Gauhati University Question Papers
FINANCIAL MANAGEMENT' 2018
Full Marks: 80
Time: 3 hours
(The figures in the margin indicate full marks for the questions)
Answer either in English or in Assamese.
1. (A) Choose the correct option of the following: 1x5=5
1) Key financial functions of a firm does not include
a) Investment decision.
b) Dividend decision.
c) Buying decision.
d) Financing decision.
2) Use of debt-capital to gain is known as
a) Financial leverage.
b) Operating leverage.
c) Financial operating leverage.
d) Position and operating ratio.
3) Optimum capital structure refers to debt-equity mix where
a) Debt is higher than equity.
b) Equity is higher than debt.
c) The cost of capital of the firm is minimum and the value of the firm is maximum.
d) Equity and debt capital are of equal amount.
4) Capital budgeting is a part of
a) Investment decision.
b) Working capital management.
c) Capital structure.
d) Dividend decision.
5) Pay-out ratio is dividend decision refers to
a) Total earnings divided by number of shares outstanding.
b) Dividend as a percentage of earnings.
c) Profit after tax divided by market price per share.
d) Market price per share divided by number of shares outstanding.
(B) Write whether the following statements are true or false: 1x5=5
1) The higher the degree of financial leverage, the greater is the financial risk.
2) The Profitability Index or Benefit Cost Ratio is the relation between the present value of future net cash flow and the initial cash outlay.
3) According to Modigliani and Miller hypothesis, the dividend policy of a firm is relevant and affects the wealth of shareholders.
4) The net working capital is the excess of current assets over current liabilities.
5) A firm’s cost of capital is the simple average cost of the various sources of finance.
2. Answer the following questions in about 30 words each: 2x5=10
a) What is cost of capital?
b) What is the meaning of accounting rate of return?
c) What do you mean by financial planning?
d) How average collection period is computed?
e) What is stock-dividend?
3. Answer any four of the following questions within 100 to 150 words each: 5x4=20
1) What is wealth or value maximisation goal of a corporate entity?
2) Discuss the uses of Internal Rate of Return.
3) Discuss five leading determinants of working capital of a firm.
4) State the consequences of under-capitalization.
5) Mention the different types of financial decisions and examine their mutual relationship.
6) Ritika Ltd. issued equity shares of Rs. 100 each at a premium of 20 per cent. It paid a dividend of 20 per cent to its shareholders. Calculate the cost of equity capital if the annual growth of dividend is 10 per cent.
4. Discuss the scope and functions of financial management. 5+5=10
Or
Elaborate the concept of hardcore working capital. How should it be financed? 4+6=10
5. Explain the relationship between operating leverage and financial leverage. 10
Or
|
|
Rs. |
|
Turnover Variable cost Fixed cost Debt at a 10% rate of interest annually Rs. 5,00,000.00 |
10,00,000.00 7,00,000.00 2,00,000.00 |
From the above particulars, calculate operating leverage and combined leverage. 10
6. Discuss the various methods followed in capital budgeting. 10
Or
Sunrise Enterprise is considering two mutually exclusive projects with the following cash-flow streams:
|
Year |
Project – A Rs. |
Project – B Rs. |
|
0 1 2 3 4 |
– 3,00,000 60,000 1,00,000 1,20,000 1,50,000 |
– 3,00,000 1,30,000 1,00,000 80,000 60,000 |
If the cost of capital to the firm is 12%, rank the two projects in terms of (a) pay-back period and (b) net present value and which criterion wills you prefer for selecting a project? 10
7. Elaborate the determinants of capital structure of a corporate entity. 10
Or
Critically examine the Modigliani and Miller hypothesis of dividend decision. 10
***
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