2018 (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
1)
Retained earnings do not involve any cost.
2)
The main aim of financial function is to
maximize profit.
3)
Gross working capital refers to the capital
invested in the total assets of an enterprise.
4)
Payment of dividend at the usual rate is termed
as regular dividend.
(b) Fill in the blanks:
1x4=4
1)
It is better for a company to remain in _______
gear during the period of depression.
2)
According to M&M approach, the total value
of a firm is _______.
3)
Corporation finance deals with the _______ form
of organization.
4)
The rate of return on investments _______ with
the shortage of working capital.
2. Write short notes on any four of the
following: 4x4=16
a)
Wealth maximization.
b)
Significance of cost of capital.
c)
Profitability index method of capital budgeting.
d)
Stable dividend policy.
e)
Importance of working capital management.
3. (a) The responsibility of a finance
manager is now regarded as much more than mere procurement of funds. What do
you think are other responsibilities of a finance manager? 14
Or
(b) What do you mean by Finance Function?
Discuss about the scope of finance function in a business enterprise. Should
the goal of financial decision making be profit maximization or wealth
maximization? 4+6+4=14
4. (a) Define the term ‘working capital’.
On the formation of a new business, what considerations are taken into account
in estimating the amount of working capital needed? 3+11=14
Or
(b) The following information has been
extracted from the cost sheet of a company:
|
Particulars
|
Rs. (Per Unit)
|
|
Raw
materials
Direct
labour
Overheads
|
40
30
35
|
|
Total
Profits
|
105
15
|
|
Selling
Price
|
120
|
The following further
information is available:
1)
Raw materials are in stock on an average two
months.
2)
The materials are in process of an average for 4
weeks. The degree of completion is 50% in all respects.
3)
Finished goods are in stock on an average for
one month.
4)
Time lag in payment of wages and overheads is 1
and half weeks.
5)
Time lag in respect of proceeds from debtors is
2 months.
6)
Credit allowed by suppliers is one month.
7)
20% of output is sold against cash.
8)
The company expects to keep a cash balance of
Rs. 50,000.
9)
Take 52 weeks per annum.
10)
Calculation of debtors may be made at selling
price.
11)
The company is planned to manufacture 15,000
units in the year.
You are required to prepare a statement
showing the working capital requirements of the company. 14
5. (a) Define capital structure. Using
imaginary figures, show how to determine the value of firm under (1) the net
income (NI) approach and (2) the net operating income (NOI) approach. 4+5+5=14
Or
(b) A chemical company is considering
investment in a project that costs Rs. 5,00,000. The life of the project is 5
years and estimated salvage value is zero. Tax rate is 55%. The company uses
straight-line depreciation and proposed project has estimated earnings before
depreciation and before tax as follows: 14
|
Year
|
Earnings before
Depreciation and Tax (Rs.)
|
|
1
2
3
4
5
|
1,00,000
1,00,000
1,50,000
1,50,000
2,50,000
|
Determine the
following:
1)
Payback period.
2)
Average rate of return.
3)
Net present value at 15%.
4)
Gross profitability index at 15%.
The following are the present value
factors at 15% p.a.:
|
Year:
|
1
|
2
|
3
|
4
|
5
|
|
PV
Factor:
|
0.870
|
0.756
|
0.658
|
0.572
|
0.497
|
6. (a) What is the Modigliani-Miller
approach of irrelevance concept of dividends? Under what assumptions do the
conclusions hold good? 10+4=14
Or
(b) What do
you understand by retained earnings? Discuss the merits and limitations of
ploughing back of profit. 4+5+5=14
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
1. (a) Fill in the blanks: 1x4=4
1)
_______ leverage is also known as ‘Trading on
Equity’.
2)
Payment of dividend involved legal as well as
_______ consideration.
3)
_______ is the life blood and nerve centre of a
business concern.
4)
Financial decisions involved investment,
financing and _______ decisions.
(b) Write True or False: 1x4=4
1)
Debentures do not carry any voting right.
2)
The value of the firm can be maximized, if the
shareholders’ wealth is maximized.
3)
According to Walter’s model, the dividend
decision is irrelevant.
4)
Corporation finance is a wider term than
business finance.
2. Write short notes on any four of the
following: 4x4=16
a)
Capital market.
b)
Trading on equity.
c)
Retained earnings.
d)
Dividend payout ratio.
e)
Aims of finance function.
3. (a) What do you mean by business
finance? What is the scope of finance function in a business enterprise? Should
the goal of financial decision making be profit maximization or wealth
maximization? 2+4+6=12
Or
(b) Discuss the profit
maximization and wealth maximization concept of financial management. 6+6=12
4. (a) Describe the various natures of
short-term and long-term requirement of finance in a business and sources from
which those can be arranged. 5+6=11
Or
(b) What is ‘capital
market’? Why is it considered as a prerequisite for the economic development of
a country like India? Discuss. 3+8=11
5. (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) (1) Define capital
budgeting. State its limitations. 2+3=5
(2) The following data
are available for ABC Ltd:
|
|
Rs.
|
|
Selling
price per unit
Variable
cost per unit
Fixed
cost
|
120
70
2,00,000
|
1)
What is the operating leverage, when ABC Ltd.
produces and sells 6,000 units?
2)
What is the percentage change that will occur in
the EBIT of ABC Ltd., if output increases by 5%? 3+3=6
6. (a) What do you mean by ploughing back
of profit? What are the purposes of ploughing back? Discuss different factors
that influence the ploughing back of profit. 2+4+5=11
Or
(b) Explain the
various factors which influence the dividend decision of a firm. 11
7. (a) Define receivable management.
Discuss the various dimensions of receivable management. 3+8=11
Or
(b) The following
information has been submitted by the borrower:
1)
Expected level of production – 120000 units.
2)
Raw materials to remain in stock on an average –
2 months.
3)
Processing period for each unit of product
(costing of 100% of raw material, wages and overheads) – 1 month.
4)
Finished goods remain in stock on an average – 3
months.
5)
Credit allowed to the customers from the date of
dispatch – 3 months.
6)
Expected ratios of cost to selling price:
a)
Raw material – 60%
b)
Direct wages – 10%
c)
Overheads – 20%
7)
Selling price per unit – Rs. 10.
8)
Expected margin on sale – 10%.
You are required to
estimate the working capital requirements of the borrower. 11
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