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Sikkim Manipal University - DDE

Master of Business Administration- II Semester

MB0045 - Financial Management- 4 credits
(Book ID 1628)

Duration: 3 hours Total marks: 140
Section A
[Please answer Any Four essay type questions in a separate page answer sheet especially
provided for the purpose]
1. Mr. Harish, CFO of Prakash Packers Ltd. (PPL) discusses the capital
structure with his Finance Manager Mr.Ravi. He assigns the responsibility
of analysing the Weighted Average Cost of Capital. The below Table
depicts the capital structure:
Particulars Rs. (in
Equity capital (Rs. 10 par value) 200
14% preference share capital Rs. 100 each 100
Retained earnings 100
12% debentures (Rs. 100 each) 300
11% term loan from ICICI bank 50
Total 750
The market price per equity share is Rs. 32. The company is expected to
declare a dividend per share of Rs. 2 per share, and there will be a growth of
10% in the dividends for the next 5 years.
The preference shares are redeemable at a premium of Rs. 5 per share after 8
years and are currently traded at Rs. 84 in the market.
Debenture redemption will take place after 7 years at a premium of Rs. 5 per
debenture and their current market price Rs. 90 per unit. The corporate tax
rate is 40%.
On behalf of Mr. Ravi, Finance Manager of the PPL, you are required to
calculate the present Weighted Average Cost of Capital (WACC).
Refer Unit-5

2. The decision regarding dividend payment is a very important one for the
finance manager in any corporate house. It is more so because the decision
needs to strike a proper balance between expansion of the company in one
hand and immediate gratification of the shareholders on the other hand.
In the light of these statements, you are required to explain the different
types of dividend theories and the different types of dividend pay-outs that
are prevalent in the corporate world.
Refer unit-15

If you are an investor and are interested in finding out the value of an
amount of Rs 10,000 to be received after 15 years, when the interest offered
by bank is 9%, how would you calculate Refer unit 3

4. Explain how NPV leads to better investment decisions rather than other
criteria. Refer unit 8

Rea d the following case study thoroughly and answer the following questions:
5. As per the case, do you think that HUL has preferred the profit
maximisation approach over the wealth maximisation approach?
J ustify your answer. Refer unit-1

6. Critically comment on the trends of (a) capital structure and (b) Dividend
Pay-out in HUL for last five years.
Refer units 7 & 15

Hindustan Unilever Limited
Introduction: Hindustan Unilever Limited (HUL) is India's largest Fast

Consumer Goods Company with a heritage of over 75 years in India and
touches the lives of two out of three Indians.
With over 35 brands spanning 20 distinct categories such as soaps,
detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea,
coffee, packaged foods, ice cream, and water purifiers, the Company is a
part of the everyday life of millions of consumers across India. Its portfolio
includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin,
Wheel, Fair & Lovely, Ponds, Vaseline, Lakm, Dove, Clinic Plus, Sunsilk,
Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality
Walls, and Pureit.
The Company has over 16,000 employees and has an annual turnover of
around Rs.19,401 crore (financial year 2010 - 2011). HUL is a subsidiary of
Unilever, one of the worlds leading suppliers of fast moving consumer
goods with strong local roots in more than 100 countries across the globe
with annual sales of about 44 billion in 2011. Unilever has about 52%
shareholding in HUL.
Unilever has a long history in sustainability and the use of marketing and
market research to promote behaviour change. In November 2011, for the
first time, it published its own model of effective behaviour change.
History of the Company: In the summer of 1888, visitors to the Kolkata
harbour noticed crates full of Sunlight soap bars, embossed with the words
"Made in England by Lever Brothers". With it began an era of marketing
branded Fast Moving Consumer Goods (FMCG).
Soon after followed Lifebuoy in 1895, and other famous brands like Pears,
Lux, and Vim. Vanaspati was launched in 1918 and the famous Dalda brand
came to the market in 1937. In 1931, Unilever set up its first Indian
subsidiary, Hindustan Vanaspati Manufacturing Company, followed by
Lever Brothers India Limited
(1933) and United Traders Limited (1935). These three companies merged
to form HUL in November 1956; HUL offered 10% of its equity to the
Indian public, being the first among the foreign subsidiaries to do so.
Unilever now holds 52.10% equity in the company. The rest of the
shareholding is distributed among about 360,675 individual shareholders and
financial institutions.
The erstwhile Brooke Bond's presence in India dates back to 1900. By 1903,
the company had launched Red Label tea in the country. In 1912, Brooke
Bond & Co. India Limited was formed. Brooke Bond joined the Unilever
fold in 1984 through an international acquisition. The erstwhile Lipton's
links with India were forged in 1898. Unilever acquired Lipton in 1972 and
in 1977 Lipton Tea (India) Limited was incorporated.
Pond's (India) Limited had been present in India since 1947. It joined the
Unilever fold through an international acquisition of Chesebrough Pond's
USA in 1986.
Since the very early years, HUL has vigorously responded to the stimulus of

