Financial management year Question paper 2020 update

Prepared by: GaneshaPandian N (Assistant professor) Page 1 of 15
MSM – MBA Financial ManagementYearQuestionpapers
Financial Management year question paper 2020 update
Contents
April / May 2015........................................................................................................................2
November / December 2015 ......................................................................................................3
May /June 2016..........................................................................................................................4
November / December 2016 ......................................................................................................5
November/December 2017 ........................................................................................................7
April / May 2017........................................................................................................................8
April/May 2018........................................................................................................................11
April/May 2019........................................................................................................................12

April / May 2015
Part – A
1. Define financial management
2. What is yield to maturity (YTM)?
3. What is capital budgeting?
4. What is cost of capital?
5. Define operating leverage
6. What is dividend?
7. Define working capital
8. What is trade credit?
9. What is leasing?
10. What is venture capital?
Part - B
11. A. Explain the functions of financial management.
11. B.i. A bond has 3 years remaining until maturity. It has a par value of Rs. 1000.
The coupon interest rate on the bond is 10 %. Compute the yield to maturity at current
market price of Rs, 1,100, assuming the interest is paid annually.
ii, Determine the value of a share for which the current dividend is Rs. 3 and the
annual growth rate is 5%. Assume a required rate of return of 10%. What will be the
value of the share if the annual growth is 8%?
12. A. Augusto automations is considering manufacture of a new solution involving a
capital expenditure of Rs. 150 lakhs. The capacity of the plant is for an annual
production of Rs. 12 lakhs units and the capacity utilisation during the 6 years
working life of the project is expected to be as indicated below. The annual fixed
costs estimated are also provided below:
Year Capacity utilization
(percent)
Fixed cost (Rs.)
1 33.33 Rs. 240 lakhs
2 66.67 Rs. 360 lakhs
3 90 Rs. 480 lakhs
4-6 100 Rs. 480 lakhs
The average price per unit is Rs .200 with a contribution of 40%. The average rate of
depreciation for tax purpose is 33.33 % on the capital assets. The rate of income 35%
and the cost of capital is 15%.
At the end of the third year an additional investment of Rs. 100 lakhs would be
required for working capital. The terminal value of the fixed assets is 10%. Should the
company undertake the project?

12. B. A Company has on its book the following amounts and specific costs of each
of capital.
Type of capital Book value Market Value Specific costs (%)
Debt Rs. 4,00,000 3,80,000 5
Preference 1,00,000 1,10,000 8
Equity 6,00,000 12,00,000 15
Retained earnings 2,00,000 13
13. A. Illustrate how EBIT – EPS analysis can be used to design the appropriate capital
structure for the firm.
13. B. The EPS of a company is Rs. 8 and the rate of capitalization is 10%. The
company has an option of adopting 1. 50 ii. 75 and iii 100 percent dividend payout
ratio. Compute the market price of the company’s share as per waiter’s model if it can
earn a return of 1. 15% 2 .10 % and 3. 5% on its retained earnings.
14. A. Explain the factors determining the working capital requirement of a firm.
14. B. Explain the followings: 1. Baumol’s model 2. Delinquency cost 3. EOQ model
4. Just in time inventory policy
15. A. Explain the sources of long term finance
15. B. Explain in brief the features of venture capital financing and the various
financial instruments through which venture capital investment is made
November / December 2015
Part- A
1. Define financial management
2. What is mean by financial planning?
3. Define capital budgeting
4. Give any two differences between NPV and IRR
5. Write the importance of cost of capital.
6. Define the term ‘cost of debt capital’
7. What is mean by net working capital?
8. Define ‘operating cycle’
9. List the various types of long term and short term sources of finance?
10. Define the term ‘share’
Part – B
11. A. Discuss the functions of finance manager.
11. B. Briefly explains and illustrates the concept of ‘time value of money’

