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VALLIAMMAI ENGINEERING COLLEGE

SRM Nagar, Kattankulathur – 603 203

DEPARTMENT OF MANAGEMENT STUDIES

QUESTION BANK

II SEMESTER

BA5203– Financial Management

Regulation – 2017

Academic Year 2017 – 18

Prepared by

Dr.Radhaganeshkumar, Assistant Professor (Sel. Grade)/MBA

Mr. M.Ganesan @ Kanagaraj, Assistant Professor (OG)/MBA

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VALLIAMMAI ENGINEERING COLLEGE
SRM Nagar, Kattankulathur – 603 203.

DEPARTMENT OF MANAGEMENT STUDIES

QUESTION BANK
SUBJECT : BA5203 FINANCIAL MANAGEMENT
SEM / YEAR: II/I

UNIT I – FOUNDATIONS OF FINANCE


Financial Management-An overview-Time Value of Money-Introduction to the concept
of risk and return of a single asset and of a portfolio-Valuation of bonds and shares-
Option valuation.
PART – A
Q.No Questions BT Level Competence
1. Define Financial Management. BTL1 Remembering
A Rs.10,000 per value bond bearing a coupon rate of
2. 12% will mature after 5 years. Compare the value of BTL2 Understanding
bond, if the discount rate is 15%?

3. Identify the two aspects of financial management. BTL3 Applying

4. Classify the various concepts in time value of money. BTL4 Analyzing

5. Discuss the objectives and goal of financial management. BTL5 Evaluating

6. Interpret the functions of financial Manager. BTL6 Creating

7. Define Future Value of Money. BTL1 Remembering


Compare modern view of financial management with its
8. BTL2 Understanding
traditional view.
How is the term finance more comprehensive than money
9. BTL3 Applying
management?
Return on market portfolio has a standard deviation of
20% and covariance between the returns on the market
10. BTL4 Analyzing
portfolio and that of security A is 800. What is the
expected return?
How would you have a fresh look at the finance function in
11. BTL5 Evaluating
business?
12. Interpret modern view(s) on financial management. BTL6 Creating

13. Define Compound value concept. BTL1 Remembering

14. Can you explain Rule 72 and Rule 69. BTL2 Understanding

15. How is bond different from equity? BTL3 Applying

16. Why does money have time value? BTL4 Analyzing

17. What is Risk Premium? BTL1 Remembering

18. Classify the yield to maturity? BTL2 Understanding

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19. Define yield to call. BTL1 Remembering

20. What is effective rate of interest? BTL1 Remembering


PART – B
1. i) How will you measure time preference for money? BTL1 Remembering
(7 marks)

ii) List the reasons for time preference for money. (6


marks)

2. Discuss future value of an annuity explain with BTL2 Understanding


examples?

3. i) How would you show your understanding on the BTL3 Applying


estimation of time value of a put option? (7 marks)

ii) Examine the need for Black Scholes option model. (6


marks)
4. Can you list the types of risk & classify BTL4 Analyzing
Non‐diversifiable risk”&” Security market line”. How
does it differ from capital market line?

5. i) Discuss the concept and significance of risk and BTL5 Evaluating


return of a portfolio. (7 marks)
ii) Discuss the importance of correlation between
assets returns in a portfolio. (6 marks)

6. Evaluate “The goal of profit maximization does not BTL6 Creating


provide an operationally useful criterion”‐ Explain

7. i)Define the concept of risk return trade off with BTL1 Remembering
diagram. (7 marks)
ii)What is the present value of cash flow of Rs.1500 per
year forever a) At an interest rate of 8% and b) At an
interest rate of 10%. (6 marks)
8. Define, what is return? Write the various of total return. BTL2 Understanding
Whether unrealised capital gain or loss be included in the
calculations of returns?
9. i) Explain the functions of finance manager of a firm. (7 BTL3 Applying
marks)
ii) Can you explain the features & scope of financial
management? (6 marks)
10. i) Define the various decisions in financial management. BTL4 Analyzing
“Wealth maximization is the sole objective

of financial management”‐ Explain (7 marks)

ii) What is the present value of perpetuity of Rs.800 starting


in year 3 at a discount rate of 18%. (6 marks)

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11. A bond has 3 years remaining until maturity. It has a BTL1 Remembering
par value of Rs.1, 000. The coupon interest rate on the
bond is 10%. How would you compute the yield to
maturity at current market price of Rs.1, 100, assuming
interest is paid annually?
12. i) How would you explain the various concepts of value? BTL2 Understanding
State the formula for bond valuation. (7 marks)

ii) Can you explain the relationship between coupon rate,


required yield and price? (6 marks)
13. Analyse the value of a share for which the current dividend BTL4 Analyzing
is Rs.3 and the annual growth rate is 5%. Assume a
required rate of return of 10%. What will be the value of
the share if the annual growth is 8%?

