SRM VALLIAMMAI ENGINEERING COLLEGE

(An Autonomous Institution)

SRM Nagar, Kattankulathur – 603 203

DEPARTMENT OF MANAGEMENT STUDIES

QUESTION BANK

II SEMESTER

1915203 – FINANCIAL MANAGEMENT

Regulation – 2019

Academic Year 2019 - 2020

Prepared by

Dr.L.Sujatha – Asst. Professor(Sel.G)

Ms.A.UmaDevi – Asst. Professor(OG)

 SRM VALLIAMMAI ENGINEERING COLLEGE
(An Autonomous Institution)
SRM Nagar Kattankulathur – 603 203.
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
SUBJECT : 1915203 – FINANCIAL MANAGEMENT
SEM / YEAR : II SEMESTER / I YEAR

UNIT – I –FOUNDATIONS OF FINANCE

SYLLABUS:Introduction to finance- Financial Management – Nature, scope and functions of
Finance, organization of financial functions, objectives of Financial management, Major financial
decisions – valuation of shares and bonds – Concept of risk and return – single asset and of a
portfolio – Risk Analytics.
PART- A

S.NO QUESTIONS BT LEVEL COMPETENCE

1 Define Financial Management. Level 1 Remembering

Differentiate Systematic Risk and Unsystematic Risk.
2 Level 2 Understanding
Identify the two aspects of financial management.
3 Level 3 Applying

A Rs.10, 000 per value bond bearing a coupon rate of 12% will
4 mature after 5 years. Compute the value of bond, if the discount Level 4 Analysing
rate is 15%?
5 Discuss the objectives and goals of financial management. Level 5 Evaluating
Interpret any four functions of finance manager in an
6 Level 6 Creating
organisation.
7 Explain Financing decision. Level 1 Remembering
Compare modern view of financial management with its traditional
8 Level 2 Understanding
view.
How is the term finance more comprehensive than money
9 Level 3 Applying
management?
Return on market portfolio has a standard deviation of 20%
10 and covariance between the returns on the market portfolio and Level 4 Analysing
that of security A is 800. What is the expected return?
How would you have a fresh look at the finance function in
11 Level 5 Evaluating
business?
12 Interpret modern view on financial management. Level 6 Creating

13 Define Risk analytics. Level 1 Remembering

14 Can you explain Rule 72 and Rule 69? Level 2 Understanding

15 How is bond different from equity? Level 3 Applying

16 What inference can you make from real and financial assets? Level 4 Analysing

17 What is Risk Premium? Level 1 Remembering

18 What is the main idea of Financial Risk? Level 2 Understanding

19 Define yield to call. Level 1 Remembering

20 What is effective rate of interest? Level 1 Remembering

PART- B
BT
S.NO QUESTIONS COMPETENCE
LEVEL
i) State and explain the functions of finance. Why is wealth
maximization considered as the prime objective of financial (7)
management over profit maximization?
1 ii) The market price of Rs.1,000 par value bond carrying a coupon Level 1 Remembering
rate of 14 percent and maturing after 5 years in Rs.1050. What is
(6)
the Yield To Maturity (YTM) on this bond? What is the approximate
YTM?
2 Discuss the features of shares and bonds? Level 2 Understanding
i) What is risk? Discuss the methods of Calculating risk for single
(6)
3 assets and of a portfolio? Level 3 Applying
ii) What approach would you use to value bonds and shares? (7)
Can you list the types of risk & classify Non‐diversifiable risk”&”
4 (13) Level 4 Analysing
Security market line”. How does it differ from capital market line?
i) How would you evaluate the general principles of valuation of
(7)
shares?
5 Level 5 Evaluating
ii) Can you assess the concept and significance of risk and return of
(6)
a portfolio and single asset?
Evaluate “The goal of profit maximization does not provide an
6 Level 6 Creating
operationally useful criterion”‐ Explain