12. A. Discuss the various methods used for evaluation and ranking of investment
proposals.
12. B. Critically examines the different approaches to calculation of cost of equity
capital.
13. A. 1. Explain the net operating income approach of capital structure
2. Discuss the various factor that affect the dividend policy.
13. B. Explain the three different types of leverages elaborately
14. A. Discuss the various techniques used for assessing working capital
requirements. Techniques for assessment for working capital requirement
14. B 1. Explain the various methods of controlling the cash inflows.
2. Define factoring. What are its types? Discuss the advantages and disadvantages
15. A. 1. What is issue management? Explain the various types of issues.
2. Explain the pre - issue and post issue activities of a merchant banker
15. B.1. Define leasing. What are its essential elements?
2. Differentiate between a share and a debenture.
May /June 2016
Part –A
1. What are the goals of financial management?
2. How do you classify financial assets?
3. State the meaning of net present value
4. Write a note on profitability index.
5. What is dividend policy?
6. What is cost of capital?
7. State the meaning of working capital management
8. Mention any two factors influencing working capital
9. State the objectives of ploughing back of earnings
10. What do you understand by the term ‘venture capital finance’?
Part – B
11. A. What is finance function? Who discharges this finance function and what are
its specific responsibilities?
11. B. Explain the functions of financial management in detail.

12. A. Discuss the factors determining the cost of capital. How do they influence the
planning of capital structure?
12. B. What is capital rationing? How does it influence capital investment proposal
positively?
13. A. What do you understand by capital structure of a corporation? Discuss the
qualities which a sound capital structure possess
13. B. Explain in brief the theories of dividend.
14. A. How is the cost of equity and debt computed? Illustrate.
14. B. Explain the needs and determinants of working capital finance
15. A. Discuss in detail the new issue market
15. B. Differentiate between term loan and working capital loan. Enumerate the
criteria in evaluating term loan proposals and working capital proposals.
Part – C
1. A. An optimal combination of the decision relating to investment, financing and
dividends will maximize the value of the firm to its shareholders. Examine the
statement.
B. Performa cost of a company provides following particulars.
Material 40%
Direct labour 20%
Overheads 20%
The following information is also available to:
a. It is proposed to maintain a level of activity of Rs. 2,00,000 units
b. Selling price is Rs.12 per unit
c. Raw materials are expected to remain in store for an average period of one month
d. Materials will be in process on an average half a month.
e. Finished goods are required to be in stock on average period of one month
f. Credit allowed to debtors in two months
g. Credit allowed by suppliers is one month
Estimate the working capital required.
November / December 2016
Part – A
1. How do you classify financial assets?
2. Briefly explain about the ‘risk and return’?
3. State the meaning of capital budgeting
4. Write a note on IRR

5. What is dividend policy?
6. State the meaning of operating leverage
7. Briefly explain the term Working capital management.
8. State the meaning of commercial paper
9. Elucidate the process of private equity
10. What do you mean by Listing?
Part – B
11. A. Explain in detail about the various functions of financial management
11. B. Explain the features of call options and put options
12. A. From the following information find out after tax and depreciation:
Estimated life 5 years
Scrap value Rs. 10,000
Profit after tax:
End of year 1st year Rs. 6,000
2nd year Rs. 14,000
3rd year Rs. 24,000
4th year Rs. 16,000
5th year Rs. Nil
12. B. A project costs Rs. 16,000 and is expected to generate cash inflows of Rs. 4,000
each 5 years. Calculate the internal rate of return.
13. A. Define Capital structure? What is an appropriate capital structure and flexible
capital structure?
13. B. From the following selected data, determine the degree of operating leverage.
Which the company has the greater amount of business risk? Why?
Company A Company B
Sales 25,00,000 30,00,000
Fixed costs 7,50,000 15,00,000
Variable expenses as a percentage of sales are 50% for company A and 25% for
Company B.
14. A .How is the cost of equity and debt computed? Explain.
B. critically explains the various, factors influencing the requirement of working
capital.
15. A. Define venture capital? Explain the features of venture capital.
15. B. Evaluate the overall view Debentures.

Part - C
16. A. A best possible combination of the decision relating to investment, financing
and dividends will maximise the value of the firm to its shareholders critically
examine the assertion.
16. B. ABY company ltd. Has 1, 00,000 shares outstanding the current market price
of the shares Rs. 15 each. The company expects the net profit of Rs. 2, 00,000 during
the year and it belongs to a rich class for which the appropriate capitalization rate has
been estimated to be 20 %. The company is considering dividend of Rs. 2. 50 per
share for the current year. What will be the price of the share at the end of the year?
i. if the dividend is paid out
ii. If the dividend is not paid
November/December 2017
Part – A
1. Define Financial Management
2. Define Time value of money
3. What is Capital Budgeting?
4. State the significance of IRR
5. How does interest coverage ratio affect the capital structure?
6. Explain diversifiable and Non-diversifiable risk with example
7. Define NWC
8. What is combined leverage and how is it measured?
9. Explain briefly about the preferential issues of securities
10. What is Private Equity?
Part – B
11. A. Describe the salient features of the modern approaches to Financial management
(Or)
B. Explain how the finance function is typically organised in a large organization.
12. A. A project cost Rs. 16,000 and it’s expected to generate cash inflows of Rs.4000
for each of 5 years. Calculate IRR
(Or)
B. Explain the various capital budgeting techniques with practical examples.

