Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Financial Management
Section A: Objective Type (30 marks)
•This section consists of multiple choice & Short Notes.
•Answer all the questions.
•Part One carries 1 mark each & Part two carries 5 marks each.
Part one:
Multiple choices:
1. The approach focused mainly on the financial problems of corporate enterprise
a. Ignored non-corporate enterprise
b. Ignored working capital financing
c. External approach
d. Ignored routine problems
2. These are those shares, which can be redeemed or repaid to the holders after a lapse of the
stipulated period
a. Cumulative preference shares
b. Non-cumulative preference shares
c. Redeemable preference shares
d. Perpetual shares
3. This type of risk arise from changes in environmental regulations, zoning requirements, fees,
licenses and most frequently taxes
a. Political risk
b. Domestic risk
c. International risk
d. Industry risk
4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment
proposal
a. Future cost
b. Specific cost
c. Spot cost
d. Book cost
5. This concept is helpful in formulating a sound & economical capital structure for a firm
a. Financial performance appraisal
b. Investment evaluation
c. Designing optimal corporate capital structure
d. None
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
6. It is the minimum required rate of return needed to justify the use of capital
a. From investors
b. Firms point
c. Capital expenditure point
d. Cost of capital
7. It arises when there is a conflict of interest among owners, debenture holders and the management
a. Seasonal variation
b. Degree of competition
c. Industry life cycle
d. Agency costs
8. Some guidelines on shares & debentures issued by the government that are very important for the
constitution of the capital structure are
a. Legal requirement
b. Purpose of finance
c. Period of finance
d. Requirement of investors
9. It is that portion of an investments total risk that results from change in the financial integrity of
the investment
a. Bull- bear market risk
b. Default risk
c. International risk
d. Liquidity risk
10. _____________ measure the systematic risk of a security that cannot be avoided through
diversification
a. Beta
b. Gamma
c. Probability distribution
d. Alpha
Part Two:
1. What is Annuity kind of cash flow?
2. What do understand by Portfolio risk?
3. What do you understand by ‘Loan Amortization’?
4. What is the Difference between NPV and IRR?
END OF SECTION A
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
Section B: Case lets (40 marks)
•This section consists of Case lets.
•Answer all the questions.
•Each Case let carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Case let 1
This case provides the opportunity to match financing alternatives with the needs of different companies.
It allows the reader to demonstrate a familiarity with different types of securities. George Thomas was
finishing some weekend reports on a Friday afternoon in the downtown office of Wishart and Associates,
an investment-banking firm. Meenda, a partner in the firm, had not been in the New York office since
Monday. He was on a trip through Pennsylvania, visiting five potential clients, who were considering the
flotation of securities with the assistance of Wishart and Associates. Meenda had called the office on
Wednesday and told George's secretary that he would cable his recommendations on Friday afternoon.
George was waiting for the cable. George knew that Meenda would be recommending different types of
securities for each of the five clients to meet their individual needs. He also knew Meenda wanted him to
call each of the clients to consider the recommendations over the weekend. George was prepared to make
these calls as soon as the cable arrived. At 4:00 p.m. a secretary handed George the following telegram.
George Thomas, Wishart and Associates STOP Taking advantage of offer to go skiing in Poconos STOP
Recommendations as follows: (1) common stock, (2) preferred stock, (3) debt with warrants, (4)
convertible bonds, (5) callable debentures STOP. See you Wednesday STOP Meenda. As George picked
up the phone to make the first call, he suddenly realized that the potential clients were not matched with
the investment alternatives. In Meenda's office, George found folders on each of the five firms seeking
financing. In the front of each folder were some handwritten notes that Meenda had made on Monday
before he left. George read each of the notes in turn. APT, Inc needs $8 million now and $4 million in
four years. Packaging firm with high growth rate in tri-state area. Common stock trades over the counter.
Stock is depressed but should rise in year to 18 months. Willing to accept any type of security. Good
management. Expects moderate growth. New machinery should increase profits substantially. Recently
retired $7 million in debt. Has virtually no debt remaining except short-term obligations.
Sandford Enterprises
Needs $16 million. Crusty management. Stock price depressed but expected to improve. Excellent growth
and profits forecast in the next two year. Low debt-equity ratio, as the firm has record of retiring debt
prior to maturity. Retains bulk of earnings and pays low dividends. Management not interested in
surrendering voting control to outsiders. Money to be used to finance machinery for plumbing supplies.
Sharma Brothers., Inc.
Needs $20 million to expand cabinet and woodworking business. Started as family business but now has
1200 employees, $50 million in sales, and is traded over the counter. Seeks additional shareholder but not
willing to stock at discount. Cannot raise more than $12 million with straight debt. Fair management.
Good growth prospects. Very good earnings. Should spark investor's interest. Banks could be willing to
lend money for long-term needs.
Sacheetee Energy Systems
The firm is well respected by liberal investing community near Boston area. Sound growth company.
Stock selling for $16 per share. Management would like to sell common stock at $21 or more willing to
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
use debt to raise $ 28 million, but this is second choice. Financing gimmicks and chance to turn quick
profit on investment would appeal to those likely to invest in this company.
Ranbaxy Industry
Needs $25 million. Manufactures boat canvas covers and needs funds to expand operations. Needs longterm
money. Closely held ownership reluctant surrender control. Cannot issue debt without permission of
bondholders and First National Bank of Philadelphia. Relatively low debt-equity ratio. Relatively high
profits. Good prospects for growth Strong management with minor weaknesses in sales and promotion
areas. As George was looking over the folders, Meenda's secretary entered the office. George said, "Did
Meenda leave any other material here on Monday except for these notes?” She responded, "No, that's it,
but I think those notes should be useful. Meenda called early this morning and said that he verified the
facts in the folders. He also said that he learned nothing new on the trip and he sort of indicated that, he
had wasted his week, except of course, that he was invited to go skiing at the company lodge up there".
George pondered over the situation. He could always wait until next week, when he could be sure that he
had the right recommendations and some of the considerations that outlined each client's needs and
situation. If he could determine which firm matched each recommendation, he could still call the firms by
6:00 P.M. and meet the original deadline. George decided to return to his office and match each firm with
the appropriate financing.
Question:
1. Which type of financing is appropriate to each firm?
2. What types of securities must be issued by a firm which is on the growing stage in order to meet
the financial requirements?
Case let 2
This case has been framed in order to test the skills in evaluating a credit request and reaching a correct
decision. Perluence International is large manufacturer of petroleum and rubber-based products used in a
variety of commercial applications in the fields of transportation, electronics, and heavy manufacturing.
In the northwestern United States, many of the Perluence products are marketed by a wholly-owned
subsidiary, Bajaj Electronics Company. Operating from a headquarters and warehouse facility in San
Antonio, Strand Electronics has 950 employees and handles a volume of $85 million in sales annually.
About $6 million of the sales represents items manufactured by Perluence. Gupta is the credit manager at
Bajaj electronics. He supervises five employees who handle credit application and collections on 4,600
accounts. The accounts range in size from $120 to $85,000. The firm sells on varied terms, with 2/10, net
30 mostly. Sales fluctuate seasonally and the average collection period tends to run 40 days. Bad-debt
losses are less than 0.6 per cent of sales. Gupta is evaluating a credit application from Booth Plastics, Inc.,
a wholesale supply dealer serving the oil industry. The company was founded in 1977 by Neck A. Booth
and has grown steadily since that time. Bajaj Electronics is not selling any products to Booth Plastics and
had no previous contact with Neck Booth. Bajaj Electronics purchased goods from Perluence
International under the same terms and conditions as Perluence used when it sold to independent
customers. Although Bajaj Electronics generally followed Perluence in setting its prices, the subsidiary
operated independently and could adjust price levels to meet its own marketing strategies. The Perluence's
cost-accounting department estimated a 24 per cent markup as the average for items sold to Pucca
Electronics. Bajaj Electronics, in turn, resold the items to yield a 17 per cent markup. It appeared that
these percentages would hold on any sales to Booth Plastics. Bajaj Electronics incurred out-of pocket
expenses that were not considered in calculating the 17 per cent markup on its items. For example, the
contact with Booth Plastics had been made by James, the salesman who handled the Glaveston area.
