Question Bank of question for Financial Management for students of BBA

1. FINANCIAL MANAGEMENT
Question Bank
Q1. Calculate the future value of a sum of Rs 1000 of it is invested at 8% interest for a period
of one year.
Q2. Calculate the future sum of money if it is invested at 11 percent for three years and Rs
25,000 is being invested.
Q3. Calculate the compounded value of Rs 2,000 if it is invested at 12 percent for a period of
two years . Would there be any difference it the compounding is done semi annually.
Q4. Calculate the future value Rs 8,000 deposited at the end of each year at 6 percent for a
period of five years.
Q5. Mr. Ramesh deposits Rs 6,000 at the end of every year for a period of five years in his
savings account paying 6 percent interest compounded annually. He wants to determine how
much sum of money he will have at the end of five years.
Q6. Calculate the future value at the end of five years of the following series of payments at 9
percent rate of interest.
Q7. Mr X is to receive Rs 5000 after 5 years from now. His time preference for money is 10
percent per annum. Calculate the present value of money to be invested.
Q8. Calculate the present value of Rs 1,000 received in perpetuity for an infinite period, taking
discount rate of 10%
Q9. Calculate the present value of the following cash flows assuming a discount rate of 10%.
Q10. Mr. X deposits Rs 5,000 at the end of every year for 8 years and the deposit earns a
compound interest @ 8% p.a. Determine how money he will have at the end of 8 years?
Q11. Mr. A must receive Rs 5,000 per year for 6 years. Calculate the present value of the
annuity assuming that he can earn interest on his investment at 12% p.a.
Q12. Calculate the discounted value of Rs 10,00,000 to be received after 5 years from now
assuming 6% interest.
Radiant Ltd. Is expected to disburse a dividend of Rs. 30 on each equity share of Rs. 10 each.
The current market price of share is Rs. 80. Calculate the cost of equity as per dividend yield
method.
Fox Ltd. Issued 10,000 equity shares of Rs. 10 each at a premium of Rs.2 each. The company
has incurred issue expenses of Rs.5,000. the equity share holders expects the rate of dividend
to 18% P.A. Calculate the cost of equity share capital.
A company issues 1000 equity shares of Rs.100 each at the premium of 10%. The company
has been paying 20% dividend to equity shareholders for the past five years and expects to
maintain the same in the future also. Compute the cost of equity capital. Will it make any
difference if the market price of equity share is Rs. 160?

2. “A” Ltd offers the public subscription equity shares of Rs.10 each at a premium of 10%. The
company pays an underwriting commission of 5% on issue price. The equity shareholders
expects dividend of 15%.
a. Calculate the cost of equity capital
b. Calculate the cost of capital, if the market price of the share is Rs.20.
The equity of Mercury Ltd. Are traded in market at Rs.90 each. The expected current year
dividend per share is Rs.18. The subsequent growth is expected at the rate of 6%. Calculate the
cost of equity capital.
A company’s share with a face value of Rs.10 each quoted at Rs.50 in the stock market. Current
rate of dividend is 50% and this is expected to grow at a steady rate of 5% P.A. Calculate the
cost of equity capital of the company.
The market price of ABC ltd company is Rs.25 per share. If the dividend is Rs.2.50 and has
been growing at an average rate of 4%, determine the cost of equity.
The market price of Arvind products equity share is Rs.285 per share and floatation costs are
Rs.5 per share. If the dividend is Rs.35 and has been at an annual growing at an annual rate of
18%, determine the cost of equity.
The share of a company is currently selling for Rs.100. it wants to finance its capital
expenditure of Rs100 million either by retained earnings or selling new shares. If the company
sells new shares, the issue price will be Rs.95. the dividend per share next year, DIV1is Ra.4.75.
and it is expected to grow at 6%. Calculate
i. Cost of internal equity (retained earnings)
ii. Cost of external equity (new issue of shares).
A company issue 1000 new share of Rs.100 each at par. The floatation cost are expected to be
5% of the share price. The company pays a dividend of Rs.10 per share initially and the growth
in dividends is expected to 5%. Compute the cost of new issue of equity shares.
If the current market price of an equity share is Rs.150, calculate the cost of existing equity
share capital.
The shares of a company are selling at Rs.40 per share and it had paid a dividend of Rs.4 per
share last year. The investor’s market expects a growth rate of 5% per year.
a) Compute the company’s equity cost of capital
b) If the anticipated growth rate is 7% per annum, calculate the indicated market price per
share.
Prabhat ltd. Has 50,000 equity shares of Rs.10 each and its current market value is Rs.45 each.
The after-tax profit of the company for the year ended 31st
March 2009 is Rs. 9,60,000.
Calculate the cost of capital based on price/earning method.
Modern Ltd. Share beta factor is 1.40 the risk-free rate of interest on government securities is
9%. The expected rate of return on company equity share is 16%. Calculate cost of equity
capital based on CAPM.
A company issues 20,000 of 10% preference share of Rs. 100 each. Cost of issue is Rs 2 per
share.

3. Calculate cost of preference share capital if these shares are issued
1. At par
2. At a premium of 10%
3. At a discount of 5%
A firm’s return available to share holders is 15%, the average tax rate of shareholders is 40%
and it is expected that 2% is brokerage cost that shareholders will have to pay while investing
their dividends in alternative securities. What is the cost of retained earnings?
A company issues 10% irredeemable debenture of Rs 10,000. The company is in 50% tax
bracket. Calculate the cost of debt when:
1. Issued at par
2. 10% discount
3. 10% premium