Management 2024 Paper I 50 marks Calculate

Q7

(a) Sunder Ltd. is planning an expansion programme which will require ₹30 crores and can be funded through one of the three following options : 1. Issue equity shares of ₹100 each at par 2. Raise a 15% loan, and 3. Issue 12% preference shares. The present paid up capital is ₹60 crores and the annual EBIT is ₹12 crores. The tax rate may be taken at 30%. After the expansion plan is adopted, the EBIT is expected to be ₹15 crores. Calculate the EPS under all the three financing options indicating the alternative giving the highest return to the equity shareholders. Also determine the indifference point between the equity share capital and the debt financing (i.e. option 1 and option 2 above) (20 marks) (b) What is beta in the context of the CAPM ? Explain how it measures systematic risk. Discuss the beta values and their implications for asset pricing. (10 marks) (c) What are the key criteria the marketing manager of a company dealing in light motor vehicle (LMV) category should consider for effectively segmenting a market ? Discuss the variables under the demographic segmentation. Give examples to support your answer. (20 marks)

हिंदी में प्रश्न पढ़ें

(a) सुन्दर लिमिटेड एक विस्तार कार्यक्रम की योजना बना रही है जिसमें 30 करोड़ रुपये लगेंगे और जिसका वित्तपोषण निम्नलिखित तीन विकल्पों में से किसी एक के द्वारा किया जा सकता है : 1. ₹100 प्रति शेयर का सम मूल्य पर निर्गमन करना 2. 15% पर ऋण लेना, और 3. 12% पर अधिमान शेयरों का निर्गमन करना। वर्तमान प्रदत्त पूँजी 60 करोड़ रुपये है और इसकी वार्षिक ई.बी.आई.टी. 12 करोड़ रुपये है । कर की दर 30% मानी जा सकती है । विस्तार योजना के अपनाए जाने के बाद, अपेक्षित ई.बी.आई.टी. 15 करोड़ रुपये होगी । सभी तीनों वित्तपोषण विकल्पों के लिये ई.पी.एस. का परिकलन कीजिये, यह बताते हुए कि कौन सा विकल्प शेयरधारकों को अधिकतम प्रत्याय (रिटर्न) देगा । इक्विटी शेयर पूँजी और ऋण द्वारा वित्तपोषण (उपर्युक्त विकल्प 1 एवं विकल्प 2) विकल्पों के बीच उदासीनता बिन्दु का भी निर्धारण कीजिये । (20 अंक) (b) सी.ए.पी.एम. के संदर्भ में बीटा का क्या अर्थ है ? समझाइये कि यह कैसे मूल्यवस्थित जोखिम का मापन करता है । परिसंपत्ति मूल्य निर्धारण हेतु बीटा मूल्यों एवं उनके निहितार्थों की विवेचना कीजिए । (10 अंक) (c) हल्के मोटर वाहनों (एल.एम.वी.) से संबंधित एक कंपनी के विपणन प्रबंधक को किसी बाजार का प्रभावी खंडीकरण करने के किन प्रमुख मानदंडों का संज्ञान लेना चाहिए ? जनसांख्यिकीय खंडीकरण के चरों की विवेचना कीजिए । अपने उत्तर के समर्थन में उदाहरण दीजिए । (20 अंक)

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Directive word: Calculate

This question asks you to calculate. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.

See our UPSC directive words guide for a full breakdown of how to respond to each command word.

How this answer will be evaluated

Approach

The directive 'calculate' for part (a) demands precise numerical working with EPS computation and indifference point derivation; spend approximately 40% time on (a) given its 20 marks, 25% on (b) for CAPM-beta exposition, and 35% on (c) for LMV segmentation analysis. Structure: begin with clear calculations for all three financing options in (a), then theoretical exposition of beta and systematic risk in (b), followed by demographic segmentation application to Indian LMV market in (c), ending with integrated recommendations.