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
James would receive a 3 per cent commission on all sales made Booth Plastics, a commission that would
be paid whether or not the receivable was collected. James would, of course, be willing to assist in
collecting any accounts that he had sold. In addition to the sales commission, the company would incur
variable costs as a result of handling the merchandise for the new account. As a general guideline,
warehousing and other administrative variable costs would run 3 per cent sales. Gupta Holmstead
approached all credit decisions in basically the same manner. First of all, he considered the potential
profit from the account. James had estimated first-year sales to Booth Plastics of $65,000. Assuming that
Neck Booth took the, 3 per cent discount. Bajaj Electronics would realize a 17 per cent markup on these
sales since the average markup was calculated on the basis of the customer taking the discount. If Neck
Booth did not take the discount, the markup would be slightly higher, as would the cost of financing the
receivable for the additional period of time. In addition to the potential profit from the account, Gupta was
concerned about his company's exposure. He knew that weak customers could become bad debts at any
time and therefore, required a vigorous collection effort whenever their accounts were overdue. His
department probably spent three times as much money and effort managing a marginal account as
compared to a strong account. He also figured that overdue and uncollected funds had to be financed by
Bajaj Electronics at a rate of 18 per cent. All in all, slow -paying or marginal accounts were very costly to
Bajaj Electronics. With these considerations in mind, Gupta began to review the credit application for
Booth Plastics.
Question:
1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth
Plastics and give your views to increase the profit.
2. Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of
credit limit that electronics give to Booth Plastics.
Section C: Applied Theory (30 marks)
•This section consists of applied theory questions.
•Answer all the questions.
•Each question carries 15 marks each.
•Detailed information should form the part of your answer (Word limit 200-250 words).
1. Honey Well Company is contemplating to liberalize its collection effort. Its present sales are Rs.
10 lakh, its average collection period is 30 days, its expected variable cost to sales ratio is 85 per
cent and its bad debt ratio is 5 per cent. The Company’s cost of capital is 10 per cent and tax are
is 40 per cent. He proposed liberalization in collection effort increase sales to Rs. 12 lakh
increases average collection period by 15 days, and increases the bad debt ratio to 7 percent.
Determine the change in net profit.
2. Explain the concept of working capital. What are the factors which influence the working capital?
S-1-91110
END OF SECTION B
END OF SECTION C
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Human Resource Management
Section A: Objective Type (30 marks)
•This section consists of multiple choice & Short Notes type questions.
•Answer all the questions.
•Part one carries 1 mark each & Part two carries 5 marks each.
Part One:
Multiple choices:
1. It is a cultural attitude marked by the tendency to regard one’s own culture as superior to others
a. Geocentrism
b. Polycentrism
c. Ethnocentrism
d. Egocentrism
2. It is the systemic study of job requirements & those factors that influence the performance of
those job requirements
a. Job analysis
b. Job rotation
c. Job circulation
d. Job description
3. This Act provides an assistance for minimum statutory wages for scheduled employment
a. Payment of Wages Act, 1936
b. Minimum Wages Act, 1948
c. Factories Act, 1948
d. Payment of Gratuity act, 1972
4. __________ is the actual posting of an employee to a specific job
a. Induction
b. Placement
c. Attrition
d. None
5. Broadening an individual’s knowledge, skills & abilities for future responsibilities is known as
a. Training
b. Development
c. Education
d. Mentoring
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
6. Change that is designed and implemented in an orderly and timely fashion in anticipation of
future events
a. Planned change
b. Technology change
c. Structural change
d. None
7. It is a process for setting goals and monitoring progress towards achieving those goals
a. Performance appraisal
b. Performance gap
c. Performance factor
d. Performance management system
8. A method which requires the rates to provide a subjective performance evaluation along a scale
from low to high
a. Assessment centre
b. Checklist
c. Rating scale
d. Monitoring
9. It is the sum of knowledge, skills, attitudes, commitment, values and the liking of the people in an
organization
a. Human resources
b. Personal management
c. Human resource management
d. Productivity
10. A learning exercise representing a real-life situation where trainees compete with each other to
achieve specific objectives
a. Executive development
b. Management game
c. Programmed learning
d. Understudy
Part Two:
1. Explain the importance of Career Planning in industry.
2. Write the features of HRM.
3. Briefly explain the concept of Performance Appraisal.
4. Explain On-Job and Off Job Training.
END OF SECTION A
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
Section B: Case lets (40 marks)
•This section consists of Case lets.
•Answer all the questions.
•Each Case let carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150-200 words).
Case let 1
Trust them with knee-jerk reactions," said Vikram Koshy, CEO, Delta Software India, as he looked at the
quarterly report of Top Line Securities, a well-known equity research firm. The firm had announced a
downgrade of Delta, a company listed both on Indian bourses and the NASDAQ. The reason? "One out
of every six development engineers in the company is likely to be benched during the remaining part of
the year." Three analysts from Top Line had spent some time at Delta three weeks ago. Koshy and his
team had explained how benching was no different from the problems of excess inventory, idle time, and
surplus capacity that firms in the manufacturing sector face on a regular basis, "Delta has witnessed a
scorching pace of 30 per cent growth during the last five years in a row," Koshy had said, "What is
happening is a corrective phase." But, evidently, the analysts were unconvinced.
Why Bench?
Clients suddenly decide to cut back on IT spends Project mix gets skewed, affecting work allocation
Employee productivity is set to fall, creating slack working conditions. High degree of job specialization
leads to redundancy
What are the options?
Quickly cut costs in areas which are non-core look for learning’s from the manufacturing sector Focus on
alternative markets like Europe and Japan Move into products, where margins are better. Of course, the
Top Line report went on to cite several other "signals," as it said: the rate of annual hike in salaries at
Delta would come down to 5 per cent (from between 20 and 30 per cent last year); the entry-level intake
of engineers from campuses in June 2001, would decline to 5 per cent (unlike the traditional 30 per cent
addition to manpower every year); and earnings for the next two years could dip by between 10 and 12
per cent. And the loftiest of them all: "The meltdown at Nasdaq is unlikely to reverse in the near future."
"Some of the signals are no doubt valid. And ominous," said Koshy, addressing his A-Team, which had
assembled for the routine morning meeting. "But, clearly, everyone is reading too much into this business
of benching. In fact, benching is one of the many options that our principals in the US have been pursuing
as part of cutting costs right since September, 2000. They are also expanding the share of off-shore jobs.
Five of our principals have confirmed that they would outsource more from Delta in India-which is likely
to hike their billings by about 30 per cent. At one level, this is an opportunity for us. At another, of
course, I am not sure if we should be jubilant, because they have asked for a 25-30 per cent cut in billing
rates. Our margins will take a hit, unless we cut costs and improve productivity." "Productivity is clearly a
matter of priority now," said Vivek Varadan, Vice-President (Operations). "If you consider benching as a
non-earning mode, we do have large patches of it at Delta. As you are aware, it has not been easy to
secure 70 per cent utilization of our manpower, even in normal times. I think we need to look at why we
have 30 per cent bench before examining how to turn it into an asset." "There are several reasons,"
remarked Achyut Patwardhan, Vice-President (HR). "And a lot of it has to do with the nature of our
business, which is more project-driven than product-driven. When you are managing a number of
overseas and domestic projects simultaneously, as we do at Delta, people tend to go on the bench. They
wait, as they complete one project, and are assigned the next. There are problems of coordination between
projects, related to the logistics of moving people and resources from one customer to another. In fact, I
am fine-tuning our monthly manpower utilization report to provide a breakup of bench costs into
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
specifics-leave period, training programmes, travel time, buffers, acclimatization period et al." "It would
be worthwhile following the business model used by US principal Techno Inc," said Aveek Mohanty,
Director (Finance). "The company has a pipeline of projects, but it does not manage project by project.
