This document contains questions from 8 chapters on financial management. Chapter one covers topics like defining financial management, the primary market, rights issues, and stock splits. It asks about the objectives of financial management and differences between primary/secondary markets and capital/money markets. Chapter two addresses risk, CAPM, discounting, bonds, and preference shares. It includes questions on calculating beta, valuation of bonds, and the assumptions of CAPM. Chapter three is about capital budgeting techniques like IRR, NPV, payback period, and capital rationing. It includes calculation questions on projects. Chapter four covers costs of capital like cost of debt, equity, and WACC. Chapter five addresses optimal capital structure and theories like MM approaches

1. The Oxford College of Business Management
HSR Layout,Bangalore-560102
Financial Management
Question Bank
Chapter one:
Section A:
1. Define Financialmanagement.
2. How financialmanagement is related to other disciplines.
3. Define IPO.
4. Define Rights issue.
5. Define Stock split.
6. Define Bonusissue and Bonus shares.
Section B
1. What is the scope of FinancialManagement
2. Explainthe book buildingprocess.
3. Explainthe secondary market in detail.
Section C:
1. What are the objectives of FinancialManagement.

2. 2. Explainthe difference between Primary market and
Secondary market.
3. Explainthe Difference between Capitalmarket and money
market.
Chapter two:
Section A:
1. Define Risk.
2. Define SML.
3. Define CML.
4. What are the assumptions of CAPM.
5. Define Discounting.
6. Define Compounding.
7. Define Time value of money.
8. Define Systematic risk.
9. Define Unsystematic risk.
10. Define Beta.
11. ExplainBonds .
12. ExplainDebentures.
13. ExplainPreference shares.
14. ExplainEquity shares.
Section B
1. Define risk and explain the types of risk.

3. 2. Explainthe valuationod Bonds. How to know whether the
bondsare overvaluedor undervalued.
3. A 5% Rs 1000 face value bonds are sold at a premium of
10%.It has a maturity of 5 years. If the minimum expected
rate of return is 12%, calculate the present value of the
bond.
4. A 5% Rs 100 face value bondsare sold at a discount of
10%.It has a maturity of 8 years. If the minimum expected
rate of return is 7%, calculate the present value of the
bond. Is the bond overvaluedor undervalued.
5. A 8.5% Rs 1000 face valuebonds are sold at a discount of
5%.It has a maturity of 7 years. If the minimum expected
rate of return is 9%, Calculatethe present valueof the
bond
6. A 5% Rs 1000 face value preference shares are sold at a
premium of 10%.It has a maturity of 5 years. If the
minimum expected rate of return is 12%, Calculatethe
present value of the preference shares.

4. 7. A 4.5% Rs 100 face value bonds hasa maturity of 5 years.
If the minimum expected rate of return is 12%, Calculate
the present value of the bond.
8. The ABC corporationsexpected return and growth s said
to grow at a rate of 10% indefinitely.The last year dividend
is Rs 2/-. If the expected rate of return is14% .Calculatethe
present value of equity shares.
9. Calculatebeta from the following.
Return of market index(%) return of security ‘x’(%)
10 12
12 23
-10 4
8 6
7 2
13 12
4 6
-7 3
1 -6

5. 7 8
10. Explain CAPM. Its assumptions. Its Implications.
Define SML.
Section C
1. Why Investing in preference shares is better than equity
shares. Explain.
2. The evergreen investment company manages a stock
fund consisting of four stocks with the following market
values and beta
Stock Market value(Rs) Beta
Bell 2,00,000 1.16
Sell 1,00,000 1.20
Grill 1,50,000 0.80
Shrill 50,000 0.50
If the risk free rate of interest is 19% and the market
return is 15% What is portfolio’sexpected return.

6. Chapter three:
Section A:
1. Define CapitalBudgeting.
2. ExplainCapitalrationing.
3. ExplainIRR.
4. ExplainNPV and its advantages.
5. ExplainBenefit –cost ratio.
6. What do you mean by capitalrationing?
7. Explainthe importance of Debt –Equityratio.
8. Explainthe relevance of the financing decision?
9. What do you mean by cut- off rate?
10. What do you mean by mutuallyexclusive projects?
Section B:
1. Explainthe different techniques used in capitalbudgeting
methods. Explainits advantagesand disadvantages.
Section C
1. Explainthe various risk management techniquesin capital
budgeting.
2. Explainthe Scenario methodsand Sensitivityanalysisin
Capital Budgeting.
3. XYZ company has the following cash flows as follows
Year earnings before depreciationand tax

7. 1 20,000
2 40,000
3 60,000
4 70,000
5 80,000
The initialinvestment is Rs 50,000.Tax is 40%. Depreciationis
on straight line basis.
Calculate
1. Pay back period
2. NPV at 12% discount rate
3. PI at 10% discount rate
4. XYZ company has the following cash flows as follows
Year earnings before depreciationand tax
1 1,20,000
2 1,40,000
3 1, 60,000
4 1,80,000
5 1,90,000
The initialinvestment is Rs 1,00,000.Tax is 40%. Depreciation is
on straight line basis.
Calculate

8. 5 Pay back period
6 NPV at 14% discount rate
7 PI at 12% discount rate
5. ABC Companyis excepting a fine rate of EBIT. The firm is
under tax bracket of 35%.
 Selling price per unit – Rs 700
 Variablecost per unit Rs 200
 Fixed cost - Rs 90,000
 Total number of units are- 800
ABC Company is having total capital of Rs 10, 00,000.
50% of the capital is of equity .Remaining capitalis of debt
and 10 % preference capitalequally.
The company is having debentures at 6% and they are
paying regular interest.
Followingare variables
Variables Situation
1
Situation
2
Situation
3
Variable
cost
100 200 300
Tax Rate 20% 35% 50%
Interest
rate
3% 6% 12%
Selling
price
800 700 500