i) Define the concept of risk return trade off with diagram. (7)
7 ii) A company’s current price of share is Rs.60 and dividend per Level 1 Remembering
share is Rs.4. If its capitalization rate is 12 per cent, what is the (6)
dividend growth rate?
What is return? Write the various types of total return.
8 Whether unrealised capital gain or loss is included in the Level 2 Understanding
calculations of returns?
i) Explain the functions of finance manager of a firm. (7)
9 ii) Can you explain the features & scope of the modern approaches Level 3 Applying
(6)
to financial management?
i) What inference can you make from the three major decisions in
financial management? (7)
10 Level 4 Analysing
ii) What ideas justify the scope of financial management in any
organization? (6)
A bond has 3 years remaining until maturity. It has a par value of
Rs.1, 000. The coupon interest rate on the bond is 10%. How
11 Remembering
would you compute the yield to maturity at current market price of
Level 1
Rs.1, 100 assuming interest is paid annually?
i) How would you explain the various concepts of value? State
(7)
the formula for bond valuation.
12 Level 2 Understanding
ii) Can you explain the relationship between coupon rate, required
(6)
yield and price?
 Analyse the value of a share for which the current dividend is Rs.3
and the annual growth rate is 5%. Assume a required rate of return
13 Level 4 Analysing
of 10%. What will be the value of the share if the annual growth is
8%?
ABC company currently paying a dividend of Rs.2 per share. The
dividend is expected to grow at a 15% annual rate for the three
years, then at 10%rate of the next three years, after which it is
expected to grow at a 5%rateforever.

(i) What is the present value of the share if the

capitalization rate is9%?
14 (ii) If the share is held for 3 years, what shall be its Level 1 Remembering
present value?
Year 1 2 3 4 5 6
PVF 0.917 0.842 0.772 0.708 0.650 0.596
@
9%

PART - C
S.NO QUESTIONS
Consider two securities X & Y. The return of the securities is given below:

Probability Return X Return Y

0.5 4 0
1 0.4 2 3
0.1 0 3

The investor has decided to invest 1/3rd of investment in X and 2/3rd in Y. Find out (i) Portfolio
return (ii) Co Variance (iii) Portfolio risk (iv) Correlation Coefficient.

There are 3 securities X, Y, and Z. The returns are given as follows:‐ Select the securities
based on risk and return. Calculate average returns, variance and standard deviation.
2 Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security z -20 -10 -5 10 30

A Company is currently paying a dividend of Rs.2 per share. The dividend is expected to grow
at a 15% annual rate for three years then at 10% for next three years, after it is expected to
3 grow at a 5% rate forever. (a) What is the present value of the share if the
capitalization rate is 9%? (b) If the share is held for three years, what shall be its present value?

4 Critically examine how the finance function is typically organized in a Large Organisation.
 UNIT – II – INVESTMENT DECISIONS
SYLLABUS:Capital Budgeting: Principles and techniques - Nature of capital budgeting- Identifying
relevant cash flows - Evaluation Techniques: Payback, Discounted Payback, Accounting rate of return,
Net Present Value, Internal Rate of Return, Profitability Index - Comparison of DCF techniques
Concept and measurement of cost of capital - Specific cost and overall cost of capital.
PART- A
BT
S.NO QUESTIONS COMPETENCE
LEVEL
1 Define ‘pay back period’ method. Level 1 Remembering
Compare operating risk and financial risk?
2 Level 2 Understanding
Identify any two important advantages of payback period
3 Level 3 Applying
method.

4 What are the needs of capital Budgeting? Level 4 Analysing

Discuss the significance of IRR.
5 Level 5 Evaluating
Interpret the significance of capital budgeting.
6 Level 6 Creating

7 How would you measure the time value of money in capital budgeting? Level 1 Remembering

8 Explain the concept IRR. Level 2 Understanding

What is meant by Weighted average cost of capital?
9 Level 3 Applying
What are the merits of NPV method?
10 Level 4 Analysing
Define floatation costs in computing the cost of capital?
11 Level 5 Evaluating
Interpret the adjusted NPV with NPV.
12 Level 6 Creating
How would you explain the meaning of Capital Rationing?
13 Level 1 Remembering
Determine the payback period from the following cash flows

14 Year 0 1 2 3 4 5 Level 2 Understanding

CFAT 100000 20000 30000 40000 50000 60000

Suppose the dividend per share of firm is expected to beRe.1 per

share next year and is expected to grow at 6% per year perpetually.
15 Level 3 Applying
Determine the cost of equity capital, assuming the
market price per share is Rs.25.

