Financial Management Latest Solution
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Section A Solution for Exam
Q1. Attempt any 15 (15X2=30)
1 The only feasible purpose of financial management is
a Wealth Maximization
b Sales Maximization
c Profit Maximization
d Assets maximization
2 Agency cost consists of
a Binding
b Monitoring
c Opportunity and structure cost
d All of the above
3. The objective of wealth maximization takes into account
a Amount of returns expected
b Timing of anticipated returns
c Risk associated with uncertainty of returns
d All of the above
4. Financial management mainly focuses on
a Efficient management of every business
b Brand dimension
c Arrangement of funds
d All elements of acquiring and using means of financial resources for financial activities
5. Time value of money supports the comparison of cash flows recorded at different time period by
a Discounting all cash flows to a common point of time
b Compounding all cash flows to a common point of time
c Using either a or b
d None of the above.
6. If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effective rate of interest will be:
a 10% per annum
b 10.10 per annum
c 10.25%per annum
d 10.38% per annum
7. If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25% per annum, determine the frequency of compounding:
a 1
b 2
c 3
d None of the above
8. Heterogeneous cash flows can be made comparable by
a Discounting technique
b Compounding technique
c Either a or b
d None of the above
9. A portfolio having two risky securities can be turned risk less if
a The securities are completely positively correlated
b If the correlation ranges between zero and one
c The securities are completely negatively correlated
d None of the above.
10. Capital market line is:
a Capital allocation line of a market portfolio
b Capital allocation line of a risk free asset
c Both a and b
d None of the above
11 The point of tangency between risk return indifferences curves and efficient frontier highlights:
a Optimal portfolio
b Efficient portfolio
c Sub-optimal portfolio
d None of the above
12. Return on any financial asset consists of capital yield and current yield.
a True
b False.
13. If the coupon rate is constant, the value of bond when close to maturity will be
a) Issued value
b) Par value
c) Redemption value
d) All of the above
14. When the concept of ratio is defined in respected to the items shown in the financial statements, it is termed as
a Accounting ratio
b Financial ratio
c Costing ratio
d None of the above
15. Liquidity ratios are expressed in
a Pure ratio form
b Percentage
c Rate or time
d None of the above
16. Profit for the objective of calculating a ratio may be taken as
a Profit before tax but after interest
b Profit before interest and tax
c Profit after interest and tax
d All of the above
SECTION -B
Q2. Attempt any 10 (10X3=30)
1. Define Financial Management ?
2. What are Right shares ?
3. Define Leasing?
4. Define Auditing?
5. What does “stock Dividend” mean?
6. What Is Venture Capital ?
7. Distinguish between Merger and Acquisition?
8. “Audit begins where accountancy ends”? Discuss
9. Distinguish between internal Audit and Independent Audit?
10 Define Capital Structure
11. Define Trade Credit?
12. What do you understand by Salvage Value?
SECTION -C
Q3. Attempt any 2 (10X2=20)
1. “Financial management is nothing but managerial decision making in asset-mix, capital-mix and profit allocation.” Comment?
2. Examine the role of Bank Credit in financing of Working Capital. What are the types of Bank Credit? Discuss
3. Explain the mechanism of determining the indifference level of EBIT under different combinations of optimal financing plans?
Q4. Attempt any 1 (20X1=20)
CASE: 1
M/S. Marutham Investment Bond 2013 was issued in January 2014, with a maturity period of 2 years. With a Coupon payment of 7% per annum made every 6 months with Face value of Rs.100. What is the YTM for the bond, if the prevailing market price was Rs. 84 as at January 2014?
CASE: 2
Calculate the Working Capital requirement for a manufacturing Firm for the Level of activity of 80,000 Units. You may assume that production is carried on evenly throughout the year and Wages & Overhead expenses accrue similarly and a time period of 4 weeks is equivalent to a month.
Description Amount (Rs.) Other Information (Per Unit)
Raw materials 45 o Raw materials in stock: Two weeks
o Materials in Process: One week
o Finished Goods in stock: Two weeks
o Credit allowed by Suppliers: Half Month.
o Credit allowed to Customers: 4 weeks.
o Overheads Two weeks
Direct labor 20
Overheads 37.5
Total Cost 102.5
Profit 22.5
Selling price 125
Cask at Bank is expected to be Rs. 40,000. Also 80% of the sales are credit sales for the firm. Any other data if required may be assumed.