economic growth. The growth process has been accompanied by judicious
diversification, always in line with Indian opinions and aspirations.
The liberalisation of the Indian economy, started in 1991, clearly marked an
inflexion in HULs and the Group's growth curve. Removal of the regulatory
framework allowed the company to explore every single product and
opportunity segment, without any constraints on production capacity.
Simultaneously, deregulation permitted alliances, acquisitions, and mergers.
In one of the most visible and talked about events of India's corporate
history, the erstwhile Tata Oil Mills Company (TOMCO) merged with HUL,
effective from April 1, 1993. In 1996, HUL and yet another Tata company,
Lakme Limited, formed a 50:50 joint venture, Lakme Unilever Limited, to
market Lakme's market- leading cosmetics and other appropriate products of
both the companies.
Subsequently in 1998, Lakme Limited sold its brands to HUL and divested
its 50% stake in the joint venture to the company.
HUL formed a 50:50 joint venture with the US-based Kimberly Clark
Corporation in 1994. Kimberly-Clark Lever Ltd, which markets Huggies
Diapers and Kotex Sanitary Pads. HUL has also set up a subsidiary in Nepal,
Unilever Nepal Limited
(UNL), and its factory represents the largest manufacturing investment in the
Himalayan kingdom. The UNL factory manufactures HULs products like
soaps, detergents, and personal products both for the domestic market and
exports to India.
The 1990s also witnessed a string of crucial mergers, acquisitions, and
alliances on the Foods and Beverages front. In 1992, the erstwhile Brooke
Bond acquired Kothari General Foods, with significant interests in Instant
Coffee. In 1993, it acquired the Kissan business from the UB Group and the
Dollops Ice cream business from Cadbury India.
As a measure of backward integration, Tea Estates and Doom Dooma, two
plantation companies of Unilever, were merged with Brooke Bond. Then in
1994, Brooke Bond India and Lipton India merged to form Brooke Bond
Lipton India
Limited (BBLIL), enabling greater focus and ensuring synergy in the
Beverages business. 1994 witnessed BBLIL launching the Wall's range of
Frozen Desserts. By the end of the year, the company entered into a strategic
alliance with the Kwality Ice cream Group families and in 1995 the Milk
food 100% Ice cream marketing and distribution rights too were acquired.
Finally, BBLIL merged with HUL, with effect from J anuary 1, 1996. The
internal restructuring culminated in the merger of Pond's (India) Limited
(PIL) with HUL in 1998. The two companies had significant overlaps in
personal products, speciality chemicals and exports businesses, besides a
common distribution system since 1993 for personal products. The two also
had a common management pool and a technology base. The amalgamation
was done to ensure for the Group, benefits from scale economies both in
domestic and export markets and enable it to fund investments required for
aggressively building new categories.
In J anuary 2000, in a historic step, the government decided to award 74
percent equity in Modern Foods to HUL, thereby beginning the divestment
of government equity in public sector undertakings (PSU) to private sector
partners. HULs entry into bread is a strategic extension of the company's
wheat business. In 2002, HUL acquired the government's remaining stake in
Modern Foods.
In 2003, HUL acquired the cooked shrimp and pasteurised crabmeat
business of the Amalgam Group of Companies, a leader in value added
marine products exports.
HUL launched a slew of new business initiatives in the early part of 2000s.
Shakti was started in 2001. It is a rural initiative that targets small villages
populated by less than 5000 individuals. It is a unique win-win initiative that
catalyses rural affluence even as it benefits business. Currently, there are
over 45,000 Shakti entrepreneurs covering over 100,000 villages across 15
states and reaching to over 3 million homes.
In 2002, HUL made its foray into Ayurvedic health and beauty centre
category with the Ayush product range and Ayush Therapy Centres.
Hindustan Unilever Network, Direct to home business was launched in 2003
and this was followed by the launch of Pureit water purifier in 2004.
In 2007, the Company name was formally changed to Hindustan Unilever
Limited after receiving the approval of share holders during the 74th AGM
on 18 May, 2007. Brooke Bond and Surf Excel breached the Rs 1,000 crore
sales mark the