16 Classify the various costs in computing the cost of capital? Level 4 Analysing

17 Distinguish the two ways of defining benefit cost ratio. Level 1 Remembering

18 Compare NPV & IRR. Level 2 Understanding

19 What are the features of ARR method? Level 1 Remembering

20 Define cost of retained earnings. Level 1 Remembering

 PART- B
BT
S.NO QUESTIONS COMPETENCE
LEVEL
i)Analyze the different techniques of Capital budgeting with (7)
practical examples.
1 Level 1 Remembering
ii) How would you rank capital budgeting proposals for the purpose (6)
of their selection?
i) Can you recall the process of capital budgeting? (4)
2 ii)Capital expenditure decisions are by far the most important (9) Level 2 Understanding
decisions in the field of management – Justify.
i) How is accounting rate of return calculated? Explain its merits (7)
and demerits.
ii)A company is considering two mutually exclusive projects both (6)
require an initial cash outlay of Rs.10, 000 each and have a life of
5 years. The company’s required rate of return 10% and pays tax
at 50%. The project will be depreciated on a straight line basis.
The before tax cash flows expected to be generatedby the project
are as follows.
3 Before tax cash flows Level 3 Applying
Year 1 2 3 4 5
Project 4,000 4,000 4000 4000 4000
A
Project 5,000 5,000 2000 5000 5000
B
Calculate for each project i) PBP ii) NPV iii) PI. Which project
should be accepted and why?
i)How would you show your understanding on factors influencing (7)
4 capital budgeting decisions? Level 4 Analysing
ii)Can you assess the role of inflation in capital budgeting? (6)
Machine X has a cost of Rs.75, 000 and net cash flow of (7)
Rs.20000 per year, for six years. A substitute machine Y (6)
would cost Rs.50, 000 and generate net cash flow of
Rs.14000 per year for six years. The required rate of return of
both machines is 11%. Calculate the IRR and NPV for the
machines. Which machine should be accepted and why?
5 Level 5 Evaluating
11% 12% 13% 14% 15% 16% 17% 18%
PVF 4.111 3.998 3.889 3.784 3.685 3.589 3.498
6thyear
(4.231)
i)Explain capital budgeting and discuss in detail the need and (7)
6 Importanceof it. Level 6 Creating
ii)Discuss the different kinds of capital budgeting proposals. (6)
i)Analyse the important techniques used for decision making under (7)
risk and uncertainty in capital budgeting.
7 ii)A project costs Rs.20, 00, 000 and yields annually a profit of (6) Level 1 Remembering
Rs.3, 00,000 after depreciation at 12.5% but before tax at 50%.
Discover payback period.
i)Explain the conditions that should be satisfied for using a firms (6)
overall cost of capital for evaluating new investments.
8 ii)GURU Ltd has paid up equity capital 60000 equity shares of (7) Level 2 Understanding
Rs.10 each the current market price of shares is Rs.24. During
the current year, the company has declared a dividend of Rs.6per
 shares. The company has also previously issued 14% preference
shares of Rs.100 each aggregating Rs.3,00,000 at 5% discount
and 13% debentures of Rs.100 each for Rs.5,00,000. The
corporate tax rate is 40% the growth rate in dividends on equity
shares is expected at 5%. Show the overall cost of capital of the
company.
i)How is cost of equity capital determined under CAPM? Explain? (7)
9 (6) Level 3 Applying
ii)How would you show your understanding of the concept capital
rationing?
Discuss the steps involved in calculating overall cost of capital and
10 also outline the conditions that should be satisfied for using a firm’s Level 4 Analysing
overall cost of capital for evaluating new investments.
i)What is Modigliani-Miller approach to the problem of cost of (7)
capital structure? Under what assumptions do their conclusion hold
good?
11 ii) Suppose the dividend per share of firm is expected to be Rs.1.50 (6) Remembering
per share next year and is expected to grow at 6.5% per year
perpetually. Determine the cost of equity capital, assuming the Level 1
market price per shareisRs.30.
i)What are the steps involved in computing cost of capital? (7)
12 ii)How would you explain the factors influencing overall cost (6) Level 2 Understanding
of capital of the firm?
How would you explain about Specific cost and overall cost of
13 Level 4 Analysing
capital?
The following information has been taken from the balance sheet
of Ram Co. as on 31-12-2016.
Equity share Capital : Rs. 6,00,000
10%Debentures :Rs.6,00,000