14. ABC company currently paying a dividend of Rs.2 per BTL1 Remembering
share. The dividend is expected to grow at a 15%
annual rate for the three years, then at 10%rate of the
next three years, after which it is expected to grow at a
5%rate forever.
i) What is the present value of the share if the
capitalization rate is 9%?
ii) If the share is held for 3 years, what shall be its
present value?

Year 1 2 3 4 5 6

PVF 0.917 0.842 0.772 0.708 0.650 0.596


@
9%

PART-C

1 Best ltd has a Rs. 1000 par value bond carrying a coupon rate of 12% and maturing
after 7 yrs. The market value of this bond is Rs.750. What is the YTM of this bond?
What will be the YTM if the market price is 1050?
2 There are 3 securities X,Y, and Z. The returns are given as follows:‐ Select the securities
based on risk and return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Y -20 10 20 10 20
Z -20 -10 -5 10 30
3 A Company is currently paying a dividend of Rs.2 per share. The dividend is expected
to grow at a 15% annual rate for three years then at 10% for next three years, after it is
expected to grow at a 5% rate forever. (a) What is the present value of the share if the
capitalization rate is 9%? (b) If the share is held for three years, what shall be its
present value?
4 Illustrate with the example linkage between share price and earnings. What is the
importance of P/E ratio. What are its limitations?

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UNIT II – INVESTMENT DECISIONS
Capital Budgeting: Principles and techniques - Nature of capital budgeting-
Identifying relevant cash flows - Evaluation Techniques: Payback, Accounting rate of
return, Net Present Value, Internal Rate of Return, Profitability Index - Comparison of
DCF techniques - Project selection under capital rationing - Inflation and capital
budgeting - Concept and measurement of cost of capital - Specific cost and overall cost of
capital
PART – A
BT
Q.No Questions Level
Competence

1. Define ‘pay‐back period’ method. BTL1 Remembering


Compare operating risk and financial risk?
2. BTL2 Understanding

Identify the merits & limitations of pay‐back period


3. method? BTL3 Applying

What are the components of capital Budgeting?


4. BTL4 Analyzing

Discuss the phases of capital budgeting process.


5. BTL5 Evaluating

Interpret with simple illustration, the profitability index


6. method of capital BTL6 Creating
budgeting. What does the profitability index signify?
7. Define cost of retained earnings? BTL1 Remembering

8. Distinguish the two ways of defining benefit‐cost ratio. BTL2 Understanding


A) Identify the cost of a specific source of finance is
calculated? Brief with an example.
B) Suppose the dividend per share of firm is expected to
9. BTL3 Applying
be Re.1 per share next year and is expected to grow at
6% per year perpetually. Determine the cost of equity
capital, assuming the market price per share is Rs.25
What are the merits of NPV method?
10. BTL4 Analyzing

Define floatation costs in computing the cost of capital?


11. BTL5 Evaluating

Interpret the adjusted NPV with NPV.


12. BTL6 Creating

How would you use risk free rate of return?


13. BTL1 Remembering

Determine the payback period from the following cash


flows
14. BTL2 Understanding
Year 0 1 2 3 4 5
CFAT 100000 20000 30000 40000 50000 60000
Can you apply the payback reciprocal method in decision
15. BTL3 Applying
making?

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Classify the various costs in computing the cost of
16. BTL4 Analyzing
capital?
17. Define IRR. BTL1 Remembering

18. Compare operating risk and financial risk? BTL2 Understanding

19. What are the circumstances NPV & IRR differ? BTL1 Remembering

20. What are the features of ARR method? BTL1 Remembering


PART – B
Define capital budgeting. Discuss in detail the need and
1. importance of it. BTL1 Remembering