What it does is to slice each project into what it calls 'activities'. For example, communication
networking; user interface development; scheduling of processes are activities common to all projects.
People move from one project to another. It is somewhat like the Activity Based Costing. It throws up the
bench time straightaway, which helps us control costs and revenue better." "I also think we should reduce
our dependence on projects and move into products," said Praveen Kumar, Director (Marketing). "That is
where the opportunity for brand building lies. In fact, now is the time to get our technology guys involved
in marketing. Multiskilling helps reduce the bench time." "Benching has an analogy in the manufacturing
sector," said Girish Shahane, Vice-President (Services). "We could look for learning's there. Many firms
have adopted Just-In-Time (JIT) inventory as part of eliminating idle time. It would be worthwhile
exploring the possibility of JIT. But the real learning lies in standardization of work. It is linked to what
Mohanty said about managing by activities." "At a broader level, I see several other opportunities," said
Koshy, "We can fill in the space vacated by US firms and move up the value chain. But before we do so,
Delta should consolidate its position as the premier outsourcing centre. Since there are only two ways in
which we can generate revenue-sell expertise or sell products-we should move towards a mix of both.
Tie-ups with global majors will help. Now is the time to look beyond the US and strike alliances with
firms in Europe- and also Japan-as part of developing new products for global markets."
Questions
1. Should benching be a matter of concern at Delta?
2. What are the risks involved in moving from a project-centric mode to a mix of projects and
products?
Case let 2
The contexts in which human resources are managed in today's organizations are constantly, changing.
No longer do firms utilize one set of manufacturing processes, employ a homogeneous group of loyal
employees for long periods of time or develop one set way of structuring how work is done and
supervisory responsibility is assigned. Continuous changes in who organizations employ and what these
employees do require HR practices and systems that are well conceived and effectively implemented to
ensure high performance and continued success.
1. Automated technologies nowadays require more technically trained employees possessing multifarious
skills to repair, adjust or improve existing processes. The firms can't expect these employees (Gen X
employees, possessing superior technical knowledge and skills, whose attitudes and perceptions toward
work are significantly different from those of their predecessor organizations: like greater self control,
less interest in job security; no expectations of long term employment; greater participation urge in work
activities, demanding opportunities for personal growth and creativity) to stay on without attractive
compensation packages and novel reward schemes.
2. Technology driven companies are led by project teams, possessing diverse skills, experience and
expertise. Flexible and dynamic organizational structures are needed to take care of the expectations of
managers, technicians and analysts who combine their skills, expertise and experience to meet changing
customer needs and competitive pressures.
3. Cost cutting efforts have led to the decimation of unwanted layers in organizational hierarchy in recent
times. This, in turn, has brought in the problem of managing plateau employees whose careers seem to
have been hit by the delivering process. Organizations are, therefore, made to find alternative career paths
for such employees.
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
4. Both young and old workers, these days, have values and attitudes that stress less loyalty to the
company and more loyalty to oneself and one's career than those shown by employees in the past,
Organizations, therefore, have to devise appropriate HR policies and strategies so as to prevent the flight
of talented employees
Question
1. Discuss that technological breakthrough has brought a radical changes in HRM.
Section C: Applied Theory (30 marks)
•This section consists of applied theory Questions.
•Answer all the questions.
•Each question carries 15 marks.
•Detailed information should form the part of your answer (Word limit 150-200 words).
1. Several types of interviews are commonly used depending on the nature & importance of the
position to be filled within an organization. Explain the different types of Interviews.
2. Explain the legal provisions regarding safety of workers.
S-1-191110
END OF SECTION B
END OF SECTION C
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Managerial Economics
Section A: Objective Type (30 marks)
•This section consists of multiple choices & Short notes type questions.
•Answer all the questions.
•Part one carries 1 mark each & Part two carries 5 marks each.
Part one:
Multiple choices:
1. It is a study of economy as a whole
a. Macroeconomics
b. Microeconomics
c. Recession
d. Inflation
2. A comprehensive formulation which specifies the factors that influence the demand for the
product
a. Market demand
b. Demand schedule
c. Demand function
d. Income effect
3. It is computed when the data is discrete and therefore incremental changes is measurable
a. Substitution effect
b. Arc elasticity
c. Point elasticity
d. Derived demand
4. Goods & services used for final consumption is called
a. Demand
b. Consumer goods
c. Producer goods
d. Perishable goods
5. The curve at which satisfaction is equal at each point
a. Marginal utility
b. Cardinal measure of utility
c. The Indifference Curve
d. Budget line
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
6. Costs that are reasonably expected to be incurred in some future period or periods
a. Future costs
b. Past costs
c. Incremental costs
d. Sunk costs
7. Condition when the firm has no tendency either to increase or to contract its output
a. Monopoly
b. Profit
c. Equilibrium
d. Market
8. Total market value of all finished goods & services produced in a year by a country’s residents is
known as
a. National income
b. Gross national product
c. Gross domestic product
d. Real GDP
9. The sum of net value of goods & services produced at market prices
a. Government expenditure
b. Product approach
c. Income approach
d. Expenditure approach
10. The market value of all the final goods & services made within the borders of a nation in an year
a. Globalization
b. Subsidies
c. GDP
d. GNP
Part Two:
1. Define ‘Arc Elasticity’.
2. Explain the law of ‘Diminishing marginal returns’.
3. What is ‘Prisoner’s Dilemma’, of non cooperative game?
4. What is ‘Third degree Discrimation’?
END OF SECTION A
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
Section B: Case lets (40 marks)
•This section consists of Case lets.
•Answer all the questions.
•Each Case let carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Case let 1
The war on drugs is an expensive battle, as a great deal of resources go into catching those who buy or
sell illegal drugs on the black market, prosecuting them in court, and housing them in jail. These costs
seem particularly exorbitant when dealing with the drug marijuana, as it is widely used, and is likely no
more harmful than currently legal drugs such as tobacco and alcohol. There's another cost to the war on
drugs, however, which is the revenue lost by governments who cannot collect taxes on illegal drugs. In a
recent study for the Fraser Institute, Canada, Economist Stephen T. Easton attempted to calculate how
much tax revenue the government of the country could gain by legalizing marijuana. The study estimates
that the average price of 0.5 grams (a unit) of marijuana sold for $8.60 on the street, while its cost of
production was only $1.70. In a free market, a $6.90 profit for a unit of marijuana would not last for long.
Entrepreneurs noticing the great profits to be made in the marijuana market would start their own grow
operations, increasing the supply of marijuana on the street, which would cause the street price of the
drug to fall to a level much closer to the cost of production. Of course, this doesn't happen because the
product is illegal; the prospect of jail time deters many entrepreneurs and the occasional drug bust ensures
that the supply stays relatively low. We can consider much of this $6.90 per unit of marijuana profit a
risk-premium for participating in the underground economy. Unfortunately, this risk premium is making a
lot of criminals, many of whom have ties to organized crime, very wealthy. Stephen T. Easton argues that
if marijuana was legalized, we could transfer these excess profits caused by the risk premium from these
grow operations to the government: If we substitute a tax on marijuana cigarettes equal to the difference
between the local production cost and the street price people currently pay – that is, transfer the revenue
from the current producers and marketers (many of whom work with organized crime) to the government,
leaving all other marketing and transportation issues aside we would have revenue of (say) $7 per [unit].
If you could collect on every cigarette and ignore the transportation, marketing, and advertising costs, this
comes to over $2 billion on Canadian sales and substantially more from an export tax, and you forego the
costs of enforcement and deploy your policing assets elsewhere. One interesting thing to note from such a
scheme is that the street price of marijuana stays exactly the same, so the quantity demanded should
remain the same as the price is unchanged. However, it's quite likely that the demand for marijuana would
change from legalization. We saw that there was a risk in selling marijuana, but since drug laws often
target both the buyer and the seller, there is also a risk (albeit smaller) to the consumer interested in
buying marijuana. Legalization would eliminate this risk, causing the demand to rise. This is a mixed bag
from a public policy standpoint: Increased marijuana use can have ill effects on the health of the
population but the increased sales bring in more revenue for the government. However, if legalized,
governments can control how much marijuana is consumed by increasing or decreasing the taxes on the
product. There is a limit to this, however, as setting taxes too high will cause marijuana growers to sell on
the black market to avoid excessive taxation. When considering legalizing marijuana, there are many
economic, health, and social issues we must analyze. One economic study will not be the basis of
Canada's public policy decisions, but Easton's research does conclusively show that there are economic
benefits in the legalization of marijuana. With governments scrambling to find new sources of revenue to
pay for important social objectives such as health care and education expect to see the idea raised in
Parliament sooner rather than later.