13. A. Explain the various factors which influence the capital structure of a firm of your
choice
(Or)
B. What is dividend and explain its types? Explain the factors affecting the dividend
policy.
14. A. Discuss the objectives of inventories and explain various inventory control
techniques
(Or)
B. Critically explain the factors affecting the requirement of working capital
15. A. V.S.M. Ltd. Is engaged in large scale retail business from the following
information, you are required to forecast their working capital requirements:
 Project annual sales Rs. 130 lakhs
 Percentage of net profit on cost of sales 25%
 Average credit period allowed to debtors 8 weeks
 Average credit period allowed by creditors 4 weeks
 Average stock carrying 8 weeks (in terms of sales requirements)
 Add 10% to computed figures to allow for contingencies
(Or)
B. Explain the types of leasing and discuss the advantages of lease financing
Part – C
15. A. XYZ Company Ltd., has 1, 00,000 shares outstanding the current market price of
the shares Rs.15 each. The company expects the net profit of Rs.2, 00,000 during the
year and it belongs to a rich class for which the appropriate capitalisation rate has
been estimated to be 20%. The company is considering dividend of Rs. 2.50 per share
for the current year. What will be the price of the share at the end of the year:
1. If the dividend is paid
2. If the dividend is not paid
(Or)
B. 1. Explain the latest developments in Indian Capital Market
2. Elucidate the various sources of long term finance with their relative merits and
demerits
April / May 2017
Part – A
1. What is risk premium?

2. Why does money have time value?
3. What is profitability index?
4. What do you mean by capital rationing?
5. State the significance of financial leverage
6. Define stock split
7. List out the motives for holding cash
8. Write short note on Economic Order Quantity
9. What is private equity?
10. What are the companies represented in the SENSEX?
Part – B
11. A. Define, what is return? Write the several of total return. Whether unrealised capital
gain or lose be included in the calculations of returns?
(Or)
B. ABC company currently is paying a dividend of Rs. 2 per share. The dividend is
expected to grow at a 15% annual rate for the three years, then at 10% rate of three
rears, after which it is expected to grow at a 5% rate forever.
1. What is the present value of the share if the capitalisation rate is 9%?
2. If the share is held for three years, what shall be its present value?
Year 1 2 3 4 5 6
PVF @
9%
0.917 0.842 0.772 0.708 0.650 0.596
12. A. How is accounting rate of return calculated? Explain its merits and demerits.
(Or)
B. Machine X has a cost of Rs. 75,000 and net cash flow of Rs. 20,000 per year, for
six years. A substitute machine Y would cost Rs. 50,000 and generate net cash flow of
Rs. 14,000 per year for six years. The required rate of return of both machines is 11%.
Calculate the IRR and NPV for the machines. Which machine should be accepted and
why?
Year 11% 12% 13% 14% 15% 16% 17% 18%
PVF
6th
year
4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498
13. A. Discuss the procedure for determining the weighted average cost of capital. What
are the factors affecting the weighted average cost of capital?
(Or)
B. Calculate financial and operating leverages under situations when fixed costs are
(i) Rs. 5000 (ii) Rs. 10,000 and financial plans 1 and 2 respectively, from the
following information pertaining to the operation and capital structure of ABC Co.
Total assets Rs. 30,000