Section B
Multiple Choice Questions (MCQ)
[Please answer all the following questions]

1. The modern approach in financial management aims at procurement of least cost funds
and its effective utilisation for ___________________.
a. Maximisation of shareholder's wealth
b. Maximisation of profit
c. Maximisation of sales
d. Procurement of funds

2. The dividend decision is taken by the ________________.
a. Treasurer
b. Controller
c. Finance Manager
d. Chief Financial officer

3. _______________ refers to the ratio of capital employed to the sales generated.
a. Working capital
b. Fixed capital
c. Operating capital
d. Share capital

4. ___________________ of a firm refers to the composition of its long-term funds and
its capital structure.
a. Capitalisation
b. Over-capitalisation
c. Under-capitalisation
d. Market capitalisation

5. In the expression r ={ ( 1 +(i/m)m}) - 1, what does " i " denote?
a. Nominal rate of interest
b. Effective rate of interest
c. Frequency of compounding per year
d.Number of years

6. Which among the following is the major factor that affects capital structure?
a. Solvency
b. Profitability
c. Leverage
d. Flexibility

7. ___________ is widely used in the field of investment banking as ready beckoners.
a. Annuity table
b. Reference table
c. Sinking fund factor
d. Compound technique

8. . Which among the following bonds will never mature?
a. Redeemable bonds
b. Irredeemable bonds
c. Zero coupon bonds
d. Convertible bonds

9. _______________ is defined as the opportunity cost in terms of dividends forgone by
withholding from the equity shareholders.
a. Cost of debenture
b. Cost of preference capital
c. Cost of term loans
d. Cost of retained earnings

10. The _______________ is the minimum rate of return of a company which it must earn to
meet the expenses of the various categories of investors.
a. Capital gain
b. Cost of capital
c. Capital budgeting
d. Capital market

11. The _______________ refers to the degree to which a firm has built-in fixed costs due to
its particular or unique production process.
a. Combined leverage
b. Financial leverage
c. Operating leverage
d. Capital structure

12. Which among the following costs are incurred irrespective of the income and value of
a. Discretionary costs
b. Semi-variable costs
c. Variable costs
d. Fixed costs

13. In _______________ approach, the capital structure decision is relevant to the valuation of
the firm.
a. Net operating income
b. Net income
c. Traditional
d. Miller and Modigliani

14. _______________ is considered as the given rate of interest.
a. Transaction cost
b. Agency cost
c. Implicit cost
d. Explicit cost

15. Which of the following is the first step involved in the evaluation of any investment
a. Examination of the risk profile
b. Estimation of cash flow
c. Commitment of funds on long-term basis
d. Formulation of the decision criteria