9. ABC company would like to find the sensitivity analysis(Show
any two variables that are sensitive to cash flows)
Show the calculationof cost of capitaland calculateNPV in all
cases.
Chapter four:
Section A
1. ExplainCost of Capital.
2. Explainexplicit cost of capital.
3. Explainimplicit cost of capital.
4. Explaincost of debt.
5. Explaincost of preference shares.
6. Explaincost of equity.
7. ExplainWACC.
Section B:

10. 1. A 7% Rs 1000 face value bonds are sold at a premium of
10%.It hasa maturity of 5 years. The cost of issuing the
bondsis 5%. Calculatethe cost of debt.
2. A 11% Rs 1000 face valuepreference shares are sold at a
discount of 5%.It has a maturity of 7 years. The cost of
issuing the preference shares is 5%. Calculatethe cost of
preference shares.
3. A 13% Rs 100 face value bonds are sold at a premium of
20%.It has a maturity of 10 years. The cost of issuing the
bondsis 7%. Calculatethe cost of debt.
4. A 12% Rs 1000 face valuepreference shares are sold at a
premium of 12%.It has a maturity of 4 years. The cost of
issuing the preference shares is 10%. Calculatethe cost of
preference shares.
Section C:

11. 1. Based on the followinginformation calculatethe WACC.
a. A 7.5% Rs 1000 face valuebonds are sold at a premium of
10%.It has a maturity of 8 years. The cost of issuing the
bondsis 5%.
b. A 13% Rs 100 face value preference shares are sold at a
discount of 5%.It has a maturity of 7 years. The cost of
issuing the preference shares is 5%.
c. The risk free rate is 7%. The market risk premium is 10%
and equity beta is 1.2
Sources Amount
Debt 10,00,000
Preference shares 15,00,000
Equity Shares 10,00,000(face value is Rs 10)
2. As a financialanalystof a large electronicscompany, you
are required to determine the weighted average cost of
capitalof the company using book value weights and
market value weights
Debentures (Rs 100 per debenture) Rs 8,00,000
Preference shares (Rs 100 per share) Rs 2,00,000
Equity Shares (Rs 10 per share) Rs 10,00,000

12. All these securities are traded in the capital markets. Recent0
prices are
Debentures, Rs 110 per debenture, Preference shares,Rs 120
per share and Equity Shares,Rs 22 per share
Anticipatedexternal financingopportunitiesare:
(i) Rs 100 per debenture redeemable at par ,10 year
maturity,11 percent coupon rate,4% flotation cost, Sale
price Rs 100/-
(ii) Rs 100 preference shares redeemable at par,10 year
maturity,12% dividendrate,5% flotation cost, sales price
Rs100/-
(iii) Equity shares: Rs 2/-per share flotationcost, sale price
Rs 22/-
In additionthe dividendexpected on the equity share at
the end of the year is Rs 2/per share, the anticipated
growth rate is 7%,The corporate tax rate is 35%.
Chapter five:

13. Section A:
1. ExplainOptimum capitalstructure.
2. Explain the various assumptions in capital structure
theories.
3. Explain why debt is more important than equity in the
capitalstructure .
Section B:
1. ExplainNet Income Approach.
2. ExplainNet Operating Income approach.
3. ExplainWhy Net operating Income approachis not ideal.
Section C:
1. Explain Modigliani and Miller approach under Capital
Structure theories.
2. ExplainNet income and Net operating Income approach.
Chapter six:
Section A:
1. Explainleverage.
2. ExplainFinancialLeverage.
3. ExplainOperating Leverage.

14. 4. Explainindifference point.
5. Explainthe Break-even point in the Leverage concept,.
6. Explainthe EBIT-EPS break even point.
Section B:
1. Explainthe Financial,operatingandCombined leverage.
2. Consider the following:
Sales(1,00,000 units at Rs 8/-)
Variablecost Rs 4/-
Fixed cost 2,80,000
CalculateEBIT,Operating Leverage
3. Consider the following:
Sales(15,00,000 units at Rs 6/-)
Variablecost Rs 3/-
Fixed cost 4,00,000
Interest 56,250
Taxes: 50%
CalculateEBIT,Operating Leverage,FinancialLeverage.

15. 4. What are the implications of operating,financial and
combined leverage for risk.
Section C:
1. From the followinginformation calculatethe market price
of share as per Walter model.
Earnings 5,00,000
Dividends 2,00,000
No. of O/s shares 1,00,000
P/E ratio 8
r=0.15
Chapter Seven:
Section A:
1. Explainthe dividendpolicy of the firms.
Section B:
1. What are the various factors affecting the dividend policy
of the firms.
2. ExplainGordon model.

16. 3. Explain Walter model with reference to relevance of
dividendmodel.
Section C:
1. Explain the Modigliani –Miller approach of Irrelevance
model.
2. Explain different dividend policy adopted by various firms
in India.
3. Explain the relevance and irrelevance model of dividend
policies.
Chapter eight:
Section A:
1. ExplainCash cycle.
2. ExplainOperating Cycle.
3. ExplainNet Working Capital.
4. ExplainGross Working capital.
5. Explainthe objectives of ReceivableManagement.
6. Define the objectives of Inventory management.
7. Explainthe motives of holdingcash.

17. 8. What are the objectives of Cash Management
9. Define Loan Syndication.
10. Explaincredit policy.
11. ExplainNet discount 10/30
12. Explaincredit terms
Section B:
1. Explain the factors affecting the working capital
management.
2. Explainstrict credit policy and liberal credit policy.
3. How to determine the working capital requirements of the
firm. Work out in detail.