Subject: Financial Management

Topic: Theory Questions-Set 1 By: Questionscastle Academic Team Document Code: CA/IPCC/FM/0001

Chapters Covered
Basics: General Principles Cost of Capital Leverages Capital Structure Capital Budgeting Financial Statement Analysis Working Capital Management

Basics: General Principles Q 1. Q 2. Q 3. Write short note on finance function. (CA PE II May 2008) Explain two basic functions of Finance Management. (CA PE II Nov 2002, CA PCC Nov 2009) Explain the limitations of profit maximization objective of financial management. (CA PCC Nov 2007) Q 4. Explain as to how the wealth maximization objective is superior to the profit maximization objective. (CA PE II May 2003, CA PE II Nov 2003) Q 5. Differentiate between Financial Management and Financial Accounting. (CA PCC Nov 2009) Q 6. Discuss the functions of a Chief Financial Officer. (CA PE II May 2004) Q 7. Discuss the conflicts in Profits versus Wealth maximization principle of the firm. (CA PE II Nov 2007, CA PCC June 2009) Q 8. What are the main responsibilities of Chief Financial Officer of an organization? (CA PCC May 2007) Q 9. Discuss the changing scenario of Financial Management in India. (CA PE II May 2006) Q 10. Explain the role of Finance Manager in the changing scenario of financial management in India. (CA PE II June 2009) Cost of Capital Q 1. Discuss the dividend-price approach, and earnings price approach to estimate cost of equity capital. (CA PE II Nov 2006) Q 2. What do you understand by Weighted Average Cost of Capital? (CA PCC Nov 2009) Leverages Q 1. Differentiate between Business risk and Financial risk. (CA PCC May 2007) Q 2. Explains the principles of Trading on Equity. (CA PCC May 2008) Questionscastle.com Page 1

Q 3.

Q 4.

Discuss the impact of financial leverage on shareholders wealth by using Return on Asset (ROA) and Return on Equity (ROE) analysis framework. (CA PE II May 2003) What do you understand by Business risk and Financial risk? (CA PCC Nov 2009)

Capital Structure Q 1. Discuss the major consideration in capital structure planning. (CA PE II Nov 2003, May 2006, Nov 2007) Q 2. What is optimum Capital Structure? Explain. (CA PCC Nov 2007, CA PCC Nov 2008) Q 3. Discuss the concept of Debt-Equity or EBIT-EPS indifference point, while determining the capital structure of company. (CA PCC June 2009) Q 4. Explain the assumptions of Net Operating Income (NOI) approach theory of capital structure. (CA PCC Nov 2007) Q 5. Explain briefly, Modigliani and Miller approach. (CA PE II Nov 2002) Q 6. Explain the assumptions of Modigliani and Miller approach. (CA PCC May 2007) Q 7. Discuss the relationship between the financial leverage and firms required rate of return to equity shareholders as per Modigliani and Miller Proposition II. (CA PE II May 2003, May 2004) Q 8. Explain briefly the proposition made in Modigliani and Miller approach on Cost of Capital. (CA PE II May 2007) Q 9. Discuss the preposition made in Modigliani and Miller approach in Capital Structure theory. (CA PE II June 2009) Q 10. Explain the term Ploughing back of Profits. (CA PCC May 2007, CA PCC Nov 2009) Capital Budgeting Q 1. What is Internal Rate of Return? State its acceptance rule. Q 2. Q 3. Q 4. Q 5. Q 6. Q 7. Q 8. Q 9. (CA PE II Nov 2008) What do you understand by desirability factor/profitability index? (CA PE II Nov 2009, CA PCC Nov 2009) Explain the concept of discounted payback period. (CA PCC June 2009) Write short note on Cut-off rate. (CA PE II Nov 2009) Explain the concept of Multiple Internal Rate of return. (CA PCC Nov 2008) Define Modified Internal Rate of Return method. (CA PCC May 2007) What is capital rationing? Describe various ways of implementing it. (CA PE II Nov 2008) Distinguish between Net Present Value and Internal Rate of Return. (CA Final May 2002) Do the profitability index and the NPV criteria of evaluating investment proposals lead to the same acceptance-rejection and ranking decision? In what situation will they give conflicting results? (CA Final Nov 1999) Page 2

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Financial Statement Analysis Q 1. Explain briefly the limitations of Financial ratios. (CA PCC Nov 2009) Q 2. How return on capital employed is calculated? What is its significance? (CA PCC Nov 2008) Q 3. Discuss the Financial Ratios for evaluation company performance on operating efficient and liquidity position aspects. (CA PE II Nov 2006) Q 4. What do you mean by Stock Turnover ratio and Gearing Ratio? (CA PCC Nov 2008) Q 5. Explain the need of debt-service coverage ratio. (CA PCC May 2007) Q 6. Discuss any three ratios computed for investment analysis. (CA PE II Nov 2004) Q 7. What is quick ratio? What does it signify? (CA PCC Nov 2008) Q 8. Diagrammatically present the DU PONT CHART to calculate return on Equity. (CA PCC May 2007) Q 9. How is debt-service ratio calculated? What is its significance? (CA PCC June 2009) Q 10. Discuss the composition of Return on Equity (ROE) using DU PONT Model. (CA PCC June 2009) Working Capital Management Q 1. Discuss the factors to be taken in to consideration while determining the requirement of working capital. (CA PE II Nov 2008) Q 2. Briefly explain the meaning of Credit Evaluation. (CA Final May 2002) Q 3. Briefly explain the meaning and importance of Credit Rating. (CA Final May 2002) Q 4. Explain the Ageing Schedule in the context of monitoring of receivables. (CA PE II Nov 2004) Q 5. What do you mean by factoring? Describe the benefits of factoring. (CA PE II May 2003, May 2007) Q 6. Enumerate the activities which are covered by Treasury Management. (CA PE II Nov 2002) Q 7. Write short note on Impact of inflation on working capital. (CA Final May 1996) Q 8. Differentiate between Factoring and Bills Discounting. (CA PCC Nov 2009) Q 9. Write short note on Baumols Model of Cash management. (CA PE II May 2008) Q 10. Write short note on Commercial Paper. (CA PE II Nov 2003, PCC May 2007) Q 11. Describe the three principles relating to selection of marketable securities. (CA PE II May 2005) Q 12. Write note on Miller-Orr Cash Management Model. (CA PE II Nov 2005, Nov 2007) Questionscastle.com Page 3