16. __________ cannot be recovered after they have been incurred.

a. Opportunity cost
b. Capital cost
c. Sunk cost
d. Financing cost

17. Which among the following risk is defined as the measure of the unpredictability of a
given stock value?
a. Portfolio risk
b. Stand-alone risk
c. Corporate risk
d. Market risk

18. When __________ is greater then zero the project should be accepted.
a. Internal rate of return
b. Profitability index
c. Net present value
d. Modified internal rate of return

19. _______________ is defined as the capital rationing that cannot be violated under any
a. External capital rationing
b. Hard capital rationing
c. Soft capital rationing
d. Internal capital rationing

20. _______________ approach to capital rationing tries to achieve maximum NPV
subject to many constraints.
a. Goal programming
b. Integer programming
c. Linear programming
d. Mathematical programming

21. Which among the following is the key component of current assets?
a. Bill payable
b. Inventory
c. Sundry creditors
d. Temporary bank overdrafts
22. _______________ refers to the amount invested in various components of current assets.
a. Temporary working capital
b. Net working capital
c. Gross working capital
d. Permanent working capital

23. _______________ refers to a firm holding some cash to meet its routine expenses that are
incurred in the ordinary course of business.
a. Speculative motive
b. Transaction motive
c. Precautionary motive
d. Compensating motive .

24. _______________ refers to the credit extended by the supplier of goods and services in the
normal course of business transactions.
a. Instalment credit
b. Open credit
c. Trade credit
d. Revolving credit

25. _______________ motive is for making available inventories to facilitate smooth production
and sales.
a. Speculative
b. Transaction
c. Precautionary
d. Compensating

26. Costs incurred for maintaining the inventory in warehouses are called _______________.
a. Ordering costs
b. Material costs
c. Carrying costs
d. Shortage costs

27. Which among the following cost incurred by the firm when the customer fails to pay back the
amount on the expiry of credit period?
a. Administration cost
b. Delinquency cost
c. Capital cost
d. Default cost

28. _______________ are assets accounts representing amount due to the firm from sale of
goods/services in the ordinary course of business.
a. Cash equivalents
b. Trade payables
c. Receivables
d. Current assets

29. Which among the following model explains that a firms dividend policy is irrelevant and has
no effect on the share prices of the firm?
a. Walter
b. Miller and Modigliani
c. Gordon
d. Dividend relevance

30. _______________ is a method to increase the number of outstanding shares by
proportionately reducing the face value of a share.
a. Inventory valuation
b. Stock valuation
c. Share split
d. Stock split

31. The _______________ refers to setting off or balancing two transactions which are entered
into investment programmes, simultaneously.
a. Arbitrage process
b. Database transaction
c. Balance sheet
d. Market capitalisation

32. Which among the following term is referred to the criteria for extending credit to customers?
a. Credit limit
b. Credit balance
c. Credit analysis
d. Credit standards

33. In which among the following methods of pricing inventories, the pricing is based on the
materials that have been purchased recently?
a. Standard price
b. Weighted average
c. Last in, first out
d. First in, first out

34. _______________ is the ratio of the present value of cash inflow to initial cash outlay.
a. Net present value
b. Profitability index
c. Internal rate of return
d. Future value

35. In the formula Ke = Rf + (Rm Rf), what does Ke denotes?
a. Risk free rate of return
b. Rate of return on share
c. Beta of security
d. Rate of return on market portfolio

36. The _______________ is the portion of earnings per share that is given to shareholders in the
form of cash dividend.
a. Profit ratio
b. Rate of return
c. Payout ratio
d. Working capital ratio

37. In the hierarchy of the finance function of an organisation, the controller reports to the
a. Chief financial officer
b. Treasurer
c. Financial manager
d. Vice president of finance

38. Which among the following are the factors that affect financial plan?
a. Establishing corporate objectives
b. Creating flexible economic environment
c. Matching the sources with utilisation
d. Assigning responsibilities

