# Loyola College B.Com April 2009 Financial Management (2) Question Paper PDF Download

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.Com. DEGREE EXAMINATION – COMMERCE

 KP 32

SIXTH SEMESTER – April 2009

# CO 6604 – FINANCIAL MANAGEMENT

Date & Time: 18/04/2009 / 9:00 – 12:00       Dept. No.                                                       Max. : 100 Marks

SECTION-A(10*2=20 marks)

1. Give the meaning of finance function?

1. What is optimum capital structure?

1. Explain the concept of cost of capital

1. What is cost of Retained earnings?

1. What is operating cycle of business?

1. If you deposit Rs.1,000 to-day in a bank which pays 10% interest compounded

annually,how much will the deposit grow to after 8 years?

1. A project costs Rs.1,00,000 and yields an annual cash inflow of Rs.20,000 for 7

years.Calculate pay-back period?

1. Calculate operating leverage from the following details

Sales   – 2,00,000 units @Rs.8 per unit

Variable costs-Rs.2 per unit

Fixed cost-Rs.30,000

1. Initial outlay-Rs.50,000;Life of asset-5 years;Estimated cash flow Rs.12,500.Calculate

internal rate of return.

1. Estimated cost of goods sold Rs.600 lakhs;Expected operating cycle in 90

days,desired cash balance Rs.1 lakh. What is expected working capital

requirement?(Assume 360 days in a year)

SECTION-B(5*8=40 marks)

1. A company wishes to determine the optimal capital structure,from the following

selected information supplied to you,determine the optimal capital structure of the

company.

Structure     Dept.amt       Equity.amt         After tax cost of dept.    Ke

Rs.                                               %                          %

1. 4,00,000 1,00,000                  9                             10
2. 2,50,000 2,50,000                  6                             11
3. 1,00,000         4,00,000                  5                             14

1. A finance company advertises that it may pay a lumpsum of Rs.8000 at the end of 6

years to the investors who deposits anually Rs.1000 for 6 years.What interest rate is

implicit in this offer?

1. A company’s current earnings areRs.1,25,000 to be distributed among 8000

shares.The market  price of each share is Rs.150 and the growth rate of dividend is

estimated at 9%.compute the cost of equity capital.

1. From the following information ,you are required to find out the extent of operating

leverage in the  year  2008

EBIT(2007) Rs.30,000;sales(2007) 1,50,000 units

EBIT(2008) Rs.35,000;sales(2008) 1,80,000 units

1. Project X initially costs Rs.2,50,000.It generates the following cash flows:

Year                    cash inflows        Present value of

Rs                           Re.1 @10%

1                             90,000                         0.909

2                             80,000                         0.826

3                             70,000                         0.751

4                             60,000                         0.683

5                             50,000                         0.621

Taking cut off rate as 10%  Suggest whether the project should be accepted or not.

1. Explain the meaning of financial management. What are its objectives?

1. Explain the factors which should be taken into account while making a capital

investment decision.

1. Describe in brief the various factors which are taken into account in determining the

working capital needs of a firm.

SECTION-C(2×20=40 MARKS)

1. Discuss the various factors influencing the capital structure of a corporation

1. A choice is to be made between two competing projects which require an equal

investment of Rs.50,000 and are expected to generate net cash flows as under:

Year                      Project I              Project II

Rs.                      Rs.

1                            25,000               10,000

2                            15,000               12,000

3                            10,000               18,000

4                               NIL                  25,000

5                            12,000               8,000

6                            6,000                 4,000

The cost of capital of the company is 10%. The following are the present value @10%

per annum:

Year                          PV factors @ 10%p.a.

1                                 0.909

2                                 0.826

3                                 0.751

4                                 0.683

5                                 0.621

6                                 0.564

Which project proposal should be chosen and why?

Evaluate the projects proposals under;

(a) pay-back period and

(b)Discounted cash flow methods.

1. A co require Rs 20,00,000/- for a new project. It has identified 3 financing options

for the same.

• Issue 20,000/ equity shares of Rs. 100/ each.
• Issue 10,000/ equity share of Rs. 100/ each and raise a bank loan @ 15% per annum for the balance
• Issue 15,000/ equity share of Rs. 100/ each and Rs. 5,00,000/ 14% Debentures.

The company expects to earn a profit of Rs. 5,00,000/ before interest and tax. If the tax rate is 50% which financing option would you recommend..

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