FINANCIAL MANAGEMENT - CSBS IV Year-Sem 1

UNIT-1

1) What are the objectives of Financial Management

2) Explain about Annuity in Cash flows
3) Explain the functions of Financial Management
4) Write the goals of Financial Management
5) Difference between present value of money and future value of money
6) [Link] deposits Rs.1,00,000 at the end of each year for 10 years. What will be the value
of his money at the end of 10 years at 9%, 10% and 12%
7) Discuss the Nature and scope of Finance function and explain its importance
8) What do you understand about the Time Value of Money and what are the reasons for
giving to the time element in present day investment? Illustrate the Time Value of Money
with assumed data
9) Profit Maximization Vs Wealth Maximization – Discuss
10) Explain Time Value of Money
11) I) An Annual Pension of Rs.10,000 as long he lives and
ii) A Lumpsum pmt of Rs.60,000. If [Link] expects to live for 15 years and rate of interest
is 15% which alternatives should he select
12) Explain Profit, Wealth & EPS Maximization Objectives
13) Explain how the scope of Finance Function has changed over time
14) What role a Finance Manager play in a Modern Firm
15) What is Time Value of Money
16) Explain the significance of Time Value of Money
17) List and explain in brief any four objectives of Financial Management
18) What are the responsibilities of the Financial Manager in a modern business organization
19) [Link] receives a sum of Rs.2,00,000 as Provident fund on his retirement. He deposits it
in a bank which pays 12% interest. If he withdraws annually Rs.29,364, how long can he do
so
20) Define Scope of Financial Management
21) What role should financial manager play in modern enterprise
22) Discuss the Nature and Scope of Finance function and its role in contemporary scenario
goals of finance
23) What do you understandby the Time Value of Money and what are the reasons for giving to
the time element in present day investment ?
24) Illustrate the Time Value of Money with assumed data
25) What is Time Value of Money used for

UNIT-2

1) Describe about risk in an Investment

2) Define about Valuation of a Bond
3) Define the concept of Risk and what are the various statistical techniques available to
measure risk
4) Define the concept of Risk and what are the various statistical techniques available to
measure risk
5) An investor expected future dividend from he is investment in a company and probability
associated with the distribution of dividend at the expected level is given below compute
expected return from such investment

Possible 40 25 35 55 46
Return

Probability 0.60 0.55 0.40 0.70 0.76

6) Systematic and Unsystematic Risk are the most important risks in investment decision
comment and explain
7) What is the nature of the risk, return tradeoff faced in financial decision making
8) Explain the concept of risk. What are the advantages of using risk adjusted methods for
capital budgeting proposals
9) Following are the price and other details of three stocks for the year 20X1. Calculate the
total return

Stock Beginning Price Dividend Paid Ending Price

A 30 3.4 34

B 72 4.7 69

C 140 4.8 146

10) The Probability distribution of the rate of return on Alpha stock is given below

State of the Economy Probability of Occurance Rate of Return

Boom 0.4 25%

Normal 0.3 12%

Recession 0.3 -6%

What is the Standard Deviation of Return

11) Spell out the key steps involved in Portfolio managed
12) How would you carry out portfolio performance evaluation
13) Outline the assumptions of Markovitz Portfolio Theory
14) Discuss the Mean Variance Approach
15) Complete the following table by assuming the return on the market portfolio is 15 % and the
return on the zero beta porfolios is 10 per cent. Further also assume the market’s standard
deviation is 40 per cent and the CAPM with risk free lending but no risk free borrowing
 Security Return Expected Standard Residual β
Deviation Variance Variance

A 0.12 -- 0.0525 --

B 0.18 -- 0.0925 --

16) Explain the concept of Risk and Return

17) Risk can be reduced through Diversification – Explain
18) Beta is calculated as a measure of Risk
19) Discuss the Dividend Capitalization models for Equity Stock Valuation Models
20) What is Earnings Multiplier Model used for
21) What are the different types of Bonds
22) What are the assumptions underlying YTM
23) What is the Concept of Yield
24) How is the Value of a Bond determined
25) What is the Riskiness associated with Bonds

UNIT-3

1) What is Capital Structure

2) What are the determinants of Capital Structure
3) What is the relationship between Leverage and the Firms cost of debt
4) How is Leverage measured in this case
5) What is the objective of Capital Structure Mgmt
6) Define Financial and Operating Leverage
7) How do you measure the degree of Financial and Operating Leverage
8) What is Leverage
9) What are the Types of Leverage
10) Explain the significance of Financial and Operating Leverage
11) Define Cost of Capital
12) Explain the significance in financial decision making
13) Rao Corporation has a target capital structure of 60% equity and 40% debt. Its cost of equity
is 18% and its pretax cost of debt is 13%. If the relevant tax rate is 35%. What is Rao
Corporation’s WACC
14) The Equity Capital is cost free. Do you agree. Give reasons
15) Explain the rationale behind the Dividend Growth model approach for calculating Cost of
Equity
16) From the following information determine the Cost of Equity capital using the CAPM
Approach
i) RRR on Risk Free Security. 8%
ii) RRR on Market Portfolio of Investment is 13%
17) Explain the problems faced in determining Cost of Capital
18) How is the Cost of Capital relevant in Capital Budgeting decisions
19) Explain the significance of Financial and Operating Leverage analysis for a financial executive
in corporate profit and financial structure planning
20) Explain two different theories of Capital Structure and explain the relationship between
Leverage and Cost of Capital
21) A company has in its books the following amounts and the specific costs of each type of
capital are as follows:

