MARIAN INTERNATIONAL INSTITUTE OF MANAGEMENT

FINANCIAL MANAGEMENT –Batch:”B”

SEMESTER II/INTERNAL TEST II
Marks: 2x10=20 Batch 2017-2019 Time: 1hour
Answer Any Two Questions
1. Iswarya ltd has a machine which has been in operation for six years. The management is
considering a proposal to purchase an improved model of a similar machine which gives an
increased output. Give your opinion as Manager in regard to the proposal from the following
data:
S.No Particulars Old Machine New Machine
Rs Rs
1 Purchase price of machine 60,000 1,20,000
2 Expenditure per annum on a/c of :
(a) Power Consumption 7,000 8,000
(b)Consumable stores 4,000 5,000
(c)Repairs and Maintenance 5,000 4,000
3 Labour cost per running hour 2 2.25
4 Units of output, 40 60
per machine hour
5 Machine running hours per annum 2000 2000
6 Material cost per unit 40 paisa 40 paisa
7 Selling price of output per unit Rs.1 Rs.1
8 Estimated life in years 10 10
To Determine the Accounting Rate of Return as well as Average Rate of Return.
2. Iswarya company is planning to purchase a machine which has the following cash flows:
Year 1(CFAT) Probability Year2(CFAT) Probability
Rs.9,00,000 0.5 Rs.9,00,000 0.5
Rs.15,00,000 0.5

Rs.18,00,000 0.6
Rs.13,00,000 0.5 Rs.15,00,000 0.4

The machine costs Rs.12, 00,000 with an estimated life of 2 years. The cost of capital of the firm
is 12%.make your recommendation through the Decision Tree method.
3. Outline the financial management technique of capital investment in fixed assets.

4. What are the steps in the capital budgeting process of a firm explain?