Total assets turnover based on sales 2
Variable costs as percentage of sales 60
Capital structure: Financial Plans
1 2
Equity Rs. 30,000 Rs. 10,000
10% debenture Rs. 10,000 Rs. 30,000
14. A. Discuss the various opportunities available to the companies to park their surplus
funds for a short term
(Or)
B. From the following information, prepare a cash budget for three months from June
to August:
Month Sales Purchases Wages Overheads Expenses
June 72,000 25,000 10,000 6,000 5,500
July 97,000 31,000 12,100 6,300 6,700
August 86,000 25,500 10,600 6,000 7,500
(i) Cash balance in hand as on 1st June Rs. 72,500
(ii) 50% of sales are cash sales
(iii) A fixed assets has to be purchased for Rs. 8,000 in July
(iv) Debtors are allowed one month’s credit
(v) Creditors for materials grant one month’s credit
(vi) Sales commission at 3% on sales is paid to the salesman each month
15. A. Discuss the various procedures involved in obtaining a term loan.
(Or)
B. Explain in detail legal aspects of leasing. What are the contents of a lease
agreement?
Part – C
16. A. You are required to calculate the overall cost of capital, from the following capital
structure of a company.
1,000 12% of p[reference shares of Rs. 100 each issues at par 1,00,000
10,000 Equity shares of Rs. 10 each issues at par 1,00,000
5,000 10% debentures of Rs100 each issued at par 5,00,000
12% term loan 2,00,000
Retained earnings 1,50,000
The market price of a equity share is Rs. 30. The next expected dividend is Rs. 3 per
share is expected to grow at 10%. The preference share is redeemable after 7 years at
par and is currently quoted at Rs. 75 per share. The debentures are redeemable at par
after 5 years and are quoted at Rs. 90 per debenture. The tax rate applicable to the
company is 40%.
(Or)

Following is the data related to cost sheet of a company. Prepare a statement showing
the working capital needed to finance a level of activity of 70,000 units of output.
Cost per unit (Rs)
Raw materials 52-00
Direct labour 19-50
Overheads (including depreciation at 0-50) 39-50
Total cost 111-00
Profit 19-00
Selling price 130-00
Average raw material in stock - one month
Average material in process - half a month
Finished goods stock – one month
Credit allowed by suppliers – one month
Credit allowed to debtors – two months
Time lag in payment of wages – one and a half weeks
Overheads – one month
One fourth of sales are on cash basis
Cash balance is expected to be Rs. 1, 20,000
April/May 2018
Part – A
1. State any four functions of a finance manager in an organization
2. Define time value of money
3. List any two important advantages and limitations of “payback period method”
4. State and distinguish the two ways of defining benefit-cost ratio
5. Mention any two bases upon which capital structure is determined
6. Enlist the different forms of dividend
7. State the different types of working capital
8. Enlist any four features of commercial paper in India
9. Mention any four intermediaries “associates with a company” issue of capital
10. Distinguish between term loans and bought out deal
Part – B
11. A. (i) explain the three major decisions in financial management.
(ii) Discuss the scope of financial management in any organization
(Or)
B. (i) Explain the general principles of valuation of shares
(ii) Elaborate the concept and significance of risk and return of portfolio
12. A. (i) Explain capital budgeting and discuss in detail the need and importance of it.
(ii) Discuss the difference kinds of capital budgeting proposals

(Or)
B. Discuss the steps involved in calculating overall cost of capital and also outline the
conditions that should be satisfied for using a firm’s overall cost of capital for
evaluating new investments
13. A. (i) Explain how to measure the degree of operating and financial leverage.
Illustrate with an example
(ii) Discuss the factors should be considered in determining capital structure of a
company
(Or)
B. (i) what are the different types of Dividend policy
(ii) Discuss the essentials of Walter’s dividend model and state its shortcoming
14. (i) Discuss the principles, needs and determinants of working capital to a
manufacturing firm.
(ii) Explain the various basic problems in the cash management
(Or)
B. (i) Outline the objective of inventory management
(ii) Explain in detail the cash management models proposed by Boumal and Miller
Orr with their merits and demerits
15. A. (i) Discuss in detail the rights and position of equity shareholders
(ii) Elaborately discuss the different classification of shares traded in stock
exchanges
(Or)
B. (i) Define debenture and explain the attractive features of a debenture
Part – C
16. A. (i) Venture capital funds is a non-banking financial company’s business- Discuss.
(ii)X Company requires 300 units of an item per year. The purchase price per unit
is Rs. 60 the carrying cot of inventory is 30% and the fixed cost per order is Rs. 2,000.
Determine the economic order quantity
(Or)
B. (i) Suppose the dividend per share of firm is expected to be Rs. 1.50 per share next
year and is expected to grow at 6.5% per year perpetually. Determine the cost of
equity capital, assuming the market price per share is Rs. 30
(ii) Capital expenditure decisions are by far the most important decisions in the field
of management – Justify
April/May 2019
Part – A
1. Define financing decision
2. Differentiate between systematic and unsystematic risk
3. State the significance of capital budgeting
4. What is meant by weighted average cost of capital?
5. How do you calculate operating leverage?