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
Questions
1. Plot the demand schedule and draw the demand curve for the data given for Marijuana in the case
above.
2. On the basis of the analysis of the case above, what is your opinion about legalizing marijuana in
Canada?
Case let 2
Companies that attend to productivity and growth simultaneously manage cost reductions very differently
from companies that focus on cost cutting alone and they drive growth very differently from companies
that are obsessed with growth alone. It is the ability to cook sweet and sour that under grids the
remarkable performance of companies likes Intel, GE, ABB and Canon. In the slow growth electrotechnical
business, ABB has doubled its revenues from $17 billion to $35 billion, largely by exploiting
new opportunities in emerging markets. For example, it has built up a 46,000 employee organization in
the Asia Pacific region, almost from scratch. But it has also reduced employment in North America and
Western Europe by 54,000 people. It is the hard squeeze in the north and the west that generated the
resources to support ABB's massive investments in the east and the south. Everyone knows about the
staggering ambition of the Ambanis, which has fuelled Reliance's evolution into the largest private
company in India. Reliance has built its spectacular rise on a similar ability to cook sweet and sour. What
people may not be equally familiar with is the relentless focus on cost reduction and productivity growth
that pervades the company. Reliance's employee cost is 4 per cent of revenues, against 15-20 per cent of
its competitors. Its sales and distribution cost, at 3 per cent of revenues, is about a third of global
standards. It has continuously pushed down its cost for energy and utilities to 3 per cent of revenues,
largely through 100 per cent captive power generation that costs the company 4.5 cents per kilowatt-hour;
well below Indian utility costs, and about 30 per cent lower than the global average. Similarly, its capital
cost is 25-30 per cent lower than its international peers due to its legendary speed in plant commissioning
and its relentless focus on reducing the weighted average cost of capital (WACC) that, at 13 per cent, is
the lowest of any major Indian firm.
A Bias for Growth
Comparing major Indian companies in key industries with their global competitors shows that Indian
companies are running a major risk. They suffer from a profound bias for growth. There is nothing wrong
with this bias, as Reliance has shown. The problem is most look more like Essar than Reliance. While
they love the sweet of growth, they are unwilling to face the sour of productivity improvement.
Nowhere is this more amply borne out than in the consumer goods industry where the Indian giant
Hindustan Lever has consolidated to grow at over 50 per cent while its labour productivity declined by
around 6 per cent per annum in the same period. Its strongest competitor, Nirma, also grew at over 25 per
cent per annum in revenues but maintained its labour productivity relatively stable. Unfortunately,
however, its return on capital employed (ROCE) suffered by over 17 per cent. In contrast, Coca Cola,
worldwide, grew at around 7 per cent, improved its labour productivity by 20 per cent and its return on
capital employed by 6.7 per cent. The story is very similar in the information technology sector where
Infosys, NIIT and HCL achieve rates of growth of over 50 per cent which compares favorably with the
world's best companies that grew at around 30 per cent between 1994-95. NIIT, for example, strongly
believes that growth is an impetus in itself. Its focus on growth has helped it double revenues every two
years. Sustaining profitability in the face of such expansion is an extremely challenging task. For now,
this is a challenge Indian InfoTech companies seem to be losing. The ROCE for three Indian majors fell
by 7 per cent annually over 1994-96. At the same time IBM Microsoft and SAP managed to improve this
ratio by 17 per cent. There are some exceptions, however. The cement industry, which has focused on
productivity rather than on growth, has done very well in this dimension when compared to their global
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
counterparts. While Mexico's Cemex has grown about three times fast as India's ACC, Indian cement
companies have consistently delivered better results, not only on absolute profitability ratios, but also on
absolute profitability growth. They show a growth of 24 per cent in return on capital employed while
international players show only 8.4 per cent. Labour productivity, which actually fell for most industries
over 1994-96, has improved at 2.5 per cent per annum for cement.
The engineering industry also matches up to the performance standards of the best in the world.
Companies like Cummins India have always pushed for growth as is evidenced by its 27 per cent rate of
growth, but not at the cost of present and future profitability. The company shows a healthy excess of
almost 30 per cent over WACC, displaying great future promise. BHEL, the public sector giant, has seen
similar success and the share price rose by 25 per cent despite an indecisive sensex. The only note of
caution: Indian engineering companies have not been able to improve labour productivity over time,
while international engineering companies like ABB, Siemens and Cummins Engines have achieved
about 13.5 per cent growth in labour productivity, on an average, in the same period. The pharmaceuticals
industry is where the problems seem to be the worst, with growth emphasized at the cost of all other
performance. They have been growing at over 22 per cent, while their ROCE fell at 15.9 per cent per
annum and labour productivity at 7 per cent. Compare this with some of the best pharmaceutical
companies of the world – Glaxo Wellcome, SmithKline Beecham and Pfizer –who have consistently
achieved growth of 15-20 per cent, while improving returns on capital employed at about
25 per cent and labour productivity at 8 per cent. Ranbaxy is not an exception; the bias for growth at the
cost of labour and capital productivity is also manifest in the performance of other Indian Pharma
companies. What makes this even worse is the Indian companies barely manage to cover their cost of
capital, while their competitors worldwide such as Glaxo and Pfizer earn an average ROCE of 65 per
cent. In the Indian textile industry, Arvind Mills was once the shining star. Like Reliance, it had learnt to
cook sweet and sour. Between 1994 and 1996, it grew at an average of 30 per cent per annum to become
the world's largest denim producer. At the same time, it also operated a tight ship, improving labour
productivity by 20 per cent. Despite the excellent performance in the past, there are warning signals for
Arvind's future. The excess over the WACC is only 1.5 per cent, implying it barely manages to satisfy its
investor’s expectations of return and does not really have a surplus to re-invest in the business.
Apparently, investors also think so, for Arvind's stock price has been falling since Q4 1994 despite such
excellent results and, at the end of the first quarter of 1998, is less than Rs 70 compared to Rs 170 at the
end of 1994. Unfortunately, Arvind's deteriorating financial returns over the last few years is also typical
of the Indian textile industry. The top three Indian companies actually showed a decline in their return
ratios in contrast to the international majors. Nike, VF Corp and Coats Viyella showed a growth in their
returns on capital employed of 6.2 per cent, while the ROCE of Grasim and Coats Viyella (India) fell by
almost 2 per cent per annum. Even in absolute returns on assets or on capital employed, Indian companies
fare a lot worse. While Indian textile companies just about cover their WACC, their international rivals
earn about 8 per cent in excess of their cost of capital.
Questions
1. Is Indian companies running a risk by not giving attention to cost cutting?
2. Discuss whether Indian Consumer goods industry is growing at the cost of future profitability.
3. Discuss capital and labour productivity in engineering context and pharmaceutical industries in
India.
4. Is textile industry in India performing better than its global competitors?
END OF SECTION B
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
Section C: Applied Theory (30 marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 15 marks.
•Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. Free trade promotes a mutually profitable regional division of labour, greatly enhances the
potential real national product of all nations and makes possible higher standards of living all
over the globe.” Critically explain and examine the statement.
2. What role does a decision tree play in business decision-making? Illustrate the choice between
two investment projects with the help of a decision tree assuming hypothetical conditions about
the states of nature, probability distribution, and corresponding pay-offs.
S-1-91110
END OF SECTION C
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Financial Management
Section A: Objective Type (30 marks)
•This section consists of multiple choice & Short Notes.