Type of Capital Book Value (Rs) Market Value (Rs) Specific Costs (%)

Equity Capital 24,00,000 48,00,000 13

Retained Earnings 8,00,000 15,20,000 9

Debentures 16,00,000 15,20,000 5

Preference Capital 4,00,000 4,40,000 8

Total 52,00,000 67,60,000

Determine WACC using (a) Book Value Weights

22) Rekha Ltd. Has the following specific Cost of Capital along with the indicated Book Value
weights

Type of Capital Cost % Book Value Weight Market Value Weight

Equity 0.18 0.50 0.58

Preference Shares 0.15 0.20 0.17

Long Term Debt 0.07 0.30 0.25

1.00 1.00

23) Calculate the Weighted Cost of Capital using Book Value weights and Market Value weights
24) What is meant by Cost of Capital
25) Briefly explain the components of Cost of Capital

UNIT – 4

1) Briefly discuss the time adjusted methods of Capital Budgeting

2) A chemical company is considering investing in a project whose cost is Rs.4,00,000. The
estimated salvage value is zero, the proposed project has cash flow as follows:

Year 1 2 3 4 5

CFBT (Rs) 2,00,000 2,00,000 3,50,000 1,50,000 3,50,000

 Determine : (i) NPV at 15% discount rate
(ii) Calculate PBP
3) The expected Cash Flows of a project are as follows:
Year Cash Flows
0 -1,00,000
1 20000
2 30000
3 40000
4 50000
5 30000

The Cost of Capital is 12%, Calculate NPV

4) Why are Capital Budgeting decisions deemed very important. Describe the commonly found
categories in project classification
5) Explain the nature and scope of Capital Budgeting
6) A decision is to be made between two competing projects which require an equal
investment of Rs.50,000 and are expected to generate net cash flows as under:

Year 1 2 3 4 5 6

Project-I 25000 15000 10000 Nil 12000 6000

Project-II 10000 12000 18000 25000 8000 4000

The Cost of Capital of the company is 10%. Which project proposal should be chosen and
why? Evaluate the project under: a) NPV and b) IRR
7) Explain the problems faced in determining Cost of Capital. How is the Cost of Capital
relevant in Capital Budgeting decisions
8) Describe the nature and scope of Financial Management
9) Explain the Objectives of Financial Management
10) Time Value of Money is helpful in Capital Budget. Explain
11) Explain Time Value of Money
12) What is the nature of Risk –Return trade-off faced in financial decision making
13) How are the projects evaluated on the basis of IRR method
14) Evaluate the IRR method as a Project Appraisal Technique
15) How does the notion of risk and reward govern the behavior of Financial Management
16) Why are Capital Budgeting decisions important
17) Explain the Acceptance rules, merits and demerits of Traditional techniques of Capital
Budgeting
18) Desribe various techniques of Capital Budgeting
19) Write the Merits and Demerits of IRR
20) ABC Limited Company is considering the purchase of machine. Two machines P and Q, each
costing Rs.50,000 are available. Earnings after taxes are expected to be as under.

Year Machine P Rs. Machine Q Rs. Discount Factor 10%

 Rs

1 15000 5000 0.9091

2 20000 15000 0.8264

3 24000 25000 0.7513

4 10000 30000 0.6830

5 5000 20000 0.6209

Evaluate the two alternatives according to NPV method which machine should be selected ?
Why
21) Briefly discuss the techniques of Capital Budgeting with merits and demerits
22) Discuss about the Time Adjusted methods of Capital Budgeting
23) A Project expected cash flows are as follows

Year 0 1 2 3 4 5

CFAT (Rs) 50000 10000 15000 20000 25000 20000

Calculate PBP, IRR, ARR and NPV

24) Explain how the Cost of Capital serves as a screening tool when dealing with
a) The NPV Method and
b) The Time Adjusted Rate of Return method
25) TVM is helpful in Capital Budgeting, explain

UNIT – 5

1) What is the focus of gross working capital on the management of current assets
2) What are the strategies regarding the facets of Cash Management for an effective and
efficient Cash Management
3) What is Accounts Recievable?
4) Discuss the importance of Receivables Mgmt
5) Describe the need and determinants of working capital in a business
6) Briefly explain the factors which determine the working capital needs of a large scale
manufacturing company
7) Discuss the utility of the cash budget as a tool of the Cash Management
8) State the reasons for Cash Flow problems and discuss the methods of improving Liquidity
9) List out the benefits of liberal Accounts Recievable policy
10) What are the facets of Cash Management? Discuss its importance in a typical Manufactuting
company
11) What do you understand by actual Liquidity
12) Elucidate the factors that determine the working capital requirements of a Firm
13) Explain the schedule of changes in Working Capital
14) Write factors determining credit policy in account receivables management
15) Explain objective and benefits of Cash Management
16) What is Working Capital
17) What are the determinants of Working Capital
18) Briefly explain the factors which determine the Working Capital needs of a large scale
Manufacturing company
19) Discuss the utility of the Cash Budget as a tool of the Cash Management
20) What are the steps involved in the construction of a Cash Budget
21) Give a brief description on the Management of Recievables
22) Give brief notes on
a) Motives for holding cash and
b) Factors that determining cash needs
23) What are the factors to be considered while determining Working Capital Requirements
24) Discuss the various sources of Working Capital Funds
25) Explain the different principles of Working Capital