E.G.S.

PILLAY ARTS & SCIENCE COLLEGE

BBA - Business Administration

Unit I

Short questions
[Link] is financial management?
[Link] financial management.
[Link] are the approaches of financial management?
[Link] are the various functions of financial management?
[Link] note on Financing decision.
[Link] is profit maximization?
[Link] is wealth maximization?
[Link] any two difference between profit and wealth maximization.
[Link] is debentures?
[Link] mean by shares and debt?

Paragraph question
[Link] the approaches to financial management.
[Link] explain objective of financial management.
[Link] the bank sources of finance.
[Link] note on shares, debentures and debt.
[Link] explain scope of finance.

Easy question
[Link] in brief the decision involved in financial management.
[Link] sources of finance.
[Link] the financial functions.

Unit II

Short questions
[Link] is cost of capital?
[Link] between explicit cost and implicit cost.
[Link] is mean by average cost?
[Link] are different type of cost of capital
[Link] will calculate the cost of preference share capital?
[Link] will you compute the cost of debt capital?
[Link] is mean by Cost of retain earnings?
8.
9.
10.

Paragraph question
[Link] the significances of cost of capital.
[Link] do you mean by weighted average cost of capital? Explain its significance.
3.A firm issues debentures of Rs1,00,000 and realises Rs 98,000 after allowing 2% commission
to brokers. Debentures carry interest rate of 10%. The debentures are due for maturity at the end
of 10th year at par. Calculate cost of debt.
[Link] ram industries ltd. Issued 10,000 10% debentures of R100 each. The tax rate is 50%.
Calculate the before tax and after tax cost of debt it if the debentures are issued (a) at par (b)at a
premium of 10 % and (c) at a discount of 10%
[Link] ltd. Pays a dividend of Rs 4 per share. Its shares are quoted at Rs . 40 presently and
investors expect a growth rate of 10% per annum. Calculate (a)Cost of equity capital:
(b)Expected market price per share if anticipated growth rate is 11% and (c)Market price if
dividend is Rs4, cost of capital is 16% and growth rate is 10%.
Easy question
[Link] factors determining cast of capital.
[Link] the following capital structure of a company, compute the overall cost of capital using.(i)
Book value weights and (ii) Market value weights.
Book value Rs Market value Rs
Equity share capital 45,000 90,000
(Rs 10 per share)
Retained earnings 15000 ----
Preference share capital 10000 10000
Debentures 30000 30000
The atertax cost of difference sources of finance is as follows:
Equity share capital :14%
Retained earing :13%
Preference share capital :10%
Debentures :5%
[Link] capital structure and after tax cost of different sources of funds are given below
Sources of funds Amount Proportion to total After tax cost %
Equity share capital 7,20,000 .30 15
Retained earnings 6,00,000 .25 14
Preference share 4,80,000 .20 10
capital
Debentures 6,00,000 .25 8
 Unit III

Short questions
[Link] is meant by leverage?
[Link] do you mean by operating leverage?
[Link] do you understand by financial leverage?
[Link] is composite leverage?
[Link] financial leverage with operating leverage.
[Link] is the degree of financial leverage measured?
[Link] Dividend.
[Link] is dividend policies?
[Link] is EPS.
[Link] is EBIT?

Paragraph question
[Link] the types of leverage.
[Link] forms dividend.
[Link] operating leverage for X ltd, from the following information
No .of units produced 50,000
Selling price per unit Rs.50
Variable cost per unit Rs.20
Fixed cost per unit at current level of sales is [Link] will be the new operating leverage, if
the variable cost is Rs.30 per unit.
[Link] operating and financial leverage from the following particulars:
Units sold 5,0000 Selling price per [Link].30
Variable cost per unit Rs.20 EBIT Rs.30,000
10% Public debt Rs 1,00,000
[Link] following information for Strong Ltd
EBIT Rs.1,120 lakh
Fixed cost Rs.700 lakh
PBT Rs.320 lakh

Easy question
[Link] dividend theories And dividend policies.
[Link] installed capacity of a factory is 600 units. A capacity used is 400 [Link] price per
unit is Rs.10, variable cost is 6 per [Link] the operating leverage in each of the
following three situations(a)When fixed cost is Rs.400, (b)When fixed cost is Rs1,000 (c)When
fixed cost is Rs.1,200
[Link] the operating leverage, financial leverage and the combined leverage fir the
following firms and interpret the results.
P Q R
Output (units) 3,00,000 75,000 5,00,000
Fixed cost (Rs) 3,50,000 7,00,000 75,000
Variable cost per unit(Rs) 1 7.50 0.10
Interest expanses(Rs) 25,000 40,000 ----
Unit selling price(Rs) 3 25 0.50
 Unit IV

Short questions
[Link] is men by capital structure?
[Link] do you mean by optimum capital structure?
[Link] do you understand by trading on equity?
[Link] a short note on indifference point.
[Link] are the factor to be kept in mind while determining the capital structure of a firm?
[Link] is NI Approach?
[Link] is NOI Approach?
[Link] is MM approach?
[Link] note on EBIT-EPS analysis.
[Link] two difference between NI and NOI approach.

