Financial Management Question Paper

1. NEW HORIZON Regular
LEADERSHIP INSTITUTE, Reg. No
Ring Road, Panathur Post, Near Marathahalli, 8 8 8
Bangalore - 560 103
(Approved by AICTE, Ministry of HRD, Govt. of India
May - 2011
An ISO 9001:2008 Certified Institute)
PGDM-301
III - PGDM Examinations – May 2011
PGDM301 – FINANCIAL MANAGEMENT
Duration: 03:00 Hours Max. Marks: 100
Answer all the questions Section-A 20 X 01 = 20
1. Financial Management is mainly concerned with Arts or Science. [True / False]
2. Capital Budgeting is related to Temporary assets. [True / False]
3. Explicit Cost is also termed as Opportunity cost. [True / False]
4. The company, s cost of capital is called as Risk rate. [True / False]
5. The cost of capital of a long term debt is generally lower than the owned funds. [True / False]
6. The term capital refers to Total investment of the company. [True / False]
7. Over capitalization is associated with Effective utilization of resources. [True / False]
8. Profitability index is also termed as Benefit cost of capital. [True / False]
9. MM approach is similar to NOI approach. [True / False]
10. Preference shares are entitled to dividend at fixed rate. [True / False]
11. These shares are entitled to dividend in all cases irrespective of company’s profit.
a] Equity shares b] Preference shares
c] Convertible preference shares d] Bonus shares
12. Raising funds through the following is cheaper as compared to raising funds through shares.
a] Debentures b] Retained earnings
c] Bonds d] Both [a] and [c]
13. This is the source of finance, which is most useful to the company.
a] Debentures b] Retained earnings
c] Equity shares d] Preference shares
14. Trading on equity is resorted to magnify
a] Market value of per equity shares b] Earning after tax
c] Earning per equity shares d] Operating profit
15. Trading on equity is a situation where ROI is more than
a] Interest rate b] Profitability rate c] Liquidity rate d] Turnover rate
16. Cost of capital consist of both business risk and
a] Natural risk b] Financial risk c] Marketing risk d] Political risk
17. MM approach assumes that which market is perfect
a] Investment b] Capital
c] Bonds d] None of the above
18. Which of this is an element of investment?
a] Risk only b] Return, Risk and Time c] Return only d] Capital only
19. Issue of bonus shares are indicated as
a] Capitalization b] Dividend policy c] Capital d] Investment
20. For financial decision –making relevant cost are
a] Future cost b] Marginal cost
c] Historical cost d] Pre –determined cost
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Answer ANY FOUR Section – B 04 X 05 = 20
21. What is Debenture? What are the Different types of Debentures?
22. What is Financial leverages? Discuss briefly
23. Considered the following data of X Y Z Ltd,:
Selling Price per unit Rs 60; Variable cost per unit Rs 40; Fixed Cost Rs 300000;
Interest burden Rs 100000; Tax rate -50%; Preference Dividend Rs 50000.
Calculate three types of leverages if the number Of units sold are 10000
24. A company uses a particular material in a factory, which is 20000 units per year. The cost per unit of
materials is Rs 10.The cost of placing one order is Rs 100 and the inventory carrying cost is 20 % on
average inventory. Calculate EOQ.
25. Sufi Ltd is producing articles mostly by manual lab our and is considering to replace it by a new
machine. There are two alternative models M and N of the new machine. Prepare a statement of
profitability showing the Pay Back period from the following information.
Machine – M Machine - N
Estimated life of Machine. 4 Years 5 Years
Estimated Saving s in scrap. 9, 000 18, 000
Estimated Savings in Direct Wages. 500 800
Additional cost of Maintenance. 800 1, 000
Additional cost of Supervision 1, 200 1, 800
Note: Ignore taxation
26. Prepare an estimate of Working capital requirement from the following information’s of a Trading
concern:
a] Project annual Sales 100000 units b] Selling Price Rs 8 per unit
c] Percentage net profit as Sales 25 d] Average credit period allowed to customers 8 weeks
e] Average credit period allowed by suppliers 4 weeks
f] Average stock holding in terms of sales requirements 12 weeks
g] Allow 10% for contingencies.
Answer Any FOUR Section - C 04 X 10 = 40
27. What are the importance objectives of financial management?
28. What are the factors influencing the Dividend policy. Discuss
29. Discuss the Criteria for judging the efficiency of Working capital management
30. Which Project will be selected under pay back method and Accounting Rate of return method,
Project – A Project – B
Cash Out Flow 5, 00, 000 5, 00, 000
Cash In Flow
Year – I 3, 00, 000 1, 00, 000
Year – II 2, 00, 000 2, 00, 000
Year – III 1, 00, 000 3, 00, 000
Year – IV 50, 000 4, 00, 000
31. Using the information given below, Compute the pay back period under Traditional pay back
method and Discounted pay back method.
Initial Out lay Rs 80, 000; Estimated Life 5 Years; Profit after Tax end of first year 6, 000; second year
14, 000; third year 24, 000; fourth year 16, 000 and end of fifth year no tax.
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Depreciation has been calculated under straight-line method .The cost of capital may be taken at 20
% and the Present value of Rs 1 at 20 % per annum is given below.
Year 1 2 3 4 5
P.V Factor 0.8 0.6 0.5 0.4 0.40
3 9 8 8
32. From the costs, Material cost 50%, Direct Labour cost 15% and Over head cost 15% and the further
particulars,
a) It is proposed to maintain a level of activity of 300000 units.
b) Selling price Rs 20 per unit
c) Raw materials are expected to remain in stores for an average period of 2 months.
d) Materials will be in process as an average of one month.
e) Finished goods are required to be in stock for an average period of 2 months.
f) Credit allowed to debtors is 2 months.
g) Credit allowed by suppliers is 2 months
Calculate the working capital requirement. Assume that sales and production follow a consistent
pattern.
Compulsory Section - D 01 X 20 = 20
33. Case Study:
X ltd sells its products on a gross profit of 20% on sales. The following information is extracted from
its annual accounts for the year ending 31.12.2010
Sales 3 months credit Rs 40, 00, 000
Raw materials Rs 12, 00, 000
Wages paid-15 days in arrears Rs 9, 60, 000
Manufactures Expenses -1 month arrear Rs 12, 00, 000
Administrative expenses -1 month arrear Rs 4, 80, 000
Sales promotion exp payable ½ year advance Rs 2, 00, 000
Income Tax (Payable quarterly last installment falls due on Dec 2010) Rs 4, 00, 000
The company enjoys one-month credit from supplier of Raw Material and maintains 2 months stock
of Raw material and 1 ½ months stock of finished goods. Cash balance is maintained at Rs 1, 00, 000
as a precautionary balance. Assuming 10 % margin, find out Net Working Capital requirement of
the company.
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