2017
COMMERCE (General
/ Speciality)
Course:
302 (Financial
Management)
(New
course)
Full
marks: 80
Pass
marks: 24
Time:
3 hours
1. (a) Write True or false: 1x4=4
1) Increased
use of debt increases the financial risk of equity share holders.
2) Corporation
finance is a part of public finance.
3) Composite
cost refers to the cost of equity and preference share capital.
4) The fixed
proportion of working capital should be generally financed from the fixed
capital sources.
(b) Fill in the blanks: 1x4=4
1) Payment of
dividend involves legal as well as _______________ considerations.
2) Capital
budgeting is the process of making investment decisions in __________
expenditure
3) Fixed cost
bearing securities should be mixed with equity when the rate of earnings is
_______ than the rate of interest of the company.
4) Working
capital is also known as _______ capital.
2. Write short notes on any four of the
following: 4x4=16
a) Aims of
finance function
b) Capital
gearing
c) Estimate
of working capital requirement
d) Optimal
payout ratio
e) Net
present value as a technique of capital budgeting
f) Optimal
capital structure
3. (a)
“Profit maximisation is not the adequate criterion to judge the efficiency of a
firm.” Explain the statement. What should be the right criterion and why? 6+8=14
OR
(b) Critically
analyze the functions of a financial of a financial manager in a large scale
industrial establishment. What are the responsibilities of a financial manager
in a modern business organisation? 8+6=14
4. (a)
What are the advantages of adequate working capital? What shall be the
repercussions if a firm has (i) redundant working capital and (ii) inadequate
working capital?
OR
(b) The
following information has been extracted from the Cost sheet of Dot Com Co.
Ltd.:
Particulars
|
Rs. (per unit)
|
Raw materials
Direct labour
Overhead
(including depreciation of Rs. 10)
|
45
18
40
|
Total cost
Profit
|
103
17
|
Selling price
|
120
|
The
following further information is available:
a) Raw
materials are in stock on an average of one month
b) The
materials are in progress on an average for half a month (100% complete in
regard to material and 50% for labour and overheads)
c) Credit
allowed by suppliers is one month
d) Time lag
in receipts of proceeds from debtors is two months.
e) Average
time lag in payment of overheads is one month.
f) 30
percents of sales are on cash basis
g) The
company expected to keep a cash balance of Rs. 1,00,000.
h) Time lag
in payment of wages is 10 days
i)
Finished goods lie in warehouse for half a
month
Prepare
the working capital needed to finance a level of activity of 45000 units of
output. Production is carried on evenly throughout the year, and wages and
overhead accrue similarly. 14
5. (a) (i)
Define capital structure. What is optimal capital structure? 3+5=8
(ii) A
Company Ltd. Has a share capital of Rs. 1,00,000 divided into shares of Rs. 10
each. It has major expansion programme requiring an investment of another Rs.
50,000. The management is considering the following alternatives for raising
this amount:
Issue of 5000 shares of Rs. 10 each.
Issue of 5000, 12 5 preference shares of Rs. 10 each
Issue of 10% debentures of Rs. 50,000
The company’s present
earnings before interest and tax (EBIT) is Rs. 30,000 pa
You are
required to calculate the effect of each
of the above modes of financing on the earning per share (EPS) presuming
EBIT continues to be the same even after expansion (Assume tax liability at
50%) 6
(b) What
is meant by cost of capital? What are the components of the cost of capital?
What is the cost of retained earnings? How is the cost of new equity issues
determined? 3+3+4+4=14
6. (a) (i)
What is dividend? Discuss the various forms of dividend. 2+5=7
(ii) What
do you understand by stable dividend policy? Why should it be followed? 2+5=7
OR
(b) In
Walter’s approach, the dividend policy of a firm depends on availability of
investment opportunity and the relationship between the firm’s internal rate of
return and its cost of capital. Discuss. What are the shortcomings of this
view? 14
(Old
course)
Full
marks: 80
Pass
marks: 32
1. (a)
write True or False: 1x4=4
a) Finance
manager has to estimate, procure and utilize financial resources.
b) Capital
budgeting and capital rationing mean the same thing.
c) Ownership
securities are represented by debentures.
d) Cash
dividend is a usual method of paying dividend.
(b) Fill
in the blanks: 1x4=4
a) It is the
duty of a finance manager to arrange_________ funds.
b) Cost of
capital is not a_______________as such.
c) _________Dividend
promises to pay the shareholders at a future date.
d) Current
Assets – Current Liabilities =
2. Write
short notes on any four of the following: 4x4=16
a) Profit
maximisation
b) Net
present value method
c) Lease
financing
d) Retained
earnings
e) Gross and
net working capital
3. (a)
What is Finance Function? What are the aims of finance functio? Discuss its
scope. 12
OR
(b) Define
Financial Management. Discuss its significance in modern era. State the
objectives of financial management. 3+5+4=12
4. (a)
What is cost of capital? Discuss its problems in determination of cost of
capital. 3+8=11
OR
(b) What
is Financial Leverage? Calculate operating leverage and financial leverage from
the following data: 3+4+4=11 Rs.
Sales
(100000 units) 2,00,000.00
Variable
cost per unit 0.70
Fixed cost 65,000.00
Interest
charges 15,000.00
5. (a)
What are the main sources of finance available to industries for meeting long
term financial requirements? Discuss 11
OR
(b) What
is capital market? What are the main components of a capital market?
Distinguish between capital market and money market 2+3+6=11
6. (a)
Discuss the MM theory of dividend distribution. What are the criticisms of this
theory of irrelevance? 7+4=11
OR
(b) What
is Stable Dividend Policy? Do you recommend a stable dividend policy? Explain
it with justification. 2+2+7=11
7. (a)
What do you mean by Inventory Management? Why is it essential to an enterprise?
Mention any four problems of inventory management. 2+2+7=11
OR
(b) From
the following information, prepare a statement showing the working capital
requirements: 11
Budgeted
sales- Rs. 2,60,000 per annum. Analysis of one rupee of sales:
Particulars
|
Rs. (per unit)
|
Raw materials
Direct labour
Overhead
(including depreciation of Rs. 10)
|
0.30
0.40
0.20
|
Total cost
Profit
|
0.90
0.10
|
Selling price
|
1.00
|
It is
estimated that:
a) Raw materials
are carried in stock for 3 weeks and finished goods for 2 weeks.
b) Factory
processing will take 3 weeks and it may be assumed to be consisting of 100 % of
raw materials, wages and overheads
c) Suppliers
will give 5 weeks credit
d) Customers
will require 8 weeks credit.
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