15%termloan :Rs.18,00,000
14 Level 1 Remembering
Total Rs.30,00,000

Determine the weighted average cost of capital of the company.

It has been paying dividends at a constant rate of 20% p.a. What
difference will it make if the current price of Rs.100 share is
Rs.200?

PART - C
S.NO QUESTIONS
Capital expenditure decisions are by far the most important decisions in the field of management.
1
Illustrate.

2 Justify – “Superior ranking criterion is profitability index or NPV”.

3 “Debt is the cheapest source of funds”- Comment.

A firm finances all its investment by 40% debt & 60% equity. The estimated required rate of return
on equity is 20% after tax and that of the debt is 8% after tax. Firm is considering an investment
4
proposal costing Rs.40000with an expected return that will last forever. What amount must the
proposal yield per year so that the market price does not change?
 UNIT – III – FINANCING AND DIVIDEND DECISION
SYLLABUS:Leverages - Operating and Financial leverage – measurement of leverages – Degree of
Operating & Financial leverage – Combined leverage. Capital structure – Theories – Net Income
Approach, Net Operating Income Approach, MM Approach - Determinants of Capital structure.
Dividend decision - Importance, Relevance & Irrelevance theories – Walter’s – Model, Gordon’s model
and MM model. – Factors determining dividend policy – Types of dividend policies – forms of dividend -
Issues in Dividend Decisions.
PART- A
BT
S.NO QUESTIONS COMPETENCE
LEVEL
Define stock split and reverse split.
1 Level 1 Remembering
Compare ‘bonus issue’ and ‘share‐split’ on four aspects.
2 Level 2 Understanding
Identify the different forms of Dividend.
3 Level 3 Applying

4 What is Financial Leverage? State its significance. Level 4 Analysing

Discuss the meaning of Dividend policy.
5 Level 5 Evaluating
Can you interpret the existence of Operating leverage in a firm’s
6 Level 6 Creating
Capital Structure?
Define any two bases upon which capital structure is determined.
7 Level 1 Remembering

8 What is meant by debt equity ratio and interest coverage ratio? Level 2 Understanding
How do you calculate operating leverage?
9 Level 3 Applying
How does interest coverage ratio affect the Capital Structure?
10 Level 4 Analysing
Discuss the different forms of capital structure
11 Level 5 Evaluating
Interpret arbitrage pricing in capital structure theory.
12 Level 6 Creating
Define dividend payout ratio? Brief with a simple illustration.
13 Level 1 Remembering

14 Compare the different forms of dividend policy. Level 2 Understanding

15 How would you show your understanding about trading on equity? Level 3 Applying
16 How would you categorize the term leverage? Level 4 Analysing
Define Operating Leverage.
17 Level 1 Remembering

18 Classify NI & NOI approaches. Level 2 Understanding

Define Walter’s & Gordon model of Dividend.
19 Level 1 Remembering
Define composite leverage.
20 Level 1 Remembering
PART- B
BT
S.NO QUESTIONS COMPETENCE
LEVEL
i) How would you explain the impact of financial leverage on (7)
1 earnings per share Level 1 Remembering
ii) Janaki Ltd. issued 12,000 10% debentures of Rs.100 each at (6)
 par. The tax rate is 50%. Find before tax and after tax cost of debt.
i) What is the main idea of Modigliani Miller approach on cost of (7)
capital?
(6)
ii) Show the operating leverage for Maruti Ltd., from the
following information:

