QP Code : 19310 Reg.

No:
ERODE SENGUNTHAR ENGINEERING COLLEGE
(An Autonomous Institution, Affiliated to Anna University, Chennai)
Perundurai, Erode - 638 057

M.B.A. DEGREE END SEMESTER THEORY EXAMINATIONS,

APRIL / MAY - 2021
Second Semester

Master of Business Administration

19MST22 - Financial Management

Regulations 2019
Time : Three hours Maximum : 100 Marks

PART – A (10 x 1 = 10 Marks)

No. Multiple Choice Questions - Choose the Correct Answer BTL

1. Mr. Anil purchased 100 stocks of future informatics ltd, for AN
Rs.21 on March 15, sold for Rs.35 on March 14 next year. In the
company paid a dividend of Rs.2.50 per share, the Mr. Anil
holding period return is
(a) 11.90%. (b) 78.60%.
(c) 45.40%. (d) 66.70%.
2. The 182-day annualized T bills rate is 9%p.a., the return on UN
market is 15% p.a., and the beta of stock B is1.5 the required
rate of return from investment in stock B is ______
(a) 0% p.a. (b) 7% p.a.
(c) 8% p.a. (d) 9% p.a.
3. Initial outlay 50,000, life of the asset 5 years, estimated annual AN
cash flow 12,500, IRR = ------
(a) 5% (b) 6%

(c) 8% (d) 10%

4. To increase the given present value, the discounted rate should UN

be adjusted.
(a) Downward (b) Upward
(c) Constant (d) No change
5. According to the residual theory of dividends, if the firm’s AN
equity need exceeds the amount of retained earnings, the firm
would

(a) Not need to consider its (b) Sell additional stock to pay
dividend policy the cash dividend.
(c) Borrow to pay the cash
(d) Pay no cash dividends.
dividend
6. Operating leverage can be computed by UN
(a) % Change in EBIT / % (b) EBIT/Fixed Cost x Capital
change in Sales Employed
(d) Financing and dividend
(c) Sales/EBIT
decision
7. When total current assets exceed total current liabilities, it AN
refers to.
(a) Temporary Working Capital (b) Net Working Capital
(c) Gross Working Capital (d) Working Capital
8. Which of the following working capital strategies is the most RE
aggressive?
(b) Making greater use of
(a) Making greater use of short-
long-term finance and
term finance and maximizing
minimizing net short-term
net short-term asset.
asset.
(d) Making greater use of
(c) Making greater use of short-
long-term finance and
term finance and minimizing
maximizing net short-term
net short-term asset.
asset.
9. Commercial paper is a type of _____ AN
(a) Fixed coupon Bond (b) Unsecured short-term debt
(c) Equity share capital (d) Government Bond
10. Under which type of bank borrowing can a borrower obtain AN
credit from a
(a) Purchase or discounting of
(b) Cash
bills
(c) Working Capital Loan (d) Letter of Credit
 PART B (10 × 2 = 20 Marks)
Answer All Questions
11. A perpetuity pays Rs.50 per year and interest rates are 9 AN
percent. How much would its value change if interest rates
decreased to 8 percent? Did the value increase or decrease.
12. How do you compute the PV of a Single Cash Flow? UN

13. A project cost Rs.5,00,000 and yields annually a profit of AP

Rs.80,000 after depreciation @12% p.a. but before tax of 50%.
Calculate the payback period.
14. Father & Co. raises Rs.2,00,000 by the issues of Rs.2,000, 10% AP
debentures of Rs.100 each payable at par after 10 years. If the
rate of company’s tax is, say, 50%, what is the cost of debt to the
firm?
15. How does interest coverage ratio affect the Capital Structure? AP

16. How capital structures differ from financial structure? AN

17. Why working capital management is needed of a firm. AP

18. Enlist features and implications of commercial paper in India. UN

19. Mention the intermediaries “associates with a company” issue of AN

capital
20. What are the companies represented in the Sensex? AN

PART C (5 × 10 = 50 Marks)
Answer All Questions
21. (a) (i) Kumaran makes a deposit of Rs.10,000 in a (05) AN
bank which pays 8% interest compounded
annually for 8 years. You are required to find
out the amount to be received by hi after 8
years.
(ii) A person opens a recurring deposit account for (05) AN
a period of 10 years earning 12% interest and
accepts the scheme under the condition that for
the first year deposit is Rs.3,150 and for
subsequent years the deposit amount will
increase by 5% every year. What is the PV of
this scheme?
(Or)
 (b) (i) Explain the three major decisions in financial (05) AN
management. “Wealth maximization is the sole
objective of financial management." Discuss.

