Roll No...........................

Total No. of Questions : 13] [Total No. of Pages : 03

Paper ID [B0210]
(Please fill this Paper ID in OMR Sheet)

MBA (205) (S05/Old) (Sem. - 2nd)

FINANCIAL MANAGEMENT
Time : 03 Hours Maximum Marks : 75
Instruction to Candidates:
1) Section - A is Compulsory.
2) Attempt any Nine questions from Section - B.

Section - A
Q1) (15 × 2 = 30)
a) What is the financial goal of a firm?
b) What are the main components of cash-outlay of an industrial project?
c) What is the reason for averaging investment under Average Rate of
Return method?
d) What is Time-Value of money?
e) Compare Debenture and equity share as a source of finance?
f) Distinguish between financial lease and operating lease?
g) Why cost of equity capital is usually higher than that of debt-capital?
h) What shall be the effect of sale of inventory on working-capital position
of a firm?
i) What is commercial paper?
j) What is operating leverage?
k) What is dividend pay-out ratio?
l) What is stock dividend?
m) How would you explain the difference between mergers and
acquisitions?
n) Explain the concept of Risk-Free Rate of Return?
o) Distinguish between growing and declining firms in dividend theories.

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 Section - B
(9 × 5 = 45)
Q2) Explain the scope of Financial Management.

Q3) Explain with suitable example the concept of discounted pay-back period?
Explain the merits and demerits of this concept.

Q4) Compare the various sources of medium and long-term Finance available
to a company?

Q5) Punjab Global Ltd. is considering a new project which shall require
investment into land of Rs. 4 lac, building Rs. 2 lac, machinery Rs. 6 lac
and permanent working capital of Rs. 2 lac. Building and machinery shall
have useful life of Five years and salvage value of Rs. 50,000 and Rs.
1,00,000 respectively. Project will generate Rs.20,00,000 per year in
revenues and have variable costs of Rs.12,00,000 P.A. The cost of capital
is 10 percent and tax rate is 50 percent. PV factor at 10% is 0.909, 0.826,
0.752, 0.683, 0.621 consecutively for different years.

Suggest whether the company should accept the project or not?

Q6) What is meant by capital structure? Explain Net Income Approach to capital
structure? Explain its limitations also.

Q7) Punjab Bloosom LTD. has a project in hand which requires an investment
outlay of Rs. 50 lacs. The company has prepared financial plan as follows:
(a) Common shares (in lacs) Rs. 20.0
(b) 10% Preference shares Rs. 10.0
(c) 14% Debentures (Redeemable) Rs. 20.0
50.0
(i) The share of the company shall be issued at a price of Rs. 25/- per
share. The floatation costs are expected to be 4% of issue price.
Company is expected to pay dividend of Rs. 3 per share next year
which is expected to grow at 6% per year.

(ii) Each Debenture shall have a face value of Rs. 100 and life of 7 years.
Floatation costs shall be @ 4% and shall be redeemed at 10% premium
over the Face Value.

(iii) Preference shares too shall carry Face Value of Rs. 100/- per share and
Floatation costs @ 4% of Face Value.
Compute the weighted average cost of capital.

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Q8) Explain the various concepts of working capital such as permanent and
variable working capital? Also explain the various Factors which influence
the working capital requirements of an industrial concern?

Q9) List down the various long-term and short-term sources of working
capital ? Explain how maximum permissible Bank Finance shall be
determined as per each of the three methods recommended by Tondon
committee? Support your answer with suitable example.

Q10) Distinguish between dividend pay-out and Dividend Rate? Briefly explain
the various factors which usually influence the dividend decision and
dividend policy of a Firm.

Q11) Give reasons behind corporate restructuring? Explain the various financial
considerations involved in mergers and takeovers.

Q12) What is meant by bonus shares? Give rules regarding bonus shares?

Q13) Explain CAPM approach to determination of cost of equity? Support your

answer with suitable example.

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