14N/176
CLASS: B.Com.
St. JOSEPH’S COLLEGE (AUTONOMOUS) TIRUCHIRAPPALLI – 620 002
SEMESTER EXAMINATIONS – NOVEMBER 2014
TIME: 3 Hrs.
MAXIMUM MARKS: 100
SEM
SET
PAPER CODE
TITLE OF THE PAPER
V
2012
11UCO530302A
FINANCIAL MANAGEMENT
SECTION – A
Answer all the questions:
Choose the correct answer:
20 x 1 = 20
1. Financial Management is mainly concerned with
a) Arrangement of funds
b) All the aspects of acquiring and utilizing means
c) Efficient management of every business
d) None of these
2. Which one of the following is the component of cost of capital
a) Explicit cost
b) Return at zero risk level
c) Specific cost
d) None of these
3. According to NOI approach, value of the firm is
a) V = EBIT/K
b) V = S + B
c) Vi = Vu + Bt
d) None of these
4. MM Model of Dividend policy assumes that
a) There are no corporate taxes b) Capital markets are perfect
c) The firm has perpetual life
d) None of these
5. Which one of the following is the determinant of fixed capital
a) Sources of funds and their cost
b) Reputation of the firm
c) Size of the Business
d) None of these
Fill in the blanks:
6.
Financial Management is mainly concerned with _______ of
funds.
7.
8.
9.
MM approach assumes that _______ markets are perfect.
_______ refers to make-up of a firm’s capitalization.
The most appropriate dividend policy is payment of _______.
10. _______ is the funds required for acquisition of assets that are to
be used over and over again for a long period.
State True or False:
11. Efficient management of every business is closely linked with
efficient management of its finances.
12. For financial decision-making, relevant costs are the historical
cost.
13. Trading on Equity is resorted to with a view to decrease earnings
per equity share.
14. Shareholders generally prefer ‘Capital gains’ to ‘Current
dividends’.
15. Capital and capitalization are synonymous terms.
Match the following:
16. Liquidity
- a) Equity & Preference shares
17. MM Approach
- b) Dividend policy
18. Pattern of capital structure
- c) Adequate cash to pay bills
19. Nature of Earnings
20. Depression
- d) Low economic activity
- e) Constant cost of capital
SECTION – B
Answer any FOUR questions:
21. Define Financial Management. Explain its objectives.
4 x 20 = 80
22. International Foods Limited has the following capital structure.
Particulars
Book Value Market Value
`
`
Equity capital (25,000 shares of
2,50,000
4,50,000
` 10 each at par)
Preference capital (500 shares
of ` 100 each at par carrying
50,000
45,000
13% dividend)
1,50,000
--Reserve and surplus
Debentures (1,500 debentures
of ` 100 each at par carrying
1,50,000
1,45,000
14% interest)
6,00,000
6,40,000
The expected dividend per share is ` 1.40 and the dividend
per share is expected to grow at a rate of 8% forever,
preference shares are redeemable after 5 years at par whereas
debentures are redeemable after 5 years at par. The tax rate for
the company is 50%.
Compute weighted average cost of capital for existing
capital structure using market value as weights.
23. Two firms X and Y are identical in all respects including risk
factors except for debt/equity. X has issued 10% debentures of
` 18 lakhs while Y has issued only equity. Both the firms earn
only 20% before interest and taxes on their total assets of
` 30 lakhs.
Assuming a tax rate of 50% and capitalization rate of 15%
for an all equity firm, compute the value of companies X and
Y using net income approach.
24. D company currently has 10 lakh equity shares outstanding.
Current market price per share is ` 150. The net income
for the current year is ` 2 crore and investment budget is ` 4
crore. Cost of equity is 12%. The company is contemplating
declaration of dividend @ ` 8 per share.
Approach.
Assuming MM
i)
Calculate the market price per share if dividend is
declared, and if it is not declared.
ii) How many new equity shares are to be issued under both
options?
iii) Show that the total market value of shares remains
unaffected by the dividend decision.
25. What is meant by Financial Planning and explain its
significance.
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