Monday, May 20, 2019

Gauhati University Question Papers: Financial Management (Nov-Dec’ 2017)


2017
FINANCIAL MANAGEMENT
Full Marks: 80
Time: 3 hours
(The figures in the margin indicate full marks for the questions)
1. Select the most appropriate answer from the choices given against each:         1x10=10

a)         Profit maximization ignores:
1)         Wealth.
2)         Time value of money.
3)         Net value.
4)         None of the above.
b)         “A firm is said to have high degree of operating leverage if it employs a greater amount of fixed cost and smaller amount of variable cost.” This statement is (1) True, (2) False.
c)          Under Net Present Value Method, a project is accepted when present value (PV) of outflows is _______ present value (PV) of inflows.
1)         More than.
2)         Less than.
3)         Equal to.
4)         None of the above.
d)         Cost of Preference share is:
1)         Treated for tax.
2)         Not treated for tax.
3)         Only occasionally treated for tax.
4)         None of the above.
e)         ‘Projects with huge difference in initial capital investment can be evaluated by using NPV method.’ This statement is: (1) True, (2) False.
f)          The objectives of good dividend policy is to:
1)         Minimize the retained earning
2)         Prevent transfer of share.
3)         Maximize the value of firm.
4)         None of the above.
g)         Providing information to top management is _______ of financial management.
1)         Recurring function.
2)         Non-recurring function.
3)         Routine function.
4)         Advisory function.
h)         Optimum capital structure refers to the debt-equity mix where:
1)         Debt is higher than equity.
2)         Equity is higher than debt.
3)         The firm’s cost of capital is minimum and value of the firm is maximum.
4)         All of the above.
i)           ‘When Profitability Index exceeds one, the proposal is rejected’. This statement is (1) True (2) False.
j)           Capitalization of profits process involves issuing:
1)         Bond dividend.
2)         Cash dividend.
3)         Stock dividend.
4)         Property dividend.
2. Answer the following questions in about 30 words each:                         2x5=10
a)         State the advisory functions of financial management.
b)         What is Special working capital?
c)          State the meaning of ‘Gearing of capital’.
d)         Define ‘Operating Leverage’.
e)         How is modern techniques of capital budgeting different from traditional techniques?
3. Answer the following questions within 150-200 words each: (any four)              5x4=20
a)         Why wealth maximization is more viable goal of finance function? Explain.
b)         Write a note on Optimum Capital Structure.
c)          What are the adverse effects of excessive working capital in a firm?
d)         Explain Profitability Index Method.
e)         What are the new roles of Finance Manager after LPG?
f)          Ganesh Ltd. expects its cost of goods sold for the year 2017-18 to be Rs. 500 lakhs. The expected operating cycle is 90 days. It wants to keep minimum cash balance of Rs. 1.5 lakhs. What is the expected working capital requirement? Assume a year consists of 360 days.
4. Answer the following questions in about 600 words each:                              10x4=40
(a) “Financial management is concerned with the solution of three major decisions-financing, investment and dividend.” Explain the statement highlighting interrelationship amongst these three decisions.
Or
What is over capitalization? State the impact of over capitalization on consumers, firms and shareholders.
(b) A firm is considering the purchase of a machine. Two machines A and B are available, each costing Rs. 50,000. In comparing the profitability of those machines, a discount rate of 10% is to be used. Earning after taxation are expected to be as follows:
Year
Machine A
Cash flow (in Rs.)
Machine B
Cash flow (in Rs.)
PV factor @ 10%
1st
15,000
5,000
0.909
2nd
20,000
15,000
0.826
3rd
25,000
20,000
0.751
4th
15,000
30,000
0.683
5th
10,000
20,000
0.621
Evaluate the projects using Pay back period and Net present value method.
(c) Net present value method:
Calculation of present value of cash flow:
Year
Discounted
Present value of Rs. 1 @ 10%
Machinery A
Machinery B
I
II
III
IV
V
.909
.826
.751
.621
.621
15,000
20,000
25,000
10,000
10,000
13,635
16,520
18,775
6,210
6,210
5,000
15,000
20,000
20,000
20,000
4,545
12,390
15,020
12,420
12,420

Total
85,000
65,385
90,000
64,865
Please value of cash flow of Machine A is Rs. 65,385 whereas in case of Machine B is Rs. 64,865. Thus, Machine A should be preferred.
Or
Explain the method of evaluating Capital Budgeting decision.
(c) Define working capital. What considerations are taken into account in estimating the amount of working capital requirement in a newly started company?
Or
Explain the different techniques or methods used for estimating the working capital requirement.
(d) Identify and discuss the factors affecting a firm’s dividend and retention of earning policy.
Or
Financial management can be use dividend policy to maximize the wealth of equity holder. Explain with suitable example.

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