What are the major financial decisions? What are the


2. BTL2 Understanding
different methods of valuing equity shares?
(i) How is accounting rate of return calculated? Explain its
merits and demerits. (7 marks)
(ii) A company is considering two mutually exclusive projects
both require an initial cash outlay of Rs.10,000 each and have
a life of 5 years. The company’s required rate of return 10%
and pays tax at 50%. The project will be depreciated on a
straight line basis. The before tax cash flows expected to be
generated by the project are as follows.
3. Before tax cash flows BTL3 Applying
Year 1 2 3 4 5
Project 4,000 4,000 4000 4000 4000
A
Project 5,000 5,000 2000 5000 5000
B
Calculate for each project i) PBP ii) NPV iii) PI. Which project
should be accepted and why? (6 marks)
(i)How would you show your understanding on factors
influencing capital budgeting decisions? (7 Marks)
4. BTL4 Analyzing
(ii) How would you rank capital budgeting proposals? (6
Marks).
(i) What are the steps involved in computing cost of capital? (7
marks)
5. BTL5 Evaluating
(ii) How would you explain the factors influencing overall cost
of capital of the firm? (6 Marks).
Based on what you know, how would you explain the process
6. BTL6 Creating
of capital budgeting.
7. How would you explain about specific sources of capital? BTL1 Remembering
i) Explain the conditions that should be satisfied for using
a firms overall cost of capital for evaluating new
investments. (6 marks)
8. BTL2 Understanding
ii) GURU Ltd has paid up equity capital 60000 equity
shares of Rs.10 each the current market price of shares is
Rs.24. During the current year, the company has

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declared a dividend of Rs.6 per shares. The company has
also previously issued 14% preference shares of Rs.100
each aggregating Rs.3,00,000 at 5% discount and 13%
debentures of Rs.100 each for Rs.5,00,000. The
corporate tax rate is 40% the growth rate in dividends on
equity shares is expected at 5%. Show the overall cost of
capital of the company.
i) How is cost of equity capital determined under
CAPM.Explain? (7 marks)
9. ii) How would you explain the concept of capital BTL3 Applying
rationing? (6 marks)
i) What are the problems in determining cost of capital? (7
marks)
10. BTL4 Analyzing
ii) Can you assess the role of inflation in capital budgeting? (6
marks)
What is Modigilani-Miller approach to the problem of cost of
11. capital structure? Under what assumptions do their BTL1 Remembering
conclusion hold good?
Machine X has a cost of Rs.75,000 and net cash flow of
Rs.20000 per year, for six years. A substitute machine Y
would cost Rs.50,000 and generate net cash flow of
Rs.14000 per year for six years. The required rate of
return of both machines is 11%. Calculate the IRR and
NPV for the machines. Which machine should be
12. accepted and why? BTL2 Understanding

11% 12% 13% 14% 15% 16% 17% 18%

PVF 4.111 3.998 3.889 3.784 3.685 3.589 3.498


6th
year
(4.231)

i) Analyse the important techniques used for decision


making under risk and uncertainty in capital budgeting.
( 7marks)
13. BTL4 Analyzing
ii) A project costs Rs.20, 00, 000 and yields annually a
profit of Rs.3, 00,000 after depreciation at 12.5% but
before tax at 50%. Discover payback period. (6 marks)
The following information has been taken from the
balance sheet of Ram Co. as on 31-12-2016.

14. Equity share Capital : Rs. 6,00,000 BTL1 Remembering

10% Debentures : Rs. 6,00,000

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15% term loan : Rs.18,00,000

Total Rs. 30,00,000

i) Determine the weighted average cost of capital of


the company. It has been paying dividends at
a constant rate of 20% p.a.
What difference will it make if the current price of
Rs.100 share is Rs.200?
PART-C

1 Capital expenditure decisions are by far the most important decisions in the field
of management. Illustrate.
What is Profitability Index? Which is a superior ranking criterion, profitability
2
index or NPV?
3 “Debt is the cheapest source of funds”. Explain
A firm finances all its investment by 40% debt & 60% equity. The estimated
required rate of return on equity is 20% after tax and that of the debt is 8% after
tax. Firm is considering an investment proposal costing Rs.40000with an
4 expected return that will last forever. What amount must the proposal yield per
year so that the market price does not change?

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UNIT III – FINANCING AND DIVIDEND DECISION
Financial and operating leverage - capital structure - Cost of capital and valuation –
designing capital structure.
Dividend policy - Aspects of dividend policy - practical consideration - forms of
dividend policy - forms of dividends - share splits.
PART – A
Q.No Questions BT Level Competence
Define stock split
1. BTL1 Remembering

Compare ‘bonus‐issue’ and ‘share‐split’ on four


2. aspects. BTL2 Understanding

Identify the different forms of Dividend policies.