2 No. of Units produced : 50,000 Level 2 Understanding

Selling price per unit: Rs.50
Variable cost per unit: Rs.20
Fixed cost per unit at current level of sales is Rs.15. What will be
the new operating leverage, if the variable cost is Rs.30perunit?
3 Explain the different types of Dividend and also its policy. Level 3 Applying
What are the essentials of Gordon’s model? Illustrate with an
4 Level 4 Analysing
example. State the criticism against Gordon’s model.
i)What are the practical considerations in formulating the dividend (7)
5 policy? Level 5 Evaluating
Ii) Elaborate in detail the various forms of dividends. (6)
i) Examine the legal and procedural aspects of dividend according (7)
6 to Company’s Act. Level 6 Creating
ii) Distinguish between operating and financial leverage. (6)
i)What are the different types of Dividend Policy? (6)
7 ii)Define the essentials of Walters Dividend model? Explain (7) Level 1 Remembering
its shortcomings.
i)Can you explain how to measure the degree of operating and (8)
8 financial leverage? Illustrate with an example. Level 2 Understanding
ii)How would you summarize the factors to be considered in (5)
determining capital structure ofacompany?
i)Assume that there are 3 firms A, B, C. (10)

PARTICULARS A B C

K 12% 12% 12%

R 18% 12% 8%
9 Level 3 Applying
Eps(Rs) 10 10 10
Prove that changing dividend will affect the value of the firm
according to Walter model. Use payout ratio 0%, 50%, 100%.
(3)
ii) What is Walter model?
i)List the various factors which influence the capital structure of a (7)
firm of your choice.
(6)
ii)Find out operating, financial and combined leverages from the
given data:
10 Sales 50,000 units at Rs.12 per unit. Variable Level 4 Analysing

cost at Rs.8 per unit.

Fixed cost Rs.90, 000 (including 10% interest on Rs.2, 50,000).

i)Can you recall the factors affecting the dividend policy? (7)
11 (6) Level 1 Remembering
ii)Chetan Ltd. Earns Rs.50 pershare.
 The capitalization rate is 15% and the return on investment is
18%. Under Walter’s Model, Determine

a) The optimum Pay-out

b) The market price of the share at this payout
c) The market price of the share if pay-out is40%.
The market price of the share if pay-out is 80%
A firm has sales of Rs.75, 00,000, variable cost of Rs.42, 00,000
and fixed cost of Rs.6, 00,000. It has a debt of Rs.45,00,000 @
9% and equity of Rs.55,00,000

i) What is the firm’sROI?

12 ii) Does it have favourable financial leverage? Level 2 Understanding
iii) What are the operating, financial and combined
leverages of the firm?
iv) If the sale drops to Rs.50, 00,000, what will be the new
EBIT?
At what level will the EBT of the firm be equal to zero?
Discuss the procedure for determining the weighted average
13 cost of capital. What are the factors affecting weighted average Level 4 Analysing
cost of capital?

Calculate financial and operating leverage under situations when

fixed costs are i) Rs.50000 ii) Rs.10000 and financial
plans 1 and 2 respectively, from the following information
pertaining to the operation and capital structure of ABC Co.
Total assets Rs.30000
14 Level 1 Remembering
Total assets turnover based on sales 2
Variable costs as percentage of sales 60
Capital Structure Financial Plan 1 Financial Plan 2
Equity 30000 10000
10% Debenture 10000 30000

PART - C
S.NO QUESTIONS
The following projections have been given in respect of company X and Y.
Particulars Company X Company Y
Volume of Output and Sales 80000 units 100000 units
Variable Cost per Unit Rs.4 Rs.3
Fixed Cost Rs.240000 Rs.250000
1
Interest burden on debt Rs.120000 Rs.50000
Selling price per unit Rs.10 Rs.8

On the basis of above information calculate (A) OL (B) FL (C) combined leverage
(D) operating BEP (E) financial BEP.
You are required to calculate the overall cost of capital, from the following capital structure of a
2
company.
 1,000 12% preference shares of Rs.100 each issued at par Rs.1,00,000

