PROGRAMME MASTER OF BUSINESS ADMINISTRATION (MBA)

SEMESTER II

COURSE CODE & NAME DMBA202 – FINANCIAL MANAGEMENT

Section A
Multiple Choice Questions (2 Marks each)
[Please answer all the questions]

1. ______________________is the hurdle rate or cut off rate below which the project will not be
accepted.
a) Projected rate of return
b) Rate of return required by the investor
c) Market interest rate
d) Rate of dividend paid to investor

2. Existence of unproductive assets on the balance sheet is an indication of ___________.

a) Overcapitalization
b) Undercapitalization
c) Undervaluation
d) Overvaluation

3. What is the balance in an account at the end of 10 years if Rs.2500 is deposited today and the
account earns 4% interest, compounded annually?
a) 3600
b) 3500
c) 3700
d) 3800

4. Shubham Ltd. Issues 9% debenture of Rs.600000, face value of the debenture is Rs.100 at par
value. It spent Rs.20000 as floating expense on issue of debenture. Compute cost of debt, if tax
rate is 40%
a) 4.53%
b) 5.58%
c) 3.57%
d) 4,65%

5. A company with high operating leverage will be affected _____ a company with lower operating
leverage in adverse times.
a) More than
b) Less than
c) As much as
d) Regardless of

6. EBIT of R Ltd. is ₹ 5,00,000. The company has 10%, ₹ 20,00,000 debentures. The equity
capitalization rate i.e., Ke is 16%. Calculate the market value of the firm as per the Net Income
(NI) Approach. Ignore taxation
a) 3875000
b) 3855000
c) 3835000
d) 3825000

7. Major non-time adjusted criteria for capital budget evaluation are _____ and _____.
a) Net present value, Internal rate of return
b) Payback period, Accounting rate of return
c) Internal rate of return, Modified internal rate of return
d) Net present value, Profitability Index

8. Tarun Limited has inventory days of 24.69, payables days of 35.35 and receivables days of 32.75.
What is Saran Limited's cash conversion cycle?
a) +22.09 days
b) +27.29 days
c) +43.41 days
d) +92.79days

9. The order cost per order of an inventory is Rs. 400 with an annual carrying cost of Rs. 10 per
unit. The Economic Order Quantity (EOQ) for an annual demand of 2000 units is:-
a) 350 Units
b) 400 units
c) 450 units
d) 500 units
 10. Why are dividend payments important to shareholders?
a) Because dividends are the only source of income for many shareholders, and so they need the
cash
b) Because the market image of the company depends upon dividend amount declared and paid
c) Because at the annual general meeting shareholders may not approve if dividends are not
declared
d) Because distribution of dividend signifies earning of profits and the financial well-being of the
company

Section B
SHORT ANSWERS (5 Marks each)
[Please answer Any Four questions.]

a) Analyze the relationship of financial management with other functional areas of a firm.
b) Shamita ltd. Issued 12% redeemable preference share capital of Rs.500000, face value each
share is Rs.10. Calculate the cost of capital is shares are issued (1) at par, (2) at 10% premium.
Assuming the shares will be redeemed on 10th year at a premium of 10%. (2.5+2.5)
c) A company is proposing to issue a 5-year debenture of Rs.1000 redeemable in equal instalments
at 14% rate of interest per annum. If an investor has a minimum required rate of return of 12%,
calculate the debentures present value for him. What should he be willing to pay now to
purchase the debenture?
d) Define Operating, Financial and combined leverage. Differentiate between operating and
financial leverage. (2+3)
e) Elaborate the steps under capital rationing process.
f) Explain receivables management. What are the costs associated with maintaining receivables?
(1+4)

Section C
LONG ANSWERS (10 Marks each)

[Please answer Any Three questions]

1. Differentiate between over and under capitalization? What remedies should be employed by
organization to avoid both under and over capitalization? (5+5)
2. Use NPV method to compare and analyze which proposal is better to accept; Assume
discounting rate is 10%.
 Project X
Cash Outflow Rs.20000
Cash Inflows Year 1 Year2 Year 3
Rs.300000 Rs.20000 Rs.10000
Project Y
Cash Outflow Rs.20000
Cash Inflow Rs.10000 Rs.20000 Rs.30000

PV Factor@ 10% 0.909 0.826 0.751

3. Write detailed notes on (5+5)

1. Walter model of Dividend relevance
2. Gordon model of Dividend relevance
4. Prepare cash budget for a company for April, May and June 2021, with the help of information
given below-
Month Sales Purchases Wages Expenses
January 80000 45000 20000 5000
February 80000 40000 18000 6000
March 75000 42000 22000 6000
April 90000 50000 24000 6000
May 85000 45000 20000 6000
June 80000 35000 18000 5000
You are further informed that:
1. 10% of purchases and 20% of sales are for cash
2. Average collection period of the company is half a month and credit purchases are paid off
regularly after one month
3. Wages are paid half monthly and rent of Rs.500, excluded in expense, is paid monthly
4. Cash and bank balance on April 01, was Rs.15000 and the company aims to keep this figure
at the end of every month. The excess cash is placed in fixed deposits.