Tuesday, October 09, 2018

Dibrugarh University Question Papers: Financial Management (Nov' 2017)

2017
COMMERCE
(General / Speciality)
Course: 302
Financial Management
(New course)
Full marks: 80
Pass marks: 24
Time: 3 hours
1. (a) Write True or false:                                                                                             1x4=4
1)      Increased use of debt increases the financial risk of equity share holders.
2)      Corporation finance is a part of public finance.
3)      Composite cost refers to the cost of equity and preference share capital.
4)      The fixed proportion of working capital should be generally financed from the fixed capital sources.

(b) Fill in the blanks:                                                                                                      1x4=4
1)      Payment of dividend involves legal as well as _______________ considerations.
2)      Capital budgeting is the process of making investment decisions in __________ expenditure
3)      Fixed cost bearing securities should be mixed with equity when the rate of earnings is _______ than the rate of interest of the company.
4)      Working capital is also known as _______ capital.

2. Write short notes on any four of the following:                                            4x4=16
a)      Aims of finance function
b)      Capital gearing
c)       Estimate of working capital requirement
d)      Optimal payout ratio
e)      Net present value as a technique of capital budgeting
f)       Optimal capital structure

3. (a) “Profit maximisation is not the adequate criterion to judge the efficiency of a firm.” Explain the statement. What should be the right criterion and why?   6+8=14
OR
(b) Critically analyze the functions of a financial of a financial manager in a large scale industrial establishment. What are the responsibilities of a financial manager in a modern business organisation?                            8+6=14

4. (a) What are the advantages of adequate working capital? What shall be the repercussions if a firm has (i) redundant working capital and (ii) inadequate working capital?
OR
(b) The following information has been extracted from the Cost sheet of Dot Com Co. Ltd.:
Particulars
Rs. (per unit)
Raw materials
Direct labour
Overhead (including depreciation of Rs. 10)
45
18
40
Total cost
Profit

103
17
Selling price
120
The following further information is available:
a)      Raw materials are in stock on an average of one month
b)      The materials are in progress on an average for half a month (100% complete in regard to material and 50% for labour and overheads)
c)       Credit allowed by suppliers is one month
d)      Time lag in receipts of proceeds from debtors is two months.
e)      Average time lag in payment of overheads is one month.
f)       30 percents of sales are on cash basis
g)      The company expected to keep a cash balance of Rs. 1,00,000.
h)      Time lag in payment of wages is 10 days
i)        Finished goods lie in warehouse for half a month
Prepare the working capital needed to finance a level of activity of 45000 units of output. Production is carried on evenly throughout the year, and wages and overhead accrue similarly.                    14

5. (a) (i) Define capital structure. What is optimal capital structure?                                          3+5=8
(ii) A Company Ltd. Has a share capital of Rs. 1,00,000 divided into shares of Rs. 10 each. It has major expansion programme requiring an investment of another Rs. 50,000. The management is considering the following alternatives for raising this amount:
Issue of 5000 shares of Rs. 10 each.
Issue of 5000, 12 5 preference shares of Rs. 10 each
Issue of 10% debentures of Rs. 50,000
 The company’s present earnings before interest and tax (EBIT) is Rs. 30,000 pa
You are required to calculate the effect of each  of the above modes of financing on the earning per share (EPS) presuming EBIT continues to be the same even after expansion (Assume tax liability at 50%)             6

(b) What is meant by cost of capital? What are the components of the cost of capital? What is the cost of retained earnings? How is the cost of new equity issues determined?                      3+3+4+4=14

6. (a) (i) What is dividend? Discuss the various forms of dividend.                              2+5=7
(ii) What do you understand by stable dividend policy? Why should it be followed? 2+5=7
OR
(b) In Walter’s approach, the dividend policy of a firm depends on availability of investment opportunity and the relationship between the firm’s internal rate of return and its cost of capital. Discuss. What are the shortcomings of this view?                    14

(Old course)
Full marks: 80
Pass marks: 32
1. (a) write True or False:                                                                                                              1x4=4
a)      Finance manager has to estimate, procure and utilize financial resources.
b)      Capital budgeting and capital rationing mean the same thing.
c)       Ownership securities are represented by debentures.
d)      Cash dividend is a usual method of paying dividend.
(b) Fill in the blanks:                                                                                        1x4=4
a)      It is the duty of a finance manager to arrange_________ funds.
b)      Cost of capital is not a_______________as such.
c)       _________Dividend promises to pay the shareholders at a future date.
d)      Current Assets – Current Liabilities =

2. Write short notes on any four of the following:                                                             4x4=16
a)      Profit maximisation
b)      Net present value method
c)       Lease financing
d)      Retained earnings
e)      Gross and net working capital

3. (a) What is Finance Function? What are the aims of finance functio? Discuss its scope. 12
OR
(b) Define Financial Management. Discuss its significance in modern era. State the objectives of financial management.                                                                                3+5+4=12

4. (a) What is cost of capital? Discuss its problems in determination of cost of capital. 3+8=11
OR
(b) What is Financial Leverage? Calculate operating leverage and financial leverage from the following data: 3+4+4=11                                                                   Rs.
Sales (100000 units)                                        2,00,000.00
Variable cost per unit                                     0.70
Fixed cost                                                            65,000.00
Interest charges                                                               15,000.00

5. (a) What are the main sources of finance available to industries for meeting long term financial requirements? Discuss                                                                                                                11
OR
(b) What is capital market? What are the main components of a capital market? Distinguish between capital market and money market                                                  2+3+6=11
6. (a) Discuss the MM theory of dividend distribution. What are the criticisms of this theory of irrelevance? 7+4=11
OR
(b) What is Stable Dividend Policy? Do you recommend a stable dividend policy? Explain it with justification. 2+2+7=11
7. (a) What do you mean by Inventory Management? Why is it essential to an enterprise? Mention any four problems of inventory management.                                               2+2+7=11
OR
(b) From the following information, prepare a statement showing the working capital requirements:                      11
Budgeted sales- Rs. 2,60,000 per annum. Analysis of one rupee of sales:
Particulars
Rs. (per unit)
Raw materials
Direct labour
Overhead (including depreciation of Rs. 10)
0.30
0.40
0.20
Total cost
Profit
0.90
0.10
Selling price
1.00
It is estimated that:
a)      Raw materials are carried in stock for 3 weeks and finished goods for 2 weeks.
b)      Factory processing will take 3 weeks and it may be assumed to be consisting of 100 % of raw materials, wages and overheads
c)       Suppliers will give 5 weeks credit
d)      Customers will require 8 weeks credit.

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