3. BTL3 Applying

What is Financial Leverage?


4. BTL4 Analyzing

Discuss any four factors which are relevant for


5. determining the pay‐out ratio. BTL5 Evaluating

Can you interpret the existence of Operating leverage


6. in a firm’s Capital Structure? BTL6 Creating

Define any two bases upon which capital structure is


7. determined. BTL1 Remembering

What is meant by debt‐equity ratio and interest


8. coverage ratio? BTL2 Understanding

List some of the causes for ‘indifference point’?


9. BTL3 Applying

What is MM hypothesis?
10. BTL4 Analyzing

Discuss the different forms of capital structure


11. BTL5 Evaluating

Interpret arbitrage pricing in capital structure theory.


12. BTL6 Creating

Define dividend pay‐out ratio? Brief with a simple


13. illustration. BTL1 Remembering

Compare the different forms of dividend


14. BTL2 Understanding

How would you show your understanding about


15. trading on equity? BTL3 Applying

How would you categorize the term leverage?


16. BTL4 Analyzing

Define reverse split.


17. BTL1 Remembering

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Classify NI & NOI approaches.
18. BTL2 Understanding

Define Walter’s & Gordon model of Dividend.


19. BTL1 Remembering

Define composite leverage.


20. BTL1 Remembering

PART - B
i)How would you explain the impact of financial leverage on
earnings per share? (7 marks)
1. ii) (Issued at par): Janaki Ltd., issued 12,000 10% BTL1 Remembering
debentures of Rs.100 each a par. The tax rate is 50%. Find
before tax and after tax cost of debt. (6 marks)
i)What is the main idea of Modigliani Miller approach on
cost of capital? (7 marks)

ii) Show the operating leverage for Maruti Ltd., from the
following information:

No. of Units produced : 50,000

2. Selling price per unit: Rs.50 BTL2 Understanding

Variable cost per unit: Rs.20


Fixed cost per unit at current level of sales is Rs.15. What
will be the new operating leverage, if the variable cost is
Rs.30 per unit. (6 marks)

i) What are the various factors you consider in influencing


Divided Policy? (7 marks)
3. BTL3 Applying
ii) Identify the different types of Dividend Policy? (6 marks)

Examine the legal and procedural aspects of dividend


4. according to Company’s Act. BTL4 Analyzing

i)What are the practical considerations in formulating the


dividend policy? (7 marks)
5. BTL5 Evaluating
ii) Elaborate in detail the various forms of dividends. (6
marks)
Interpret the role of finance manager keeping in mind the
6. degree of financial Leverage in evaluating financing plans? BTL6 Creating
When does leverage become favourable?

Define the essentials of Walters Dividend model? Explain its


7. BTL1 Remembering
shortcomings.
Can you explain the considerations involved in evolving a
8. balanced capital structure of a corporation. BTL2 Understanding

i) How to measure the degree of operating, financial


leverage? Illustrate with an example. (7 marks)
9. BTL3 Applying
ii) Can you make a distinction between a policy of stable
dividend pay-out ratio and a policy of stable dividends or

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steadily changing dividends? What are the reasons

for a firm to choose a specific dividend policy? (6 marks)


i) List the determinants while considering capital structure
of a company? (7 marks).

ii) Find out operating, financial and combined leverages


from the given data:
10. Sales 50,000 units at Rs.12 per unit. BTL4 Analyzing

Variable cost at Rs.8 per unit.

Fixed cost Rs.90,000 (including 10% interest on


Rs.2,50,000). (6 marks)

i)What is dividend policy? Explain the nature of


factors which determine the dividend policy of a
company. (7 marks)

ii)Chetan Ltd. Earns Rs.50 per share.

The capitalization rate is 15% and the return on


11. BTL1 Remembering
investment is 18%. Under Walter’s Model, Determine

a) The optimum Pay-out


b) The market price of the share at this pay out
c) The market price of the share if pay-out is 40%.
d) The market price of the share if pay-out is 80%
(6 marks)
A firm has sales of Rs.75, 00,000, variable cost of Rs.42,
00,000 and fixed cost of Rs.6, 00,000. It has a debt of
Rs.45,00,000 @ 9% and equity of Rs.55,00,000

i) What is the firm’s ROI?


