Questions on Financial Management

[1] (a) “The basic rationale for the objective of Shareholders Wealth Maximization is (05)
that it reflects the most efficient use of society’s economic resources and thus
leads to a maximisation of society’s economic wealth”. Comment Critically
(b) What are the basic financial decisions? Discuss. (05)

[2] (a) The current assets and liabilities of your company as at 31-03-2018 were ₹20 (04)
Lakhs and ₹10 Lakhs respectively. Calculate the effect of each of the following
transactions individually and totally on the current ratio of the company:
(i) Purchase of a new machinery for ₹5 Lakhs on cash.
(ii) Purchase of a new machinery for ₹5 Lakhs on short term credit.
(iii) Purchase of a new machinery for ₹5 Lakhs on a medium-term loan
from your bank with 20% down payment in cash.

(b) The ratios relating to a company are given as follows: (06)

Gross Profit Ratio 15%
Stock Velocity 6 Months
Debtors Velocity 3 Months
Creditors Velocity 3 Months
Gross profit for the year ending December 31st 2018 amounts to ₹60,000. Closing
stock is equal to Opening Stock. Find out:
(i) Sales; (ii) Closing Stock; (iii) Sundry Debtors; (iv) Sundry Creditors
OR
The management of a company has 5 projects A, B, C, D and E on hand. The (10)
initial outlays and annual cashflows as well as life of the project is as under:

(i) Find NPV and Profitability Index of each project assuming the cost capital
at 15%.
(ii) Rank the projects in order of preference based on PI criteria.
(iii) Rank the projects in order of preference based on NPV criteria.
(iv) If the firm faces the capital constraint of ₹500 Lakhs and project can be
implemented in parts. What amount of wealth can be created when
projects are chosen on the basis of PI and NPV criteria
[3] (a) What do you understand by equivalent annualised value (EAV)? Explain its (05)
meaning and way of computing by taking a suitable example.
(b) What is financial analysis? Discuss various types of financial analysis. (05)
OR
(a) “Generally, individuals show a time preference for money”. Give reasons for (03)
such preference.
(b) The YES bank pays 12% interest and compounds interest quarterly. If one puts (03)
₹1000 initially into a saving account, how much will it grow in 7 ½ years?
(c) Mr. Tado is planning to retire this year. His company can pay him a lump sum (04)
retirement payment of ₹2,00,000 or ₹25,000 lifetime annuity-whichever he
chooses. Mr. Tado is in good health and estimates to live for at least 20 more
years. If his interest rate is 12%, which alternative should he chose.