LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.A., DEGREE EXAMINATION – ECONOMICS

SIXTH SEMESTER – NOVEMBER 2012

EC 6602 – FINANCIAL MANAGEMENT

 

 

 

Date : 5/11/2012               Dept. No.                                        Max. : 100 Marks

Time : 1.00 – 4.00

 

PART-A

 

Answer any FIVE questions in about 75 words each:                                                       (5×4=20)

 

1. Discuss the relationship of financial management to Economics.
2. What are the different ways of classifying financial markets?
3. What are the principal tasks of SEBI?
4. Determine the present value of the following cash stream if the discount rate is 14 %.

Year	1	2	3	4	5
Cash flow	5000	6000	8000	9000	8000

5. A Rs 100 par value bond bearing a coupon rate of 12% will mature after 5 years. What

is the value of the bond, if the discount rate is 15%?

6. Explain Implicit and Explicit cost.
7. If you deposit Rs 1000 annually in a bank for 5 years and your deposits earn a

compound interest rate of 10 percent. What will be the value of this series of deposit at

the end of 5 years?

 

PART-B

 

Answer any FOUR questions in about 300 words each:                                                   (4×10=40)

 

8. Explain the various forms of business organization.
9. “Financial management is in many ways an integral part of the jobs of the managers”-

Comment.

10. Discuss the functions of a financial system.
11. (a) The project X cost Rs 1,00,000 and its expected cash flows are as follows:

Year	1	2	3	4	5
cash flow	20000	30000	40000	50000	30000

The cost of capital is12% calculate the net present value

(b) A company has 15% perpetual debt of Rs 100000. The tax rate is 50%. Determine

the cost of capital (before tax as well as after tax) assuming that the debt is issued at (i)

par, (ii) 10% discount, and (iii) 10% premium.

12. Explain the equilibrium in financial markets.
13. The market price of a Rs1000 par value bond carrying a coupon rate of 14percent and

maturing after 5 years is Rs 1050. What is the YTM on this bond? What is the

approximate YTM? What will be realized YTM if the reinvestment rate is 12 percent

 

14. A company issues 14% irredeemable preference shares of the face value of Rs 100

each. Flotation costs are estimated as 5% of the expected sale price .What is the

cost of preference capital if preference shares are issued at (i) par value (10%)

premium and     (iii) 5% discount?

PART-C

 

Answer any TWO questions in about 900 words each:                                                     (2×20=40)

 

15. Explain the nature and scope of Business finance.
16. Discuss the measurement of Cost of Capital
17. A company has on its books the following information:

Type of capital	Book value	Market value	Specific costs
Debt	300000	270000	8%
Preference capital	200000	230000	14%
Equity capital	500000	600000	17%
Retained Earnings		150000	17%
Total	1000000	1250000

 

Determine the weighted average cost of capital using (a) Book value weights (b) Market value weights.

 

18. a) Discuss the various components of financial system.

 

1. b) Explain the indicators of financial development.

 

 

 

 

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