2015 (November)
COMMERCE (Speciality)
Course: 302 (Financial Management)
The figures in the margin indicate full
marks for the questions
(NEW COURSE)
Full Marks:
80
Pass Marks: 24
Time: 3 hours
1. (a) Write ‘True’ or ‘False’: 1x4=4
i.
Cash management is an important task of the
finance manager.
ii.
Every business concern should have excessive
working capital.
iii.
The cost of capital is the maximum rate of
return expected by its investors.
iv.
Dividend is the reward of the shareholders for
investment made by them in the shares of the company.
(b) Fill in the blanks: 1x4=4
i.
____ is the life blood and nerve centre of a
business concern.
ii.
Capital budgeting means planning for ____
assets.
iii.
The redundant working capital gives rise to ____
transactions.
iv.
Dividends paid in the ordinary course of
business are known as ____ dividends.
2. Write
short notes on any four of the following: 4x4=16
a)
Wealth maximization.
b)
Net present value method.
c)
Weighted average cost of capital.
d)
Management of working capital.
e)
Regular dividend policy.
3. (a)
“Maximization of profits is regarded as the proper objective of investment
decision, but it is not as exclusive as maximizing shareholders’ wealth.”
Comment. 14
Or
(b) Define
‘financial management’. Explain the objectives of financial management. Why is
maximizing wealth a better goal than maximizing profits? 3+7+4=14
4. (a)
Define the term ‘working capital’. What factors you have to take into consideration
in estimating the working capital needs of a concern? 3+11=14
Or
(b) The
following information has been extracted from the Cost Sheet of a company:
|
|
Rs.
(per unit)
|
|
Raw Materials
Direct Labour
Overheads
|
45
20
40
|
|
Profit
|
105
15
|
|
Selling Price
|
120
|
The
following further information is available:
i.
Raw Materials are in stock on an average of two
months.
ii.
The materials are in process on an average for 4
weeks. The degree of completion is 50% in all respects.
iii.
Finished goods are in stock on an average of one
month.
iv.
Time lag in payment of wages and overheads is 1
½ weeks.
v.
Time lag in receipts of proceeds from debtors is
2 months.
vi.
Credit allowed by suppliers is one month.
vii.
20% of output is sold against cash.
viii.
The company expects to keep a cash balance of
Rs. 1,00,000.
ix.
Take 52 weeks per annum.
x.
Calculation of debtors may be made at selling
price.
xi.
The company is poised for a manufacture of 14400
units in the year.
You are required
to prepare a statement showing the working capital requirements of the company.
14
5. (a) Explain
briefly the following methods of capital budgeting bringing out the advantages
and disadvantages of each: 7+7=14
i.
Payback period method.
ii.
Accounting rate of return method.
Or
(b) (i) X Ltd.
issues Rs. 50,000, 8% debentures at par. The tax rate applicable to the company
is 50%.
(ii) Y
Ltd. issues Rs. 50,000, 8% debentures at a premium of 10%. The tax rate
applicable to the company is 60%. Compute the cost of debt capital.
(iii) A
Ltd. issues Rs. 50,000, 8% debentures at a discount of 5%. The tax rate is 50%.
Compute the cost of debt capital.
(iv) B
Ltd. issues Rs. 1,00,000, 9% debentures at a premium of 10%. The costs of
floatation are 2%. The tax rate applicable is 60%. Compute the cost of debt
capital. 3
½ x4=14
6. (a)
There is strong view prevalent among financial experts that the irrelevant
hypothesis underlying the MM theory of dividend distribution is out-dated and
unsuited to present conditions. Do you agree with this view? Discuss. 14
Or
(b) (i)
What is ‘dividend’? Discuss the various forms of dividend. 2+5=7
(ii) What
do you understand by a stable dividend policy? Why should it be followed? 4+3=7
(OLD
COURSE)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
1. (a) Write ‘True’ or ‘False’: 1x4=4
i.
The main aim of finance function is to maximize
the profits.
ii.
Capital budgeting is the process of making
investment decisions in capital expenditures.
iii.
Ownership securities are represented by
debentures.
iv.
New issue market represents the primary market.
(b) Fill in the blanks: 1x4=4
i.
Financial decisions involve investment,
financing and ____ decisions.
ii.
Combined Leverage = Operating Leverage x ____
Leverage.
iii.
The value of the firm can be maximized, if the
shareholders’ ____ is maximized.
iv.
Adequacy of ____ is a must for maintaining
solvency and continuing production.
2. Write short
notes on any four of the following: 4x4=16
a)
Profit maximization.
b)
Optimal capital structure.
c)
Capital market instruments.
d)
Retained earnings.
e)
Receivable management.
3. (a) What is
financial management? Discuss the objectives of financial management. 4+8=12
Or
(b) Discuss the
profit maximization and wealth maximization concept of financial management. 6+6=12
4. (a) What is
cost of capital? How are cost of debt and cost of equity capital computed?
Write in brief about weighted average cost of capital. 2+3+3+3=11
Or
(b) Following
information is taken from the records of a hypothetical company:
|
Installed capacity
Operating capacity
Selling price per unit
Variable cost per unit
|
1000 units
800 units
Rs. 10
Rs. 7
|
Calculate
operating leverage from the following situations:
|
Fixed Cost
|
Rs.
|
|
Situation A
Situation B
Situation C
|
800
1,200
1,500
|
5. (a) Discuss in
detail the sources of long-term finance of a company form of business
organization. 11
Or
(b) What is
‘capital market’? What are the functions of a capital market? Distinguish
between capital market and money market. 2+5+4=11
6. (a) Discuss
the various types of dividend policies. State the various forms of dividends on
the basis of payments. 6+5=11
Or
(b) There is a
strong view prevalent among financial experts that irrelevant hypothesis
underlying the M & M approach of dividend distribution is out-dated and
unsuited to present condition. Do you agree with this view? Discuss. 11
7. (a) What is
meant by ‘inventory management’? Discuss various techniques used for inventory
control. 3+8=11
Or
(b) A pro forma
cost sheet of a company provides the following particulars:
Element of
cost:
|
Direct material
Direct labour
Overheads
|
40%
20%
20%
|
The
following further particulars are available:
i.
It is proposed to maintain a level of activity
of 200000 units.
ii.
Selling price is Rs. 12 per unit.
iii.
Raw materials are expected to remain in stores
for an average period of one month.
iv.
Finished goods are required to be in stock for
an average period of one month.
v.
Materials will be in process for an average
period of half month.
vi.
Credit allowed to debtors is two months.
vii.
Credit allowed by supplier is one month.
From the above
information, you are required to prepare a statement of working capital
requirements. 11