6. State any two forms of dividend
7. Define treasury bills
8. What do you mean by factoring?
9. Who is a lame duck?
10. What are the benefits of project financing?
Part –B
11. A. (i) State and explain the functions of finance. Why is wealth maximization
considered as the prime objective of financial management over profit maximization?
(ii) The market price of Rs. 1000 par value bond carrying a coupon rate of 14 %
and maturing after 5 years in Rs. 1050. What is the Yield to Maturity (YTM) on this
bond? What is the approximate YTM?
B. (i) you have decided to buy 500 shares of an IT company with the intention of
selling out at the end of five years. You estimate that the company will pay Rs. 3.50
per share as dividends for the first two years and Rs. 4.50 per share for the next three
years. You further estimate that at the end of the five year holding period, the shares
can be sold for Rs. 85. What should you be willing to pay today for these?
(ii) What is risk? Discuss the methods of calculating risk for single assets and of a
portfolio?
12. A. (i). What is capital budgeting? Explain the merits and demerits of time adjusted
methods of evaluating the investment projects. Under what circumstances does NPV
method and IRR method give different results?
(Or)
B. You are required to determine the weighted average cost of capital of Annaya Ltd.,
Using book value weights. The following information is available for your perusal:
The present book value capital structure of the company is:
Debenture (Rs. 100 per debenture) Rs. 7,00,000
Preference shares: (Rs. Rs. 100 per share) Rs. 3,00,000
Equity shares Rs. 10,00,000
Anticipated external financing opportunities are:
(i) Rs. 100 per debenture redeemable at par after 8 years, 13% coupon rate, 4%
flotation costs, sale price Rs. 100.
(ii) Rs. 100 preference shares redeemable at par, 5 year maturity, 14% dividend rate,
5% flotation costs, sale price Rs.100
(iii) Equity shares: Rs. 2 per share brokerage, sale price Rs. 22
Dividend expected on the equity share at the end of the year is Rs. 2 per share, the
anticipated growth rate in dividend is 6% and the company has the practise of
paying all it’s earning in the form of dividends. The corporate tax rate is 35%
13. A. (i) what is an indifference point in the EBIT-EBT analysis? How would you
compute it?
(ii) Distinguish between operating and financial leverage
(Or)
B. What are the essentials of Gordon’s model? Illustrate with an example. State the
criticism against Gordon’s model.

14. A. What is the need to maintain optimum working capital? Discuss the consequence
of inadequate or excess working capital.
(Or)
B. Write short note on the following:
(i) Credit policy variables
(ii) Lock box system
(iv) Commercial paper
15. A. Discuss the trends in Indian capital market with specific reference to the secondary
market.
(Or)
B. (i) Discuss in detail the process of selecting investment by venture capitalists
(ii) Differentiate between Hire purchase and leasing
Part - C
16. A. Raja Ltd. is thinking of investing in a project costing Rs. 20 lakhs. The life of the
project is five years and the estimated salvage value of the project is zero. Straight
line method of depreciation is followed. The tax rate is 50%. The expected cash flows
before tax are as follows:
Year 1 2 3 4 5
Estimated
cash flow
before
depreciation
and tax
4 6 8 8 10
You are required to determine the (i) Pay back method (ii) Average rate of return (iii)
Net present value (iv) Internal rate of return. Cost of capital is 10%
(Or)
B. Calculate the amount working capital requirements for Sivam and Co. Limited
from the following information
Element of cost Amount per unit
Rs.
Raw materials 160
Direct Labour 60
Overheads 120
340
Profit 60
Selling price 400

(i) Raw materials are held back in stock on an average for one month. Materials are in
progress on an average for half-month. Finished goods are in stock on an average for
one month
(ii) Credit allowed by suppliers is one month and credit allowed to debtors is two months.
Time lag in payment of wages is 1.5 weeks
(iii) Time lag in payment of overheads is one month. One fourth of the finished goods are
sold against cash
(iv) Cash in hand and at bank is expected to be Rs. 50,000 and expected level of
production amounts to 1,04,000 units
(v) You may assume that production is carried on evenly throughout the year wages and
overheads accrue similarly and a time period of four weeks is equivalent to a month.

Financial management year Question paper 2020 update

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