repayments of its debt by the year 2003 December ] [ Time : 3 Hours
instead of 1995. NAL Co’s debt equity Maximum : 75 Marks
ratio has increased from 1 : 1 to 2·7 : 1.
SECTION - A (5 × 3 = 15)
Questions :
Answer any FIVE questions.
1. Analyse the reasons for NAL All questions carry equal marks.
Co’s Plight.
1. (a) State and explain the important financial
2. How NAL Co can overcome decisions.
this situation ?
(b) State the various firms in the market
efficiency.
(c) Define the term Financial Leverage along
with the formula.
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(d) Define the term Operating Leverage along 9. Discuss the conceptual frame work of
with the formula. EBIT - EPS. Analyse with a schematic sketch.

(e) Compute the Degree of Operating Leverage SECTION - D (1 × 15 = 15)

(DOL) from the following data :
( Compulsory )
Rs....
1. (a) Case study :
Sales - 5,00,000
N at io na l Alu minium Co mp any
Variable cost - 2,50,000 (NAL Co.), started in 1981, is the largest
integrated aluminium complex in Asia of
Fixed cost - 2,00,000.
total invest of Rs. 2,408 Crores, borrowing
(f) Complet e t he Degree of Financial from a consortium of European banks
Leverage (DFL) from the following data : financed to the extent of dollar 830 million
Rs.... or Rs. 1,119 Crores (46·5 percent). The
loan was repayable by 1995. Aluminium
Sales - 10,00,000
is an electricity - Intensive business ; each
Variable cost - 3,50,000 tonne of aluminium needs over 15,000 KW.
of electricity. Since, its commissioning in
Fixed cost - 2,00,000
1988, NAL Co. has exported substantial
Debentures - 7,50,000 portion of its production since, the
domestic demand has been very low than
at an interest rate of 10 %.
what the company had projected at its
(g) Explain the types of risk. inception. The falling international prices
in last few years have eroded the

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The discount rate is taken as 10 %. SECTION - B (3 × 10 = 30)
Suggest to the management which project
Answer any THREE questions.
should be selected. The values at 10 %
All questions carry equal marks.
discount rate are as follows :
2. The degree of financial leverage is termed as
Year : 1 2 3 4 5
P.V. @ 10 % : 0·909 0·826 0·751 0·683 0·621
the mirror of the firm. Elucidate the same.
3. There are two projects namely X & Y where
4. Discuss the various factors that determine the
the initial outlay required is Rs. 1,00,000 for
dividend policy decision of a firm.
both the projects. The following are the
5. Wr it e a br ief no t e on t he va r io u s various cash inflows for the project - X and
methodologies of inventory valuation along with Project - Y.
their relative merits and demerits.
Project - X :
6. Draft the Specimen of trading, profit and loss Year : 1 2 3 4 5
account and the balance sheet along with the Cash inflows
components. (in Rs.) : 25,000 35,000 45,000 55,000 65,000
SECTION - C (1 × 15 = 15) Project - Y :
Answer any ONE question. Year : 1 2 3 4 5
Cash inflows
7. Discuss the various factors that determine (in Rs.) : 30,000 25,000 40,000 50,000 3,500
significantly the capital structure of a firm.
8. State and explain the various conditions of a
perfect capital market.
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