39. ___________________ refers to the periodic flows of equal amount.
a. Present value
b. Perpetuity
c. Annuity
d. Sinking fund

40. ___________________is a long-term debt instrument/fixed income (debt) instrument
issued by government agencies or big corporate houses to raise large sums of money. a.
b. Mutual fund
c. Share
d. Bond

41. ____________ will be calculated for a firm when it moves over from one level of sales
(volume or value) to another.
a. Degree of operating leverage
b. Degree of financial leverage
c. Financial leverage
d. Operating leverage

42. Which among the following is the criticism of Miller and Modigliani (MM) preposition
a. Floatation costs
b. Transaction cost
c. Implicit cost
d. Explicit cost

43. Which of the following options does not carry any fixed charges?
a. Debentures
b. Equity shares
c. Bonds
d. preference shares

44.__________ principle says that the cash flows of a project are to be considered in
incremental terms.
a. Post tax
b. Separation
c. Incremental
d. Consistency

45. Which among the following is an implicit cost?
a. Opportunity costs
b. Wages paid to employees
c. Rent paid to land hired
4. Interest paid on capital

46. In which among the following dividends, equity shareholders are issued transferable
promissory notes with shorter maturity periods, which may or may not bear interest?
a. Stock dividend
b. Bond dividend
c. Cash dividend
d. Scrip dividend

47. Which among the following purpose of holding inventory firms maintain higher levels of
inventory to avoid the risks of lengthening the lead time in procurement?
a. Sales
b. To avail quantity discount
c. To reduce risk for production stoppage
d. To reduce ordering cost and time

48. ____________ and____________ carry a fixed rate of interest and are to be paid off
irrespective of the firms revenues.
a. Debentures, Dividends
b. Debentures, Bonds
c. Dividends, Bonds
d. Dividends, Treasury notes

49. Mr.A requires Rs.1050 at the end of the first year. Given the rate of interest as 5%,find out
how much Mr. A would invest today to earn this amount.
a) 1000
c) 1500

50. Liquidity decisions deal with day-to-day financial operations that involve ______________
and ___________________.
a. Explicit costs, Implicit costs
b. Obtaining finance, Utilising funds
c. Expansion, Payment of dividend
d. Current assets, Current liabilities

51. Which among the following are the benefits of financial planning?
1. Ensures effective utilisation of funds
2. Helps in reducing operating capital of a firm
3. Lays the foundation for successful initiation of the working firm.
4. Helps promoters to estimate the amount of capital required for incorporation of company.

a. Option 1 & 4
b. Option 1 & 2
c. Option 1 & 3
d. Option 2 & 3

52. Identify which among the following comes under future value of single flow.
1. Doubling period
2. Increased frequency of compounding
3. Capital recovery factor
4. Uneven periodic sum

a. Options 1 & 4
b. Options 1 & 2
c. Options 1 & 3
e. Options 2 & 3

53. Identify which of the statement are related to intrinsic value of a share.
1. It is calculated by dividing the net worth by the number of outstanding shares.
2. It is associated with the earnings and profitability of the company.
3. It is the economic value of a company considering its characteristics, nature of business, and
investment environment.
4. It may include intangible assets at acquisition cost minus amortised value.

a. Options 1 & 4
b. Options 2 & 3
c. Options 1 & 3
d. Options 2 & 4

54. Identify which of the following statements are related to cost of retained earnings.
1. It is the same as the cost of shareholders expected return from the firms ordinary shares.
2. Transaction costs are low and therefore can be ignored.
3. It is always less than the cost of new issue of ordinary shares due to absence of floating costs.
4. The floatation costs arise in the process of raising equity from the market.

a. Option 1 & 4
b. Option 2 & 3
c. Option 1 & 3
d. Option 2 & 4

55. Which among the following statements are related to financial leverage?
1. It occurs anytime a firm has fixed costs.
2. It takes place when a change in revenue produces a greater change in Earnings before Interest
and Taxes (EBIT).
3. It is a process of using debt capital to increase the rate of return on equity.
4. 4. It refers to the mix of debt and equity of the firm.