•Answer all the questions.
•Part One carries 1 mark each & Part two carries 5 marks each.
Part one:
Multiple choices:
1. The approach focused mainly on the financial problems of corporate enterprise
a. Ignored non-corporate enterprise
b. Ignored working capital financing
c. External approach
d. Ignored routine problems
2. These are those shares, which can be redeemed or repaid to the holders after a lapse of the
stipulated period
a. Cumulative preference shares
b. Non-cumulative preference shares
c. Redeemable preference shares
d. Perpetual shares
3. This type of risk arise from changes in environmental regulations, zoning requirements, fees,
licenses and most frequently taxes
a. Political risk
b. Domestic risk
c. International risk
d. Industry risk
4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment
proposal
a. Future cost
b. Specific cost
c. Spot cost
d. Book cost
5. This concept is helpful in formulating a sound & economical capital structure for a firm
a. Financial performance appraisal
b. Investment evaluation
c. Designing optimal corporate capital structure
d. None
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
6. It is the minimum required rate of return needed to justify the use of capital
a. From investors
b. Firms point
c. Capital expenditure point
d. Cost of capital
7. It arises when there is a conflict of interest among owners, debenture holders and the management
a. Seasonal variation
b. Degree of competition
c. Industry life cycle
d. Agency costs
8. Some guidelines on shares & debentures issued by the government that are very important for the
constitution of the capital structure are
a. Legal requirement
b. Purpose of finance
c. Period of finance
d. Requirement of investors
9. It is that portion of an investments total risk that results from change in the financial integrity of
the investment
a. Bull- bear market risk
b. Default risk
c. International risk
d. Liquidity risk
10. _____________ measure the systematic risk of a security that cannot be avoided through
diversification
a. Beta
b. Gamma
c. Probability distribution
d. Alpha
Part Two:
1. What is Annuity kind of cash flow?
2. What do understand by Portfolio risk?
3. What do you understand by ‘Loan Amortization’?
4. What is the Difference between NPV and IRR?
END OF SECTION A
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
Section B: Case lets (40 marks)
•This section consists of Case lets.
•Answer all the questions.
•Each Case let carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Case let 1
This case provides the opportunity to match financing alternatives with the needs of different companies.
It allows the reader to demonstrate a familiarity with different types of securities. George Thomas was
finishing some weekend reports on a Friday afternoon in the downtown office of Wishart and Associates,
an investment-banking firm. Meenda, a partner in the firm, had not been in the New York office since
Monday. He was on a trip through Pennsylvania, visiting five potential clients, who were considering the
flotation of securities with the assistance of Wishart and Associates. Meenda had called the office on
Wednesday and told George's secretary that he would cable his recommendations on Friday afternoon.
George was waiting for the cable. George knew that Meenda would be recommending different types of
securities for each of the five clients to meet their individual needs. He also knew Meenda wanted him to
call each of the clients to consider the recommendations over the weekend. George was prepared to make
these calls as soon as the cable arrived. At 4:00 p.m. a secretary handed George the following telegram.
George Thomas, Wishart and Associates STOP Taking advantage of offer to go skiing in Poconos STOP
Recommendations as follows: (1) common stock, (2) preferred stock, (3) debt with warrants, (4)
convertible bonds, (5) callable debentures STOP. See you Wednesday STOP Meenda. As George picked
up the phone to make the first call, he suddenly realized that the potential clients were not matched with
the investment alternatives. In Meenda's office, George found folders on each of the five firms seeking
financing. In the front of each folder were some handwritten notes that Meenda had made on Monday
before he left. George read each of the notes in turn. APT, Inc needs $8 million now and $4 million in
four years. Packaging firm with high growth rate in tri-state area. Common stock trades over the counter.
Stock is depressed but should rise in year to 18 months. Willing to accept any type of security. Good
management. Expects moderate growth. New machinery should increase profits substantially. Recently
retired $7 million in debt. Has virtually no debt remaining except short-term obligations.
Sandford Enterprises
Needs $16 million. Crusty management. Stock price depressed but expected to improve. Excellent growth
and profits forecast in the next two year. Low debt-equity ratio, as the firm has record of retiring debt
prior to maturity. Retains bulk of earnings and pays low dividends. Management not interested in
surrendering voting control to outsiders. Money to be used to finance machinery for plumbing supplies.
Sharma Brothers., Inc.
Needs $20 million to expand cabinet and woodworking business. Started as family business but now has
1200 employees, $50 million in sales, and is traded over the counter. Seeks additional shareholder but not
willing to stock at discount. Cannot raise more than $12 million with straight debt. Fair management.
Good growth prospects. Very good earnings. Should spark investor's interest. Banks could be willing to
lend money for long-term needs.
Sacheetee Energy Systems
The firm is well respected by liberal investing community near Boston area. Sound growth company.
Stock selling for $16 per share. Management would like to sell common stock at $21 or more willing to
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
use debt to raise $ 28 million, but this is second choice. Financing gimmicks and chance to turn quick
profit on investment would appeal to those likely to invest in this company.
Ranbaxy Industry
Needs $25 million. Manufactures boat canvas covers and needs funds to expand operations. Needs longterm
money. Closely held ownership reluctant surrender control. Cannot issue debt without permission of
bondholders and First National Bank of Philadelphia. Relatively low debt-equity ratio. Relatively high
profits. Good prospects for growth Strong management with minor weaknesses in sales and promotion
areas. As George was looking over the folders, Meenda's secretary entered the office. George said, "Did
Meenda leave any other material here on Monday except for these notes?” She responded, "No, that's it,
but I think those notes should be useful. Meenda called early this morning and said that he verified the
facts in the folders. He also said that he learned nothing new on the trip and he sort of indicated that, he
had wasted his week, except of course, that he was invited to go skiing at the company lodge up there".
George pondered over the situation. He could always wait until next week, when he could be sure that he
had the right recommendations and some of the considerations that outlined each client's needs and
situation. If he could determine which firm matched each recommendation, he could still call the firms by
6:00 P.M. and meet the original deadline. George decided to return to his office and match each firm with
the appropriate financing.
Question:
1. Which type of financing is appropriate to each firm?
2. What types of securities must be issued by a firm which is on the growing stage in order to meet
the financial requirements?
Case let 2
This case has been framed in order to test the skills in evaluating a credit request and reaching a correct
decision. Perluence International is large manufacturer of petroleum and rubber-based products used in a
variety of commercial applications in the fields of transportation, electronics, and heavy manufacturing.
In the northwestern United States, many of the Perluence products are marketed by a wholly-owned
subsidiary, Bajaj Electronics Company. Operating from a headquarters and warehouse facility in San
Antonio, Strand Electronics has 950 employees and handles a volume of $85 million in sales annually.
About $6 million of the sales represents items manufactured by Perluence. Gupta is the credit manager at
Bajaj electronics. He supervises five employees who handle credit application and collections on 4,600
accounts. The accounts range in size from $120 to $85,000. The firm sells on varied terms, with 2/10, net
30 mostly. Sales fluctuate seasonally and the average collection period tends to run 40 days. Bad-debt
losses are less than 0.6 per cent of sales. Gupta is evaluating a credit application from Booth Plastics, Inc.,
a wholesale supply dealer serving the oil industry. The company was founded in 1977 by Neck A. Booth
and has grown steadily since that time. Bajaj Electronics is not selling any products to Booth Plastics and
had no previous contact with Neck Booth. Bajaj Electronics purchased goods from Perluence
International under the same terms and conditions as Perluence used when it sold to independent
customers. Although Bajaj Electronics generally followed Perluence in setting its prices, the subsidiary
operated independently and could adjust price levels to meet its own marketing strategies. The Perluence's
cost-accounting department estimated a 24 per cent markup as the average for items sold to Pucca
Electronics. Bajaj Electronics, in turn, resold the items to yield a 17 per cent markup. It appeared that
these percentages would hold on any sales to Booth Plastics. Bajaj Electronics incurred out-of pocket
expenses that were not considered in calculating the 17 per cent markup on its items. For example, the
contact with Booth Plastics had been made by James, the salesman who handled the Glaveston area.