Key points expected

  • For (a): Correct computation of EPS under equity financing (₹30 crore equity at par, new shares = 30 lakh, total equity = 90 crore, PAT = ₹10.5 crore, EPS = ₹11.67)
  • For (a): Correct computation of EPS under debt financing (₹30 crore @ 15%, interest = ₹4.5 crore, EBT = ₹10.5 crore, PAT = ₹7.35 crore, EPS = ₹12.25)
  • For (a): Correct computation of EPS under preference share financing (₹30 crore @ 12%, pref. dividend = ₹3.6 crore, EBT = ₹15 crore, PAT = ₹10.5 crore, less pref. div, equity earnings = ₹6.9 crore, EPS = ₹11.50)
  • For (a): Identification of debt financing as highest EPS (₹12.25) and correct indifference point calculation between equity and debt: (EBIT - 0)(0.7)/90 = (EBIT - 4.5)(0.7)/60, solving to EBIT = ₹13.5 crore
  • For (b): Definition of beta as covariance of asset return with market return divided by variance of market return; explanation as measure of systematic/non-diversifiable risk; discussion of beta values (β<1 defensive, β=1 market neutral, β>1 aggressive) with implications for expected returns via CAPM: E(Ri) = Rf + βi[E(Rm) - Rf]
  • For (c): Application of demographic segmentation variables to LMV market: age (young professionals vs. family buyers), income/occupation (middle-class vs. premium segments), family size/life cycle (nuclear families preferring compact SUVs), education, with Indian examples (Maruti Suzuki targeting first-time buyers, Mahindra XUV700 for affluent professionals, Tata Nexon for urban millennials)

Evaluation rubric

DimensionWeightMax marksExcellentAveragePoor
Concept correctness22%11All EPS calculations mathematically accurate with correct application of tax shield; indifference point algebra flawless; beta definition precise with correct CAPM formula; demographic variables accurately applied to LMV context with no conceptual errors in segmentation theory.Minor arithmetic errors in EPS or indifference point (1-2 mark deviations); beta explanation broadly correct but CAPM formula slightly misstated; demographic variables listed but weakly linked to LMV specifics.Fundamental errors in EPS calculation (ignoring tax, wrong share count); incorrect indifference point formula; confused beta with standard deviation; generic segmentation with no LMV relevance.
Framework citation18%9Explicit citation of EBIT-EPS analysis framework, Modigliani-Miller capital structure relevance, Sharpe's CAPM (1964), and Kotler's segmentation criteria; clear linkage between theoretical frameworks and numerical solutions.Implicit use of correct frameworks without naming theorists; CAPM mentioned but Sharpe not cited; segmentation criteria listed without Kotler reference.No framework identification; calculations presented as mechanical steps without theoretical grounding; confusion between different capital structure theories.
Case / Indian example18%9Rich Indian LMV examples: Maruti Alto for price-sensitive first-time buyers (income-based), Mahindra Thar for adventure-seeking millennials (psychographic-demographic overlap), Tata Punch for urban nuclear families (family life cycle), Hyundai Creta for upwardly mobile professionals; possibly references Indian capital market context for equity issuance.Generic mention of Indian car brands without specific model-segment linkage; or international examples substituted where Indian context expected.No Indian examples; entirely foreign automobile references; or examples from unrelated product categories.
Multi-perspective analysis22%11For (a): discusses financial risk vs. return trade-off despite debt having highest EPS; for (b): contrasts systematic vs. unsystematic risk, limitations of beta estimation; for (c): integrates demographic with geographic and psychographic variables for LMV segmentation; acknowledges limitations of single-variable segmentation.Single-dimension analysis for each part; some recognition of trade-offs but not systematically developed; segmentation discussion stays purely demographic without integration.Purely mechanical calculations in (a) with no risk discussion; beta treated as unproblematic measure; segmentation presented as checklist without analytical depth.
Conclusion & recommendation20%10Synthesized conclusion: recommends debt financing for (a) with caveat on debt capacity; for (b) summarizes beta's role in portfolio construction; for (c) proposes multi-base segmentation strategy for Indian LMV market with actionable targeting priorities; overall answer demonstrates integration across financial and marketing decisions.Separate conclusions for each part without cross-linkage; recommendations generic or missing for one sub-part.No conclusion; abrupt ending with final calculation; or confused recommendation contradicting earlier analysis (e.g., recommending equity despite highest EPS under debt).

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