a. Option 1 & 4
b. Option 1 & 2
c. Option 1 & 3
d. Option 3 & 4

56. Which among the following statements are related to capital structure?
1. It should be such that the company derives maximum benefits from it and is able to adjust it
easily to changing conditions.
2. It is an indicator of the relative contribution of creditors and owners
3. It is usually planned keeping in view the interests of the ordinary shareholders.
4. It interferes in the system of balancing with arbitrage process.

a. Option 1 & 4
b. Option 1 & 2
c. Option 1 & 3
d. Option 3 & 4

57. Consider the below mentioned statements:
1. Operating costs are estimated by cost accountants and production engineers.
2. Capital outlays are estimated by engineering departments after examining all aspects of
production process. State True or False: a. 1-True, 2-False
b. 1-True, 2-True
c. 1-False, 2-True
d. 1-False 2-False

58. Identify which of the following statements are related to payback-period.
1. It ignores time value of money.
2. It is computed based on the returns on government securities.
3. It takes care of the risk element in future cash flows.
4. It is the most commonly used method of recognizing risk associated with a capital budgeting

a. Option 1 & 4
b. Option 1 & 3
c. Option 2 & 3
d. Option 2 & 4

59. Which among the following are related to external capital rationing?
1. Deficiencies in market information.
2. It is used by a firm as a means of financial control.
3. Restriction may be imposed on divisional heads on the total amount that they can commit on
new projects.
4. Rigidities that hamper the force flow of capital between firms.

a. Option 1 & 4
b. Option 1 & 2
c. Option 1 & 3
d. Option 3 & 4

60. Identify which of the following statements are related to gross working capital.
1. It is a qualitative concept.
2. It is termed as the quantitative aspect of working capital.
3. It helps in fixation of various areas of financial responsibility.
4. It is also known as fixed working capital.

a. Option 1 & 4
b. Option 1 & 3
c. Option 2 & 3
d. Option 2 & 4

61. Identify which of the following are related to the objectives of cash management.
1. Meeting payments schedule
2. Keeping other factors such as expansion, modernisation and diversification constant.
3. Minimising funds held in the form of cash balances
4. Showing the time and magnitude of expected cash inflows and outflows.

a. Option 1 & 4
b. Option 1 & 3
c. Option 2 & 3
d. Option 2 & 4

62. Identify which of the following statements are related to shortage costs.
1. Loss of customer goodwill
2. Receiving, inspecting at the ware house
3. Extra costs associated with urgent replenishment purchases
4. Purchase ordering or set-up

a. Option 1 & 4
b. Option 1 & 3
c. Option 2 & 3
d. Option 2 & 4

63. Which among the following statements are related to credit policy of the firm?
1. Reduces the cost of credit administration
2. Brings down bad-debt losses
3. Trade-off between higher profits from increased sales
4. The incremental cost of having large investment in receivables

a. Option 1 & 4
b. Option 1 & 2
c. Option 1 & 3
d. Option 3 & 4

64. Which among the following statements are related to scrip dividend?
1. The reserves and surplus (retained earnings) are capitalised to give effect to bonus issue.
2. It has the effect of increasing number of outstanding shares of the firm.
3. Payment of dividend in this form is done only if the firm is suffering from weak liquidity
4. It is adopted if the firm has earned profits and it will take some time to convert its assets into

a. Option 1 & 4
b. Option 1 & 2
c. Option 1 & 3
d. Option 3 & 4

65. Consider the below mentioned statements:
1. Internal rate of return is also known as benefit cash ratio.
2. Net present value recognises the time value of money.
State True or False: a. 1-
False, 2-False
b. 1-True, 2-True
c. 1-False, 2-True
d. 1-True, 2-False

