Financial management

What is Capital Budgeting? Explain the phases of Capital Budgeting process.

Or

A company considering two mutually exclusive projects both require an initial investment of Rs.
50,000 each and have a life of five years. The cost of capital of the company is 10% and tax rate is
50%. The depreciation is charge on straight line methods. The estimated net cash inflows (before
depreciation and tax) of the two projects are as follows:

Which project should be accepted as per NPV and IRR methods?

2021

a) Describe the meaning, definitions, nature and characteristics of financial management.

Or

b) A firm is considering two projects each with an initial investment of Rs.20,000 and a life of 4 years.
The following is the list of estimated cash inflows after taxes and depreciation.

Determine Accounting Rate of Return on i) Average Capital ii) Original Capital Employed

2021

a) Define capital budgeting decision and write the investment evaluation criterion.
 A company is considering expanding its investments budget to include projects A and B, both the
firms required the Initial investment of Rs. 1,00,000. The expected Cash Flows After Tax are as

follows:
You are required to calculate the NPV at a 10% discount factor and PBP, suggest to selecting the
project.

2019

a) What is capital budgeting and explain its techniques of capital budgeting?

) A Company is considering 2 mutual exclusive projects. Both require an initial investment of Rs.
50,000/- each and have a life of 5 years .The cost of capital of the company is 10% and tax rates is
50% . The deprecation is charged on straight line method . The estimated net cash inflows (Before
depreciation and tax ) of the 2 projects are as follows

Which project should be accepted as per NPV?

2. a) Explain the difference between profit and wealth Maximization. OR

b) A Company has to select one of the following two project

Using the IRR method, suggest which project is preferable?

UNIT – II

Explain the three approaches for designing and determining a Firm’s Capital Structure, with suitable
example illustrations for each approach.

OR

The sales of Hasini Ltd. are 20000 units at the rate of Rs. 20 each. The variable cost per unit is Rs. 8
per unit. The fixed expenses are Rs. 50000. The company employs 10% debentures of Rs. 500000 in
its capital structure.

You are required to estimate a) Degree of operating leverage b) Degree of Financial leverage c)
Degree of combined leverage

2021

a) The initial capacity of factory is 800 units. Actual capacity used is 500 units. Selling price per unit is
Rs.10. variable cost per unit Rs.6. Calculate operating leverage in each of the following situations:
When fixed costs are Rs.500 When fixed costs are Rs.1,000 When fixed costs are Rs.1,500

Narrate various types and measurement of Cost of Capital?

a) Critically evaluate the MM capital structure theory.

or

Zindal company Ltd. has a capital Structure exclusively of ordinary shares amounting to Rs. 5,00,000.
The company desires to raise additional funds of Rs. 5,00,000 for financing its expansion programme.
The company has two alternative financial plans: i) It can rise by entire amount in the form of equity
capital. ii) It can raise 50% as equity capital and 50% as 5% Debentures. The existing EBIT is Rs.
60,000; the tax rate is 50%; outstanding ordinary shares number 5000 and the market price per
share is Rs. 100. Under all the two alternatives, which financing plan should the firm select?

) What do you understand by simple capital structure and complex capital structure. Explain the net
operating income theory of capital structure planning ?

(OR)
X Ltd. is expecting an annual EBIT of Rs.1,00,000/- the company has Rs.4,00,000/- in 10% debenture.
The equity capitalization rate is 12% . The company decides to raise Rs.1,00,000/- by issue of 10%
debentures and use the proceeds there of to redeem equity shares you are required to calculate the
total value of the firm and also the overall cost of capital?

2020

a) Critically examine the net income and net operating income approaches to capital structure. What
is the traditional view on this question?

From the following select data determine the value of the firms P and Q belonging to the
homogenous Risk class under i) the NI approach ii) the NOI approach

UNIT-III

What is Modigliani - Miller irrelevance hypothesis to dividend policy? Critically evaluate its
assumptions. 10 M

OR

7. Explain the factors determining the dividend policy of a company and basic model of valuation of
the firm. 10 M

) What are the factors that determining the dividend policy of the organizations?

