CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
JAN2016
ASSESSMENT_CODE BB0011_JAN2016
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
31343
QUESTION_TEXT
Briefly explain the important sources of Working capital.
Ans:
Long Term Financing:
a) Loan from Financial Institutions: The option is normally ruled out, because
financial institutions do not provide finance for working capital requirements.
Further this facility is not available to all companies.
b) Floating of Debentures: The probability of a successful floatation of
debentures seems to be rather meager.
SCHEME OF
EVALUATION
c) Accepting Public Deposits: The issue of tapping public deposits is directly
related to the image of the company seeking to invite public deposits. But, the
problem of low profitability in many industries is very common.
d) Issue of Shares: With a view to financing additional working capital needs,
issue of equity shares could be considered. Low profit margin and the lack of
knowledge about company make the success of a capital issue very dim.
e) Raising funds by Internal Financing: Raising funds from Operational profits
poses problems for many companies, because prices of their end-products are
controlled and do not permit companies to earn profits sufficient to pay
reasonable dividend and retain profits to cover margin money requirements to
finance additional working capital.
Short-term Financing:
Short-term Financing refers to those sources of short-term credit that the
firm must arrange in advance. These sources include short-term bank
loans, commercial papers and factoring receivables.
Spontaneous Financing:
Spontaneous Financing refers to the automatic sources of short-term funds.
The major sources of such financing are trade credit (creditors & bills payable)
and outstanding expenses. Spontaneous sources of finance are cost free.
Therefore, a firm would like to finance its current assts from spontaneous
sources as much as possible.
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73865
QUESTION_TEXT
Comment on profit maximization v/s wealth maximization.
SCHEME OF
EVALUATION
Both profit and wealth maximization are the basic objectives of
financial management. Trading profit maximization was the basic
objective but now greater emphasis is laid on wealth maximization.
1. Profit maximization.
(3 marks)
2. Merits of profit maximization.
(2 marks)
3. Drawbacks of profit maximization.
(2 marks)
4. Wealth maximization.
(3 marks)
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73866
QUESTION_TEXT
Explain the technique of valuation of lands with examples.
1. Present value of a redeemable bond.
(explanation and example 6 marks)
SCHEME OF EVALUATION
2. Present value of an irredeemable bond.
(explanation and example 4 marks)
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73868
QUESTION_TEXT
Discuss the external factors determining the working capital.
Factors: one mark each
1. Nature of business
2. Size of business
3. Firm’s production policy
4. Firm’s credit policy
5. Access to money market
SCHEME OF EVALUATION
6. Growth and expansion of business
7. Profit margin and dividend policy
8. Depreciation policy
9. Operating efficiency of firm
10. Co- ordination of activities in firm
(1 mark each)
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73870
QUESTION_TEXT
State the advance measures that can be taken by the Target
Company to fight the takeover threat.
SCHEME OF
EVALUATION
(1 mark each)
i. Joint holding or joint voting agreements
ii. Interlocking shareholders or cross shareholdings
iii. Issue of block of shares to friends and associates
iv. Defensive merger
v. Issue of preference shares
vi. High leverages
vii. Dissemination of information to the shareholders
viii. Maintaining a fraction of share capital uncalled
ix. Formation of cartel ( association)
x. Consolidation of holdings through creeping acquisitions
xi. Buy back of shares
xii. Employees Stock Option( ESOP) plan
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
103631
QUESTION_TEXT
What are the important financial tools used by financial managers in
performance of his job?
1.
2.
SCHEME OF
EVALUATION
3.
4.
5.
Cost of Capital: Cost of capital helps the finance manager in deciding about the
sources from which the funds are to be raised. In case of different sources of
finance viz., shares, debentures, loans from financial institutions, banks, deposits,
etc., the financial manager takes into account the cost of capital and opts for that
source which is the cheapest to him.
Funds Flow Analysis and Cash Flow Analysis: This technique helps the finance
manager in determining whether the funds have been procured from the best
available source and they have been utilized in the best possible way. Projected
fund flow analysis and cash flow analysis helps in estimating or arranging for the
future working capital or cash needs.
Capital Budgeting Appraisal: Methods such as payback period, average rate of
return, internal rate of return, net present value, profitability index, etc., helps the
finance manager in selecting the best among alternative capital investment
proposals.
Trading on Equity: Trading on equity is another tool which helps the finance
manager in incresing the return to equity shareholders.
Ratio Analysis: Ratio analysis is another method for evaluating different aspects of
the firm. Different ratio’s serves different purposes to finance manager.
(2 × 5 = 10 marks)