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
James would receive a 3 per cent commission on all sales made Booth Plastics, a commission that would
be paid whether or not the receivable was collected. James would, of course, be willing to assist in
collecting any accounts that he had sold. In addition to the sales commission, the company would incur
variable costs as a result of handling the merchandise for the new account. As a general guideline,
warehousing and other administrative variable costs would run 3 per cent sales. Gupta Holmstead
approached all credit decisions in basically the same manner. First of all, he considered the potential
profit from the account. James had estimated first-year sales to Booth Plastics of $65,000. Assuming that
Neck Booth took the, 3 per cent discount. Bajaj Electronics would realize a 17 per cent markup on these
sales since the average markup was calculated on the basis of the customer taking the discount. If Neck
Booth did not take the discount, the markup would be slightly higher, as would the cost of financing the
receivable for the additional period of time. In addition to the potential profit from the account, Gupta was
concerned about his company's exposure. He knew that weak customers could become bad debts at any
time and therefore, required a vigorous collection effort whenever their accounts were overdue. His
department probably spent three times as much money and effort managing a marginal account as
compared to a strong account. He also figured that overdue and uncollected funds had to be financed by
Bajaj Electronics at a rate of 18 per cent. All in all, slow -paying or marginal accounts were very costly to
Bajaj Electronics. With these considerations in mind, Gupta began to review the credit application for
Booth Plastics.
Question:
1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth
Plastics and give your views to increase the profit.
2. Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of
credit limit that electronics give to Booth Plastics.
Section C: Applied Theory (30 marks)
•This section consists of applied theory questions.
•Answer all the questions.
•Each question carries 15 marks each.
•Detailed information should form the part of your answer (Word limit 200-250 words).
1. Honey Well Company is contemplating to liberalize its collection effort. Its present sales are Rs.
10 lakh, its average collection period is 30 days, its expected variable cost to sales ratio is 85 per
cent and its bad debt ratio is 5 per cent. The Company’s cost of capital is 10 per cent and tax are
is 40 per cent. He proposed liberalization in collection effort increase sales to Rs. 12 lakh
increases average collection period by 15 days, and increases the bad debt ratio to 7 percent.
Determine the change in net profit.
2. Explain the concept of working capital. What are the factors which influence the working capital?
S-1-91110
END OF SECTION B
END OF SECTION C
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Human Resource Management
Section A: Objective Type (30 marks)
•This section consists of multiple choice & Short Notes type questions.
•Answer all the questions.
•Part one carries 1 mark each & Part two carries 5 marks each.
Part One:
Multiple choices:
1. It is a cultural attitude marked by the tendency to regard one’s own culture as superior to others
a. Geocentrism
b. Polycentrism
c. Ethnocentrism
d. Egocentrism
2. It is the systemic study of job requirements & those factors that influence the performance of
those job requirements
a. Job analysis
b. Job rotation
c. Job circulation
d. Job description
3. This Act provides an assistance for minimum statutory wages for scheduled employment
a. Payment of Wages Act, 1936
b. Minimum Wages Act, 1948
c. Factories Act, 1948
d. Payment of Gratuity act, 1972
4. __________ is the actual posting of an employee to a specific job
a. Induction
b. Placement
c. Attrition
d. None
5. Broadening an individual’s knowledge, skills & abilities for future responsibilities is known as
a. Training
b. Development
c. Education
d. Mentoring
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
6. Change that is designed and implemented in an orderly and timely fashion in anticipation of
future events
a. Planned change
b. Technology change
c. Structural change
d. None
7. It is a process for setting goals and monitoring progress towards achieving those goals
a. Performance appraisal
b. Performance gap
c. Performance factor
d. Performance management system
8. A method which requires the rates to provide a subjective performance evaluation along a scale
from low to high
a. Assessment centre
b. Checklist
c. Rating scale
d. Monitoring
9. It is the sum of knowledge, skills, attitudes, commitment, values and the liking of the people in an
organization
a. Human resources
b. Personal management
c. Human resource management
d. Productivity
10. A learning exercise representing a real-life situation where trainees compete with each other to
achieve specific objectives
a. Executive development
b. Management game
c. Programmed learning
d. Understudy
Part Two:
1. Explain the importance of Career Planning in industry.
2. Write the features of HRM.
3. Briefly explain the concept of Performance Appraisal.
4. Explain On-Job and Off Job Training.
END OF SECTION A
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
Section B: Case lets (40 marks)
•This section consists of Case lets.
•Answer all the questions.
•Each Case let carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150-200 words).
Case let 1
Trust them with knee-jerk reactions," said Vikram Koshy, CEO, Delta Software India, as he looked at the
quarterly report of Top Line Securities, a well-known equity research firm. The firm had announced a
downgrade of Delta, a company listed both on Indian bourses and the NASDAQ. The reason? "One out
of every six development engineers in the company is likely to be benched during the remaining part of
the year." Three analysts from Top Line had spent some time at Delta three weeks ago. Koshy and his
team had explained how benching was no different from the problems of excess inventory, idle time, and
surplus capacity that firms in the manufacturing sector face on a regular basis, "Delta has witnessed a
scorching pace of 30 per cent growth during the last five years in a row," Koshy had said, "What is
happening is a corrective phase." But, evidently, the analysts were unconvinced.
Why Bench?
Clients suddenly decide to cut back on IT spends Project mix gets skewed, affecting work allocation
Employee productivity is set to fall, creating slack working conditions. High degree of job specialization
leads to redundancy
What are the options?
Quickly cut costs in areas which are non-core look for learning’s from the manufacturing sector Focus on
alternative markets like Europe and Japan Move into products, where margins are better. Of course, the
Top Line report went on to cite several other "signals," as it said: the rate of annual hike in salaries at
Delta would come down to 5 per cent (from between 20 and 30 per cent last year); the entry-level intake
of engineers from campuses in June 2001, would decline to 5 per cent (unlike the traditional 30 per cent
addition to manpower every year); and earnings for the next two years could dip by between 10 and 12
per cent. And the loftiest of them all: "The meltdown at Nasdaq is unlikely to reverse in the near future."
"Some of the signals are no doubt valid. And ominous," said Koshy, addressing his A-Team, which had
assembled for the routine morning meeting. "But, clearly, everyone is reading too much into this business
of benching. In fact, benching is one of the many options that our principals in the US have been pursuing
as part of cutting costs right since September, 2000. They are also expanding the share of off-shore jobs.
Five of our principals have confirmed that they would outsource more from Delta in India-which is likely
to hike their billings by about 30 per cent. At one level, this is an opportunity for us. At another, of
course, I am not sure if we should be jubilant, because they have asked for a 25-30 per cent cut in billing
rates. Our margins will take a hit, unless we cut costs and improve productivity." "Productivity is clearly a
matter of priority now," said Vivek Varadan, Vice-President (Operations). "If you consider benching as a
non-earning mode, we do have large patches of it at Delta. As you are aware, it has not been easy to
secure 70 per cent utilization of our manpower, even in normal times. I think we need to look at why we
have 30 per cent bench before examining how to turn it into an asset." "There are several reasons,"
remarked Achyut Patwardhan, Vice-President (HR). "And a lot of it has to do with the nature of our
business, which is more project-driven than product-driven. When you are managing a number of
overseas and domestic projects simultaneously, as we do at Delta, people tend to go on the bench. They
wait, as they complete one project, and are assigned the next. There are problems of coordination between
projects, related to the logistics of moving people and resources from one customer to another. In fact, I
am fine-tuning our monthly manpower utilization report to provide a breakup of bench costs into
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
specifics-leave period, training programmes, travel time, buffers, acclimatization period et al." "It would
be worthwhile following the business model used by US principal Techno Inc," said Aveek Mohanty,
Director (Finance). "The company has a pipeline of projects, but it does not manage project by project.
