UG 5” Semester Examination- 2022 B.Com. (Honours) : Commerce Course Type : Core Course Code : BCOMHCS502 Course Name: Fundamentals of Financial Management Full Marks: 40 Time: 2 Hours The figures in the right-hand margin indicate full marks. Candidates are required to give the answers in their own words as far as practicable. Illustrate the answers wherever necessary. 1, Answer any five questions : Sx1=5 (a) Define Financial Management’ () What is meant by Implicit Cost of Capital?” (©) What do you mean by the term ‘Dividend’? (d) Which theory of dividend is also known as irrelevance theory and why? (©) “Payback Period of a capital Project is 7.5 years" - Explain the meaning of this ‘statement. + (f) What is the main reason for using Profitability Index for evaluating capital project? (g) What do you mean by Cash Cycle?. (h) Who developed the EOQ Model of Cash Management? 2. Answer any five questions pasmav (2) Write down any two objectives of Financial Management. (b) What do you mean by Perpetual Debt? Write down the formula for calculating Cost of \ Perpetual Debt. j NOL (c) What do you mean by cash dividend and stock dividend? (d) Write down the formula for calculating Weighted / Average Cost of Capital. (e) What do you mean by Capital Rationing? : () A company has three acceptable capital projects viz. Project-A with IRR-10%, Project- B with IRR-8% and Project2C with IRR-12%. ‘As a‘finance manager if you have to accept only one project then which project will you accept and why? (g) What do you mean by Upper Control Limit (UCL) and Lower Control Limit (LCL) as prescribed in the Miller and Orr Model of Cash Management? (h) What do you mean by Cash Budget? , 3. Answer any three questions : 3x5=15 (a) Write down the basic objectives of Financial Management. “(b) Explain any five important factors that are generally considered in determining the dividend policy of a company. (©) X-Co-Ltd has 12% Perpetual Debt of Rs.10,00,000. Corporate tax rate is 30%. You are required to ascertain the cost of debt under the following three situations; o i) When the debt is issued at par. ii) When the debt is issued at a premium of 10%. iii) When the debt is issued at a discount of 10%. (14242)(a) From the following information relating to a capital project of X-Ltd calculate ARR. Initial Cost of the project is Rs.3,50,000 with estimated life of 5 years and salvage value of Rs 50,000 at the end. The annual profits before charging depreciation and tax in 5 years are as follows. 1* Year 2 Year 3% Year 4" Year 5™ Year 80,000, 70,000 90,000 1,00,000 1,20,000 X-Ltd charges depreciation on straight line method. Rate of tax applicable to the company is 30%. >. You are also required to give your decision regarding the acceptability of the project if the minimum acceptable ARR is set at 10%. 4+) (e) Write down the reasons for Cash Surplus and effect of Cash Deficit in an organisation. 1x10=10 4. Answer any one questions : (a) (i) Write down basic assumptions of .EOQ Model of Cash Management. (ii) Y-Co-Ltd requires Rs.5,00,000 cash for meeting its transaction needs over the next year. This amount is available with Y-Co-Ltd. in the form of marketable securities. It can earn on its marketable securities @ 18% p.a. The conversion of marketable securities in to cash requires a fixed cost of Rs.500 per transaction. Find out the optimum cash conversion size. (4+6) (b) (i) Write down the main difference between Simple Payback Period and Discounted Payback Period. (ii) X. Ltd is planning to purchase a machine which will require an initial investment of Rs.2,60,000 and generate the following net cash inflows at the end of different years: Years Net Cash Inflows Year-1 Rs.90,000 Year-2 Rs.70,000 Year-3 Rs.80,000 Year-4 Rs.60,000 Year-5 Rs. 50,000 Compute Simple Payback Period and Discounted Payback Period of the project if the rate of discount is 10%. Present Value of Re.1/- at 10% Year 1 2 3 4 s PV. 0.9091 0.8265 0.7513 0.6830 0.6209 [2+G+5)] (c) Critically evaluate the Modigliani and Miller (MM) Theory of Dividend. we