Paragraph question
[Link] the net income approach to capital structure.
[Link] the net operating income approach to capital structure
[Link] ltd has on EBIT of Rs.1,60,000. Its capital structure consists of the following securities:
10% Debentures Rs.5,00,000
12% Preference shares Rs.1,00,000
Equity shares of Rs. 100 Rs.4,00,000
The company is in the 55%tax bracket. You are required to determine:
(a)The company EPS
(b)The percentage change in EPS associated with 30% increase and 30% decrease in
EBIT
[Link] ltd is expecting an annual EBIT of Rs 2,00,000. The company has Rs.7,00,000 in 10%
debentures. The cost of equity capital or capitalization rate is 12.5%. you are required to
calculate the total value of the firm. Also ascertain the overall cost of capital
[Link] the following data relating to Vasanth Ltd, Calculate the market value of the company
and overall cost of capital.
Rs
Net operating 1,20,000
Total investment 6,00,000
Equity capitalization rate
(a) If the company uses no debt= 10%
(b) If the company uses a debt Rs.2,40,000=11%
(c) If the company uses a debt of Rs 3,60,000=12%
The debt of Rs 2,40,000 can be raised at 5% rate of interest, while the debt of Rs3,60,000 can be
raised at 7%.
Easy question
[Link] and Millar approach to capital structure.
[Link] X and Y are in the same risk class and identical in all respects except that company
uses debt. While company Y dos not. Levered company has Rs.9 lakh debentures, carrying 10%
rate of interest. Both companies earn 20% before interest and tax on their total assets of Rs 15
lakh. Assume perfect capital markets, tax rate of 50% and capitalization rate of 15% for an all
equity company. Ascertain the value of both companies under NI and NOT approach.
[Link] following is the data regarding two Companies ‘X’ and ‘Y’ belonging to the same
equivalent risk class:
Particulars Company X Company Y
Number of ordinary shares 90,000 1,50,000
Market price per share Rs.1.20 Rs.1.00
6% Debentures 60,000 -----
Profit before interest Rs.18,000 Rs.18,000
All profits after debentures interest are distributed as dividend.

Required:

Explain how under Modigliani & Millar approach an investor holding 10% of share in
company X will be better off in switching his holding ton company Y

Unit V

Short questions
[Link] is capital budgeting?
[Link] the features of capital budgeting.
[Link] a short note on IRR method.
[Link] the meaning of profitability index.
[Link] is meant by capital rationing?
[Link] do you mean by certainty- equivalent co efficient?
[Link] do you understand by sensitivity analysis?
[Link] are the components of capital budgeting analysis?
[Link] is decision tree analysis?

Paragraph question
[Link] do you understand ARR method? What are merit sand demerits?
[Link] the pay-back for a project which requires a cash outlay of Rs 1,00,000 and generates
cash inflows of Rs 25,000 Rs. 35,000, Rs.30,000 and Rs 25,000 in the first , second. Third and
fourth years respectively.
3.A project costs Rs.5,00,000 and yields annually a profit of Rs.80,000 after depreciation at 12%
per annum, but before tax at 50%. Calculate pay back period.
[Link] investment of Rs 10,000(Having scrap value of Rs.500) yields the following returns:
Year 1 2 3 4 5
CFAT 4,000 4,000 3,000 3,000 2,500

5.A project requires initial investment of Rs 85,000 and is expected to give cash flows of
Rs.18,000, Rs25,000 Rs10,000, Rs 25,000 and Rs 30,000 for 5 year respectively. The project has
a savage value of Rs 10,000. The company target rate of return is 10%. Calculate the profitability
of the project by using profitability index method.

Easy question
[Link] the various stages involved in capital budgeting process.
2.A project require an investment of Rs.5,00,000 and has a scrap value of Rs.20,000 after 5
[Link] is expected to yield profits after taxes and depreciation during the five years amounting to
Rs40,000, Rs 60,000, Rs50,000 and Rs 20,000. Calculate the average rate of return on
investment.
[Link] ‘M’ initially costs Rs.50,000. It generates the following cash flows.
Year Cash inflow Rs Present value of re.1 at 10%
1 18,000 0.909
2 16,000 0.826
3 14,000 0.751
4 12,000 0.683
5 10,000 0.621
Taking the cut-off rate 10% suggest whether the project should be accepted or not.