What it does is to slice each project into what it calls 'activities'. For example, communication
networking; user interface development; scheduling of processes are activities common to all projects.
People move from one project to another. It is somewhat like the Activity Based Costing. It throws up the
bench time straightaway, which helps us control costs and revenue better." "I also think we should reduce
our dependence on projects and move into products," said Praveen Kumar, Director (Marketing). "That is
where the opportunity for brand building lies. In fact, now is the time to get our technology guys involved
in marketing. Multiskilling helps reduce the bench time." "Benching has an analogy in the manufacturing
sector," said Girish Shahane, Vice-President (Services). "We could look for learning's there. Many firms
have adopted Just-In-Time (JIT) inventory as part of eliminating idle time. It would be worthwhile
exploring the possibility of JIT. But the real learning lies in standardization of work. It is linked to what
Mohanty said about managing by activities." "At a broader level, I see several other opportunities," said
Koshy, "We can fill in the space vacated by US firms and move up the value chain. But before we do so,
Delta should consolidate its position as the premier outsourcing centre. Since there are only two ways in
which we can generate revenue-sell expertise or sell products-we should move towards a mix of both.
Tie-ups with global majors will help. Now is the time to look beyond the US and strike alliances with
firms in Europe- and also Japan-as part of developing new products for global markets."
Questions
1. Should benching be a matter of concern at Delta?
2. What are the risks involved in moving from a project-centric mode to a mix of projects and
products?
Case let 2
The contexts in which human resources are managed in today's organizations are constantly, changing.
No longer do firms utilize one set of manufacturing processes, employ a homogeneous group of loyal
employees for long periods of time or develop one set way of structuring how work is done and
supervisory responsibility is assigned. Continuous changes in who organizations employ and what these
employees do require HR practices and systems that are well conceived and effectively implemented to
ensure high performance and continued success.
1. Automated technologies nowadays require more technically trained employees possessing multifarious
skills to repair, adjust or improve existing processes. The firms can't expect these employees (Gen X
employees, possessing superior technical knowledge and skills, whose attitudes and perceptions toward
work are significantly different from those of their predecessor organizations: like greater self control,
less interest in job security; no expectations of long term employment; greater participation urge in work
activities, demanding opportunities for personal growth and creativity) to stay on without attractive
compensation packages and novel reward schemes.
2. Technology driven companies are led by project teams, possessing diverse skills, experience and
expertise. Flexible and dynamic organizational structures are needed to take care of the expectations of
managers, technicians and analysts who combine their skills, expertise and experience to meet changing
customer needs and competitive pressures.
3. Cost cutting efforts have led to the decimation of unwanted layers in organizational hierarchy in recent
times. This, in turn, has brought in the problem of managing plateau employees whose careers seem to
have been hit by the delivering process. Organizations are, therefore, made to find alternative career paths
for such employees.
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
4. Both young and old workers, these days, have values and attitudes that stress less loyalty to the
company and more loyalty to oneself and one's career than those shown by employees in the past,
Organizations, therefore, have to devise appropriate HR policies and strategies so as to prevent the flight
of talented employees
Question
1. Discuss that technological breakthrough has brought a radical changes in HRM.
Section C: Applied Theory (30 marks)
•This section consists of applied theory Questions.
•Answer all the questions.
•Each question carries 15 marks.
•Detailed information should form the part of your answer (Word limit 150-200 words).
1. Several types of interviews are commonly used depending on the nature & importance of the
position to be filled within an organization. Explain the different types of Interviews.
2. Explain the legal provisions regarding safety of workers.
S-1-191110
END OF SECTION B
END OF SECTION C
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Managerial Economics
Section A: Objective Type (30 marks)
•This section consists of multiple choices & Short notes type questions.
•Answer all the questions.
•Part one carries 1 mark each & Part two carries 5 marks each.
Part one:
Multiple choices:
1. It is a study of economy as a whole
a. Macroeconomics
b. Microeconomics
c. Recession
d. Inflation
2. A comprehensive formulation which specifies the factors that influence the demand for the
product
a. Market demand
b. Demand schedule
c. Demand function
d. Income effect
3. It is computed when the data is discrete and therefore incremental changes is measurable
a. Substitution effect
b. Arc elasticity
c. Point elasticity
d. Derived demand
4. Goods & services used for final consumption is called
a. Demand
b. Consumer goods
c. Producer goods
d. Perishable goods
5. The curve at which satisfaction is equal at each point
a. Marginal utility
b. Cardinal measure of utility
c. The Indifference Curve
d. Budget line
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
6. Costs that are reasonably expected to be incurred in some future period or periods
a. Future costs
b. Past costs
c. Incremental costs
d. Sunk costs
7. Condition when the firm has no tendency either to increase or to contract its output
a. Monopoly
b. Profit
c. Equilibrium
d. Market
8. Total market value of all finished goods & services produced in a year by a country’s residents is
known as
a. National income
b. Gross national product
c. Gross domestic product
d. Real GDP
9. The sum of net value of goods & services produced at market prices
a. Government expenditure
b. Product approach
c. Income approach
d. Expenditure approach
10. The market value of all the final goods & services made within the borders of a nation in an year
a. Globalization
b. Subsidies
c. GDP
d. GNP
Part Two:
1. Define ‘Arc Elasticity’.
2. Explain the law of ‘Diminishing marginal returns’.
3. What is ‘Prisoner’s Dilemma’, of non cooperative game?
4. What is ‘Third degree Discrimation’?
END OF SECTION A
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
Section B: Case lets (40 marks)
•This section consists of Case lets.
•Answer all the questions.
•Each Case let carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Case let 1
The war on drugs is an expensive battle, as a great deal of resources go into catching those who buy or
sell illegal drugs on the black market, prosecuting them in court, and housing them in jail. These costs
seem particularly exorbitant when dealing with the drug marijuana, as it is widely used, and is likely no
more harmful than currently legal drugs such as tobacco and alcohol. There's another cost to the war on
drugs, however, which is the revenue lost by governments who cannot collect taxes on illegal drugs. In a
recent study for the Fraser Institute, Canada, Economist Stephen T. Easton attempted to calculate how
much tax revenue the government of the country could gain by legalizing marijuana. The study estimates
that the average price of 0.5 grams (a unit) of marijuana sold for $8.60 on the street, while its cost of
production was only $1.70. In a free market, a $6.90 profit for a unit of marijuana would not last for long.
Entrepreneurs noticing the great profits to be made in the marijuana market would start their own grow
operations, increasing the supply of marijuana on the street, which would cause the street price of the
drug to fall to a level much closer to the cost of production. Of course, this doesn't happen because the
product is illegal; the prospect of jail time deters many entrepreneurs and the occasional drug bust ensures
that the supply stays relatively low. We can consider much of this $6.90 per unit of marijuana profit a
risk-premium for participating in the underground economy. Unfortunately, this risk premium is making a
lot of criminals, many of whom have ties to organized crime, very wealthy. Stephen T. Easton argues that
if marijuana was legalized, we could transfer these excess profits caused by the risk premium from these
grow operations to the government: If we substitute a tax on marijuana cigarettes equal to the difference
between the local production cost and the street price people currently pay – that is, transfer the revenue
from the current producers and marketers (many of whom work with organized crime) to the government,
leaving all other marketing and transportation issues aside we would have revenue of (say) $7 per [unit].
If you could collect on every cigarette and ignore the transportation, marketing, and advertising costs, this
comes to over $2 billion on Canadian sales and substantially more from an export tax, and you forego the
costs of enforcement and deploy your policing assets elsewhere. One interesting thing to note from such a
scheme is that the street price of marijuana stays exactly the same, so the quantity demanded should
remain the same as the price is unchanged. However, it's quite likely that the demand for marijuana would
change from legalization. We saw that there was a risk in selling marijuana, but since drug laws often
target both the buyer and the seller, there is also a risk (albeit smaller) to the consumer interested in
buying marijuana. Legalization would eliminate this risk, causing the demand to rise. This is a mixed bag
from a public policy standpoint: Increased marijuana use can have ill effects on the health of the
population but the increased sales bring in more revenue for the government. However, if legalized,
governments can control how much marijuana is consumed by increasing or decreasing the taxes on the
product. There is a limit to this, however, as setting taxes too high will cause marijuana growers to sell on
the black market to avoid excessive taxation. When considering legalizing marijuana, there are many
economic, health, and social issues we must analyze. One economic study will not be the basis of
Canada's public policy decisions, but Easton's research does conclusively show that there are economic
benefits in the legalization of marijuana. With governments scrambling to find new sources of revenue to
pay for important social objectives such as health care and education expect to see the idea raised in
Parliament sooner rather than later.