12. ii) Does it have favourable financial leverage? BTL2 Understanding
iii) What are the operating, financial and combined
leverages of the firm?
iv) If the sale drops to Rs.50, 00,000, What will be
the new EBIT?
At what level will the EBT of the firm be equal to zero.
Discuss the procedure for determining the weighted
13. average cost of capital. What are the factors affecting BTL4 Analyzing
weighted average cost of capital?
Calculate financial and operating leverage under
situations when fixed costs are i) Rs.50000 ii) Rs.10000
14. BTL1 Remembering
and financial plans 1 and 2 respectively, from the
following information pertaining to the operation and

11
capital structure of ABC Co.
Total assets Rs.30000
Total assets turnover based on sales 2
Variable costs as percentage of sales 60
Capital Financial plan 1 Financial plan 2
structure
Equity 30000 10000
10% Debenture 10000 30000

PART-C
The following projections have been given in respect of company X and Y.

Particulars Company X Company Y

Volume of output and sales 80000 units 100000 units

Variable cost per unit Rs 4 Rs 3

Fixed cost Rs240000 Rs 250000


1

Interest burden on debt Rs 120000 Rs 50000

Selling price per unit Rs 10 Rs 8

On the basis of above information calculate (A) OL (B) FL (C) combined


leverage (D) operating BEP ( E) financial BEP.

You are required to calculate the overall cost of capital, from the following
capital structure of a company

1000 12% preference shares of Rs.100 each issued at par Rs.100000


2
10000 Equity shares of Rs.10 each issued at par Rs.1,00,000

5,000 10% debentures of Rs.100 each issued at par Rs.500000

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12% term loan Rs.200000

Retained Earnings Rs.150000

The market price of an equity share is Rs.30. The next expected dividend is
Rs.3 per share and the dividend per share is expected to grow at 10%. The
preference shares are redeemable after 7 years at par and are currently
quoted at Rs.75 per share. The debentures are redeemable at par after 5
years and are quoted at Rs.90 per debenture. The tax rate applicable to the
company is 40%.

Does the financial leverage always increase the earnings per share‐illustrate your
3 answers

Explain the assumptions and implications of NI and NOI approach


4 illustrate your answers with hypothetical examples

UNIT IV WORKING CAPITAL MANAGEMENT

Principles of working capital: Concepts, Needs, Determinants, issues and estimation of


working capital - Accounts Receivables Management and factoring - Inventory
management – Cash management - Working capital finance: Trade credit, Bank
finance and Commercial paper.
PART – A
Q.No Questions BT Level Competence
Define ‘Commercial paper’? State its features.
1. BTL1 Remembering

Explain the purpose of using working capital.


2. BTL2 Understanding

How would you use various methods available for


3. forecasting working capital requirements? BTL3 Applying

Can you list the advantages of inventory control?


4. BTL4 Analyzing

What are the factors determining working capital?


5. BTL5 Evaluating

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Explain the term Float.
6. BTL6 Creating

How would you explain Factoring?


7. BTL1 Remembering

What is operating cycle?


8. BTL2 Understanding

How would you apply the steps in receivables


9. forecasting? BTL3 Applying

Can you specify the cost associated with factoring?


10. BTL4 Analyzing

What are the factors influencing current assets with the


11. help of short as well as long term funds? BTL5 Evaluating

What is your opinion about cash cycle?


12. BTL6 Creating

How would you explain credit evaluation?


13. BTL1 Remembering

Explain inventory management.


14. BTL2 Understanding

How would you draw an operating cycle of working


15. capital for a manufacturing company? BTL3 Applying

What is the process of factoring?


16. BTL4 Analyzing

Define Cash Management.


17. BTL1 Remembering

What is meant by ABC analysis?


18. BTL2 Understanding

Write short note on Economic Order Quantity.


19. BTL1 Remembering

List out the motives for holding cash.