(ii) What is your opinion about capital budgeting (05) UN

and What are the problems and difficulties
faced in capital budgeting and how can you
solve it.
22. (a) (i) The initial cash outlay of a Rajan Project is (04) AN
Rs.50,000 and it generate cash inflows of
Rs.20,000. Rs.15,000, Rs.25,000 and Rs.10,000
in four years. Using present value index
methods, appraise profitability of the proposed
investment assuming 10% rate of discount.

(ii) Machine M costs Rs.1,00,000 payable (06) AN

immediately. Machine N costs Rs.1,20,000 half
payable immediately and half payable in one
year’s time. The cash receipts expected are as
follows:
Year 1 2 3 4 5
Machine 20,00 60,00 40,00 30,00 20,00
M 0 0 0 0 0
Machine - 60,00 60,00 80,00 -
N 0 0 0
At 7% opportunity cost, which machine should
be selected based on NPV.
(Or)
(b) (i) Discuss the steps involved in calculating overall (05) AN
cost of capital and outline the conditions that
should be satisfied for using a firm’s overall
cost of capital for evaluating new investments.

(ii) Contrast the IRR and the NPV methods. Under (05) AN
what circumstance may they lead to (i)
Comparable recommendations and (ii) Give
conflicting recommendations?
23. (a) (i) What is the indifference point in EBIT-EPS (05) UN
analysis? How it is determined under different
alternatives of finance?
 (ii) Discuss the Modigliani and Miller Approach of (05) AN
irrelevance of dividends. What are its
limitations?

(Or)
(b) (i) A company has a choice of the following three (05) AN
financial plans. You are required to calculate
the financial leverage in each case and
interpret it.
Particulars M N O
Equity Capital 2,00 1,00 3,00
0 0 0
Debt 2,00 3,00 1,00
0 0 0
Operating profit (EBIT) 400 400 400
Interest @10% on debt in all
cases

(ii) The installed capacity of a factory is 600 units. (05) AN

Actual capacity used is 400 units. Selling price
per unit is Rs.10. Variable cost is Rs.6 per unit.
Calculate the operating leverage in each of the
following three situations: i) When fixed costs
are Rs.400, ii) When fixed costs are Rs.1,000.
iii) When fixed costs are Rs.1,200.

24. (a) Management of K.N. Pvt. Ltd seeks your assistance (10) AN
on assessing the working capital requirements for an
activity level of 1,00,000 units of output for the year
2019. The cost details of the product are as follows:

Particulars Cost Per

Unit
Raw 20
Materials
Direct 05
Labour
Overheads 15
Total Cost 40
Profit 10
Selling Price 50
 The other details are:
i) In order to ensure smooth flow of production, two
months raw material inventory is to be held in the
stores
ii) Finished goods remain in stores for one month
iii) Credit allowed for purchase of raw material is one
month

iv) Credit allowed to customers is two months

v) Cash balance to be maintained is Rs.25,000
vi) Assuming that the product process is
uninterrupted and even during the year
vii) Lag in payment of overheads one month
Compute the amount of working capital required for
the given level of activity.

(Or)

(b) (i) What is usage of operating cycle of an (05) AN

enterprise and how can calculated the
operating cycle? Explain with suitable example.

(ii) What are the factors influencing working (05) AN

capital requirements of a firm? Elaborate with
current suitable patterns.

25. (a) (i) Explain the sources from which a large-sized (05) AN
industrial enterprise can raise capital for its
various requirements.

(ii) Discuss the major needs, principles and (05) UN

determinants of working capital to a
manufacturing firm.

(Or)
(b) (i) What are the applications and implications of (06) AN
leasing finance and hire purchase and various
steps and parties involved hire purchase and
leasing finance? Explain.

(ii) What is the uses of WC and Explain the factors (04) UN

determining the working capital requirements
of a firm? Explain.
 PART D (1 × 20 = 20 Marks)
26. Project M and S costs Rs.50,000 and Rs. 25,000 (20) AN
respectively. Their cash flows are given below. You are
required to find out the internal rate of return for each
project and decide on that basis which project is more
profitable.

Cash Inflows
Project M Project S
Year
(Rs.) (Rs.)
1 5,000 10,000
2 15,000 10,000
3 30,000 10,000
4 20,000 10,000
5 10,000 -