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
Questions
1. Plot the demand schedule and draw the demand curve for the data given for Marijuana in the case
above.
2. On the basis of the analysis of the case above, what is your opinion about legalizing marijuana in
Canada?
Case let 2
Companies that attend to productivity and growth simultaneously manage cost reductions very differently
from companies that focus on cost cutting alone and they drive growth very differently from companies
that are obsessed with growth alone. It is the ability to cook sweet and sour that under grids the
remarkable performance of companies likes Intel, GE, ABB and Canon. In the slow growth electrotechnical
business, ABB has doubled its revenues from $17 billion to $35 billion, largely by exploiting
new opportunities in emerging markets. For example, it has built up a 46,000 employee organization in
the Asia Pacific region, almost from scratch. But it has also reduced employment in North America and
Western Europe by 54,000 people. It is the hard squeeze in the north and the west that generated the
resources to support ABB's massive investments in the east and the south. Everyone knows about the
staggering ambition of the Ambanis, which has fuelled Reliance's evolution into the largest private
company in India. Reliance has built its spectacular rise on a similar ability to cook sweet and sour. What
people may not be equally familiar with is the relentless focus on cost reduction and productivity growth
that pervades the company. Reliance's employee cost is 4 per cent of revenues, against 15-20 per cent of
its competitors. Its sales and distribution cost, at 3 per cent of revenues, is about a third of global
standards. It has continuously pushed down its cost for energy and utilities to 3 per cent of revenues,
largely through 100 per cent captive power generation that costs the company 4.5 cents per kilowatt-hour;
well below Indian utility costs, and about 30 per cent lower than the global average. Similarly, its capital
cost is 25-30 per cent lower than its international peers due to its legendary speed in plant commissioning
and its relentless focus on reducing the weighted average cost of capital (WACC) that, at 13 per cent, is
the lowest of any major Indian firm.
A Bias for Growth
Comparing major Indian companies in key industries with their global competitors shows that Indian
companies are running a major risk. They suffer from a profound bias for growth. There is nothing wrong
with this bias, as Reliance has shown. The problem is most look more like Essar than Reliance. While
they love the sweet of growth, they are unwilling to face the sour of productivity improvement.
Nowhere is this more amply borne out than in the consumer goods industry where the Indian giant
Hindustan Lever has consolidated to grow at over 50 per cent while its labour productivity declined by
around 6 per cent per annum in the same period. Its strongest competitor, Nirma, also grew at over 25 per
cent per annum in revenues but maintained its labour productivity relatively stable. Unfortunately,
however, its return on capital employed (ROCE) suffered by over 17 per cent. In contrast, Coca Cola,
worldwide, grew at around 7 per cent, improved its labour productivity by 20 per cent and its return on
capital employed by 6.7 per cent. The story is very similar in the information technology sector where
Infosys, NIIT and HCL achieve rates of growth of over 50 per cent which compares favorably with the
world's best companies that grew at around 30 per cent between 1994-95. NIIT, for example, strongly
believes that growth is an impetus in itself. Its focus on growth has helped it double revenues every two
years. Sustaining profitability in the face of such expansion is an extremely challenging task. For now,
this is a challenge Indian InfoTech companies seem to be losing. The ROCE for three Indian majors fell
by 7 per cent annually over 1994-96. At the same time IBM Microsoft and SAP managed to improve this
ratio by 17 per cent. There are some exceptions, however. The cement industry, which has focused on
productivity rather than on growth, has done very well in this dimension when compared to their global
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
counterparts. While Mexico's Cemex has grown about three times fast as India's ACC, Indian cement
companies have consistently delivered better results, not only on absolute profitability ratios, but also on
absolute profitability growth. They show a growth of 24 per cent in return on capital employed while
international players show only 8.4 per cent. Labour productivity, which actually fell for most industries
over 1994-96, has improved at 2.5 per cent per annum for cement.
The engineering industry also matches up to the performance standards of the best in the world.
Companies like Cummins India have always pushed for growth as is evidenced by its 27 per cent rate of
growth, but not at the cost of present and future profitability. The company shows a healthy excess of
almost 30 per cent over WACC, displaying great future promise. BHEL, the public sector giant, has seen
similar success and the share price rose by 25 per cent despite an indecisive sensex. The only note of
caution: Indian engineering companies have not been able to improve labour productivity over time,
while international engineering companies like ABB, Siemens and Cummins Engines have achieved
about 13.5 per cent growth in labour productivity, on an average, in the same period. The pharmaceuticals
industry is where the problems seem to be the worst, with growth emphasized at the cost of all other
performance. They have been growing at over 22 per cent, while their ROCE fell at 15.9 per cent per
annum and labour productivity at 7 per cent. Compare this with some of the best pharmaceutical
companies of the world – Glaxo Wellcome, SmithKline Beecham and Pfizer –who have consistently
achieved growth of 15-20 per cent, while improving returns on capital employed at about
25 per cent and labour productivity at 8 per cent. Ranbaxy is not an exception; the bias for growth at the
cost of labour and capital productivity is also manifest in the performance of other Indian Pharma
companies. What makes this even worse is the Indian companies barely manage to cover their cost of
capital, while their competitors worldwide such as Glaxo and Pfizer earn an average ROCE of 65 per
cent. In the Indian textile industry, Arvind Mills was once the shining star. Like Reliance, it had learnt to
cook sweet and sour. Between 1994 and 1996, it grew at an average of 30 per cent per annum to become
the world's largest denim producer. At the same time, it also operated a tight ship, improving labour
productivity by 20 per cent. Despite the excellent performance in the past, there are warning signals for
Arvind's future. The excess over the WACC is only 1.5 per cent, implying it barely manages to satisfy its
investor’s expectations of return and does not really have a surplus to re-invest in the business.
Apparently, investors also think so, for Arvind's stock price has been falling since Q4 1994 despite such
excellent results and, at the end of the first quarter of 1998, is less than Rs 70 compared to Rs 170 at the
end of 1994. Unfortunately, Arvind's deteriorating financial returns over the last few years is also typical
of the Indian textile industry. The top three Indian companies actually showed a decline in their return
ratios in contrast to the international majors. Nike, VF Corp and Coats Viyella showed a growth in their
returns on capital employed of 6.2 per cent, while the ROCE of Grasim and Coats Viyella (India) fell by
almost 2 per cent per annum. Even in absolute returns on assets or on capital employed, Indian companies
fare a lot worse. While Indian textile companies just about cover their WACC, their international rivals
earn about 8 per cent in excess of their cost of capital.
Questions
1. Is Indian companies running a risk by not giving attention to cost cutting?
2. Discuss whether Indian Consumer goods industry is growing at the cost of future profitability.
3. Discuss capital and labour productivity in engineering context and pharmaceutical industries in
India.
4. Is textile industry in India performing better than its global competitors?
END OF SECTION B
Examination Paper Semester I: Managerial Economics
IIBM Institute of Business Management
Section C: Applied Theory (30 marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 15 marks.
•Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. Free trade promotes a mutually profitable regional division of labour, greatly enhances the
potential real national product of all nations and makes possible higher standards of living all
over the globe.” Critically explain and examine the statement.
2. What role does a decision tree play in business decision-making? Illustrate the choice between
two investment projects with the help of a decision tree assuming hypothetical conditions about
the states of nature, probability distribution, and corresponding pay-offs.
S-1-91110
END OF SECTION C
No comments:
Post a Comment