20. BTL1 Remembering

PART-B
1. How would you explain receivable control techniques? BTL1 Remembering
i) Can you explain the factors affecting working capital?
(8marks)
2. ii) What are the various principles of working capital?
BTL2 Understanding
( 5marks)

i) How would you use float in cash management? (8marks)

3. ii) Explain the different kinds of float in cash management. BTL3 Applying
(5marks)

i) What is the concept of working capital cycle? (8marks)

ii) Examine the various opportunities available to the


4. BTL4 Analyzing
companies to park their surplus funds for a short term.
(5marks)

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5. What are the objectives of inventory management? Explain. BTL5 Evaluating
How could you determine various inventory control
6. techniques? BTL6 Creating

How would you describe the basic objectives of cash


7. management and basic problems in cash management? BTL1 Remembering

How would you explain techniques that can be used to


8. accelerate a firm’s collection? BTL2 Understanding

i) What cash management models proposed by Baumol and


Miller Orr? ( 8 Marks)
9. BTL3 Applying
ii) Can you list its merits & demerits of Baumol & Miller
model? ( 5 Marks)

i) Can you a give brief note on factoring, its process? ( 8


Marks)
10. BTL4 Analyzing
ii) How would you explain factoring types? ( 5 Marks)

Select Pc ltd sells its product on a gross profit of 20% on


sales. The following information is extracted from its annual
accounts for the year ended 31.12.2011.

 Sales @ 3 months credit 40,00,000


 Raw material 12,00,000
 Wages paid – avg time lag 15 days 96,0000
 Manufacturing expenses paid – 1 month arrear
12,00,000
 Admin expenses paid in 1 month arrear 48,0000
11.  Sales promotion expenses payable half yearly in BTL1 Remembering
advance 20,0000

The company enjoys 1 month credit from the suppliers of


raw material and maintains 2 months stocks of a Raw
materials & 1.5 month stock of a finished goods.

The cash balance is maintained as Rs 10,0000 as a


precautionary measure assuming a 10% margin. Find out
the working capital requirement of PC Ltd.
From the following data prepare a statement showing
requirement for

(a) Estimated output for the year 130000 units ( 52 weeks)


12. (b) Stocks of R.M – 2 weeks & materails in process for BTL2 Understanding
weeks, 50% of wages & OH are incurred
(c) Finished goods remains in storage for 2 week
(d) Creditors 2 weeks
(e) Debtors 4 weeks

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(f) Outstanding wages and overheads 2 weeks each
(g) Selling price / units RS 15
(h) Analysis of cost per unit is as below.
RM 5 UNIT
LABOUR 3 UNIT
OVERHEADS 2 UNIT
PROFIT 5 UNIT
Find out the working capital requirement ?
Assume that there are 3 firms A,B, C.

PARTICULARS A B C

K 12% 12% 12%

R 18% 12% 8%

Eps (Rs) 10 10 10
13. BTL4 Analyzing

A) Prove that changing dividend will affect the value of


the firm according to walter model. Use payout ratio
0%, 50%, 100%. (10 Marks)
B) What is walter model? ( 3 Marks)

Particulars A B C

EPS 10 10 10

Rate of return 18% 12% 8%

14. Cost of capital 12% 12% 12% BTL1 Remembering


A) Find out the market price of the share for the
retention rate of 0% , 25% and 50% using Gordon
model.(10 Marks)
B) What is Gordon model? ( 3 Marks)

PART-C
1. “The credit policy of a firm is criticized because the bad debt losses have
1
increased”‐ Discuss.
2. From the following information of VSGR Company Ltd., estimate working
capital needed to finance a level of activity of 1,10,000 units of production after
adding a 10 per cent safety contingency.

2
Raw materials Rs.78
Direct Labour Rs.29
Overheads (excluding depreciation) Rs.58

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Total cost Rs.165

Profit Rs.24
Selling price Rs.189

Additional information:

(i) Average raw materials in stock : one month

(ii) Average materials–in‐process (50% completion stage):1/2month

(iii) Average finished goods in stock: one month

(iv)Credit allowed by suppliers: one month

(v) Credit allowed to customers : Two months

(vi) Time lag in payment


of wages : one and half weeks

(vii) Overhead expenses :


one month

One fourth of the sales are on cash basis. Cash balance is expected to be Rs.
2, 15,000. You may assume that production is carried on evenly throughout the year
and wages and overhead expenses accrue similarly.

Calculate the working capital allow 10% contingencies

Cost per unit

Raw Material Cost ‐Rs.100

Labour cost ‐Rs 20

Overheads ‐Rs.20

Total Cost ‐Rs. 140

3 Profit ‐Rs. 60

Selling price ‐Rs.200

Additional information:

No. of units sold =25000 units

Average Raw material stock ‐2months

Average work in process ‐1 month

Finished goods ‐2month

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One fourth of the sales is based on cash. Debtors ‐1 month

Lag in wages ‐1/2 month

Lag in payment to Creditors ‐1 month

Lag in payment in overhead expenses ‐1/2 month

Cash balance ‐Rs.1, 00,000

What is the importance of working capital for a manufacturing firm? what shall be the
4
repercussions if a firm as a) paucity of working capital b) excess working capital.