OR

b) X ltd had 50,000 equity shares of Rs.10 each outstanding on January1st. The shares are currently
being quoted at par in the market. The company now intends to pay a dividend of Rs.2 per share
whose appropriate capitalization rate is 15%. Using M.M.Model and assuming no taxes, ascertain
the price of share as it is likely to prevail at the end of the year, When dividend is declared When
dividend is not declared. Also find out the number of new equity shares that the company must
issue to meet its investment needs of Rs.2,00,000 assuming a net income of Rs.1,10,000 and also
assuming that the dividend is paid.

) Explain the dividend policy importance and write the types of Dividend policies.

(OR)
 b) The earnings per share of XYZ Ltd., is Rs. 10 and rate of capitalization applicable to it is 10%. The
company has the option of adopting a pay-out of 20% or 40% or 80%. By using Walter’s formula
compute the market value of the company’s share if the rate of return is i) 8 % ii) 10% iii) 12 %

4. a) Discuss Walters model and Gorden model of share valuation Visa–vis dividend policy? (OR) b) A
chemical company belongs to a Risk class for which the appropriate P/E ratio is10%. It currently has
50,000 equity shares outstanding selling at Rs. 100/- each the firm is contemplating the declaration
of dividend of Rs. 8/- per share at the end of current fiscal year which has just started. Given the
assumptions of Modigliani and Miller, answer the following questions: I) What will be the price of
the share at the end of the year i) If dividend is not declared. ii) If it is declared. II) Assuming that the
company pays the dividend has a net income (Y) of Rs.5,00,000/- and makes new investment of
Rs.10,00,000 /-during the period, how many new shares must be issued

) What factors determine the dividend policy of a company do you believe it will be justifiable for a
company to obtain a short term loan from a bank to allow payment of a dividend?

UNIT – IV

What is Working Capital Management? What are the sources of Working Capital?

From the following information you are required to estimate the net working capital.
during the 52 weeks of the year. All sales are on credit basis. State any other assumption that you
might have made while computing.

a) Summarize the importance of Current Assets Management in Working Capital Planning.

OR

b) Explain the concept and the process of operating cycle approach in acquiring working capital?

) Write the concept of Operating cycle. Why it is important in working Capital Management? Explain.
(OR) b) From the following, prepare a statement showing the working capital requirements for a
level of activity at 1,56,000 units of production. Particulars Per unit cost in Rs. Raw Materials 90
Direct labour 40 Over heads 75 _____________ Total cost 205 Profit 60 _____________ Selling price
per unit 265 _____________ Additional information: i) Raw materials are in stock, on average one
month. ii) Materials are in process on average 2 weeks. iii) Finished goods are in stock, on average
one month. iv) Credit allowed by suppliers one month. v) Time lag in payment from debtors, 2
months. vi) Average time-lag in payment of wages 2 weeks. vii) Average time-lag in payment of
overheads is one month. 25% of the production is sold against cash; cash in hand and at Bank is
expected to be Rs. 60,000

a) Define working capital. Distinguish between permanent and temporary working capital? (OR)
b) Musa limited has budget its sales to be Rs.7,00,000/- p.a. its costs as a percentage of sales are as
following

Raw materials are carried in stock for 2 weeks and finished goods are held in stock before sales are 3
weeks, production takes 4 weeks credit from suppliers and given 8 weeks credit to its customers. If
both overheads and production are incurred evenly through the years, what is Musa Limited total
working capital requirement.

UNIT – V

Why should inventory to be held? Why is inventory management important? Explain the objectives
of inventory management. 10 M

OR

11. Discuss marketable security alternatives. 10 M

a) Demonstrate the factors influencing the nature of receivables management.

OR

b) Write the meaning and objectives of cash management.

Write the characteristics of Marketable securities, how do you alternate? Explain

. (OR

) From the following information, calculate average collection period:

Total sales Rs. 1,00,000

Cash sales Rs. 20,000

Sales returns Rs. 7,000

Debtors at the end of the year Rs. 11,000

Bills receivables Rs. 4,000 Creditors Rs. 15,000

Net profit @ 30% Debtors at the beginning of the year 15000

) What are the benefits of the credit sales maintaining accounting receivables? OR b) Prepare a cash
budget for the months of may, june and July 1998 on the basis of the following information. ) What
are the benefits of the credit sales maintaining accounting receivables? OR b) Prepare a cash budget
for the months of may, june and July 1998 on the basis of the following information.