66. Which among the following approach establishes a relationship between the required rate of
return of a security and its systematic risks?
a. Capital asset pricing model
b. Dividend forecast
c. Earnings price ratio
d. Realised yield

67. Which among the following statements are adversities that may affect the firm in case of
inadequate working capital?
1. Optimum capacity utilisation of fixed assets may not be achieved due to
nonavailability of the working capital.
2. The firm may have a conservative policy of holding large quantum of current assets
to ensure larger market share and to prevent the competitors from snatching any market for
their products.
3. Operating inefficiencies may creep in due to difficulties in meeting day to day
4. The firm has to decide on the amount of working capital to be employed.
a. Option 1 & 3
b. Option 2 & 4
c. Option 1 & 2
d. Option 3 & 4

68. Identify which of the following statements are related to the assumptions of net income
1. The cost of debt is less than the cost of equity and remains constant
2. The operating profits/EBIT are not expected to increase or decrease
3. The firm has only two sources of funds, debt and ordinary shares
4. Use of debt does not change the risk perception of investors

a. Option 1 & 4
b. Option 1 & 3
c. Option 2 & 3
d. Option 2 & 4

69. Which of the following technical aspects of the project are dealt by technical appraisal?
1. Selection of plant, equipment and scale of operation.
2. Decision on determination of plant capacity
3. Expected profitability
4. Risk dimensions of the project
a. Options 1 & 4
b. Options 1 & 2
c. Options 3 & 4
d. Options 2 & 3

70. Consider the below mentioned statements:
1. The certainty equivalent coefficient is also known as the risk-adjustment factor.
2. The risk-adjustment factor varies directly with risk.
State True or False:
a. 1-False, 2-False
b. 1-False, 2-True
c. 1-True, 2-True
d. 1-True, 2-False

71. Annual consumption of raw materials is 40,000 units. Cost per unit is Rs.16 along with a
carrying cost of 15% per annum. The cost of placing an order is given as Rs.480. Find out the
EOQ of the raw materials.
a) 3000 units
b) 4000 units
c) 3500 units
d) 1000 units

72. Match the following sets:
Part A
1. Redeemable bonds
2. Irredeemable bonds
3. Zero coupon bonds
4. Yield to maturity

Part B
A. The discount rate equalling the present values of cash flow to the current market price.
B. There is no intermediate payment between the date of issue and the maturity date.
C. The maturity value does not exist.
D. The bond with annual interest payments.

a. 1D, 2C, 3B, 4A
b. 1A, 2D, 3B, 4C
c. 1D, 2A, 3B, 4C
d. 1B, 2C, 3A, 4D

73. Consider the below mentioned statements:
1. The objective of cash management is best achieved by speeding up the
working capital cycle, particularly the collection process and investing
surplus cash in short term assets in most profitable avenues.
2. The necessity to hold cash will arise if there is a perfect co-ordination
between the inflows and the outflows. 3. The amount of precautionary
balance also depends on the firms ability to raise additional money at a short
4. The firm may hold cash to benefit from a falling price scenario or getting a
quantity discount when paid in cash or delay purchases of raw materials in
anticipation of decline in prices.
State True or False:
a. Statements 1, 2 and 3 are true
b. Statements 1, 2 and 4 are true
c. Statements 2, 3 and 4 are true
d. Statements 1, 3 and 4 are true

74. Arrange the following steps in order to calculate the weighted average cost of capital.
1. Determine the weight associated with each source.
2. Add these weighted costs to determine the weighted average cost of capital.
3. Calculate the cost of each specific source of fund, that of debt, equity, preference capital, and
term loans.
4. Multiply the cost of each source by the appropriate weights.

a. 3-1-4-2
b. 3-2-4-1
c. 4-2-1-3
d. 4-1-3-2

75. Assume that you have started a new company. You need extra working capital for changing
production and sale level of the firm. You need investments to take care of variations in the
business. Which among the following working capital is required for your business?
a. Net working capital
b. Temporary working capital
c. Gross working capital
d. Permanent working capital