UNIT V LONG TERM SOURCES OF FINANCE:

Indian capital and stock market, New issues market Long term finance: Shares,
debentures and term loans, lease, hire purchase, venture capital financing, Private
Equity.
PART – A
Q.No Questions BT Level Competence
Define the term debenture.
1. BTL1 Remembering
How would you Compare debenture and preference share
2. capital? BTL2 Understanding

What facts would you identify in leveraged lease


3. transactions? BTL3 Applying

What are the various features of term loan?


4. BTL4 Analyzing
How will you estimate risk in venture capital firms?
5. BTL5 Evaluating
Can you assess the importance of private equity?
6. BTL6 Creating
What are the companies represented in the sesex?
7. BTL1 Remembering
Compare Hire Purchase and lease.
8. BTL2 Understanding
How do you examine the intermediaries associated with a
9. company’s issue of capital? BTL3 Applying

What inference can you make from pre‐emptive right of


10. equity shares? BTL4 Analyzing

What facts can you compile for the lease financing?


11. BTL5 Evaluating
How would you interpret “Restrictive covenants”? State two
12. features of it. BTL6 Creating

Define the internal financing of a firm.


13. BTL1 Remembering

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What can you say about ‘authorized share capital’ and
14. paid‐up share capital of a firm? BTL2 Understanding

What approach would you use to classify “BOOT” in


15. project financing? Quote a practical example. BTL3 Applying

16. Can you list the process involved in “venture capital”? BTL4 Analyzing
Define Hire purchase.
17. BTL1 Remembering
What is the concept of book building?
18. BTL2 Understanding
What is private equity?
19. BTL1 Remembering
What are the key functions of venture capital?
20. BTL1 Remembering

PART – B
i) List the features of various long term sources of finance. (8
marks)
1. ii) Recall the importance of long term sources of finance.(5 BTL1 Remembering
marks)

Can you explain lease financing? How does it differ from a


hire purchase? What are the cash flows consequences of a
2. BTL2 Understanding
lease? Illustrate.

i)What ways would you use for understanding the


organization, functions and problems of Indian stock
3. market? (8 marks) BTL3 Applying

ii) How would you organize Indian stock market? (5 marks)

Discuss the various procedure involved in obtaining a term


4. BTL4 Analyzing
loan.
Can you elucidate about the Venture Capital financing and
5. explain its features & steps in detail. BTL5 Evaluating

How would you determine between share holders and


6. debenture holders. BTL6 Creating

What do you mean venture capital & discuss briefly SEBI


7. regulations given to venture capital finance? BTL1 Remembering

Explain in detail legal aspects of leasing. What are the


8. contents of a lease agreement? BTL2 Understanding

i) Discuss briefly the style of investment nurturing by the


venture capital funds. What are the objectives of after
care? Also explain the important techniques to achieve
9. these. ( 8 Marks) BTL3 Applying

ii) How would you classify the structure of Indian capital


market? ( 5 Marks)

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List the features of shares traded in stock exchanges &
10. define primary & secondary Capital market. BTL4 Analyzing

i) How would you explain in detail about New issues market?


( 8 Marks)
11. BTL1 Remembering
ii) List the difference of primary & secondary market.
( 5 Marks)
i) Can you differentiate between term loan and working
capital loan.( 8 Marks)
12. BTL2 Understanding
ii) Explain the criteria in evaluating term loan proposals and
working capital proposals. ( 5 Marks)
i) Discuss in detail the features of venture capital financing?
( 8 Marks)
13. ii) How would you classify the various instruments through BTL4 Analyzing
which venture capital investments is made. ( 5 Marks)

i) Define venture capital? Explain the features of venture


capital.( 8 Marks)
14. ii) How would you describe the overall view of debentures? BTL1 Remembering
( 5 Marks)
PART-C
1 Elucidate the role of FII in Indian Stock Market. Elaborate with a case study.
2 Venture Capital Fund is a Non Banking Financial Company’s business – Discuss.
3 Describe the SEBI regulations in IPO processing.
Do you agree that there is a significant growth in FDI equity inflows after the launch of
4 “Make In India”. Critically examine the fact.

20