10,000 Equity shares of Rs.10 each issued at par Rs.1,00,000

5,000 10% debentures of Rs.100 each issued at par Rs.5,00,000

12% term loan Rs.2,00,000

Retained Earnings Rs.1,50,000

The market price of an equity share is Rs.30. The next expected dividend is Rs.3 per share and
the dividend per share is expected to grow at 10%. The preference shares are redeemable after
7 years at par and are currently quoted at Rs.75 per share. The debentures are redeemable at
par after 5 years and are quoted at Rs.90 per debenture. The tax rate applicable to the company
is 40%.
Assume there are two firms, L and U, which are identical in all respects except that firm L has
10 per cent, Rs. 5,00,000 debentures. The earnings before interest and taxes (EBIT) of both
3
the firms are equal that is Rs.1,00,000.The equity-capitalisation rate (ke)of firm L is higher(16
per cent) than that of firm U (12.5 per cent).Also prove MM hypothesis.
(i) Explain the assumptions and implications of Net Income approach (5marks)
(ii) A company’s expected annual net operating income (EBIT) is Rs. 50,000. The
company has Rs. 2, 00,000, 10% debentures. The equity capitalisation rate (k e) of the
company is 12.5 per cent. Find the value of the firm & the overall cost of capital.
4 (5marks)
(iii) Let us suppose that the firm has decided to raise the amount of debenture by Rs.
1,00,000 and use the proceeds to retire the equity shares. The ki and ke would remain
unaffected as per the assumptions of the NI approach. In the new situation, find the value of
the firm. (5 marks)
 UNIT – IV –WORKING CAPITAL MANAGEMENT
SYLLABUS:Principles of working capital: Concepts, Needs, Determinants, issues and estimation of
working capital Accounts Receivables Management and factoring - Cash management – Models -Working
capital finance: Trade credit, Bank finance and Commercial paper.
PART- A
BT
S.NO QUESTIONS COMPETENCE
LEVEL
Define ‘Commercial paper’.
1 Level 1 Remembering
Explain the different types of working capital.
2 Level 2 Understanding
How would you use various methods available for forecasting
3 Level 3 Applying
working capital requirements?
Can you explain the consequences of deposit float?
4 Level 4 Analysing
State the meaning of Working Capital Management.
5 Level 5 Evaluating
Explain the term Trade credit.
6 Level 6 Creating
How would you explain Factoring?
7 Level 1 Remembering
What is operating cycle?
8 Level 2 Understanding
How would you apply the steps in receivables forecasting?
9 Level 3 Applying
Can you specify why Working Capital Management is needed?
10 Level 4 Analysing
What are the factors influencing current assets with the help of
11 Level 5 Evaluating
short as well as long term funds?
What is your opinion about NWC?
12 Level 6 Creating
How would you explain credit evaluation?
13 Level 1 Remembering

14 Explain aging schedule. Level 2 Understanding

How would you draw an operating cycle of working capital for
15 Level 3 Applying
a manufacturing company?
Can you give a brief note on Treasury Bills?
16 Level 4 Analysing
Define Cash Management.
17 Level 1 Remembering
What do you mean by operating efficiency?
18 Level 2 Understanding
What is Cash planning?
19 Level 1 Remembering
List out the motives for holding cash.
20 Level 1 Remembering
PART- B
BT
S.NO QUESTIONS COMPETENCE
LEVEL
1 How would you explain receivable control techniques? Level 1 Remembering
i) Canyou explain the factors affecting working capital? (8)
2 Level 2 Understanding
ii) What are the various principles of working capital? (5)
i) What services are provided by a factor? (6)
3 Level 3 Applying
ii) What are the costs and benefits of factoring? (7)
 i)What is the concept of working capital cycle? (6)
4 ii) Discuss the various opportunities available to thecompanies to (7) Level 4 Analysing
park their surplus funds for a short term.
What is the role of Credit terms and Credit standards in the credit
5 Level 5 Evaluating
policy of a firm?
6 Examine the various issues in estimation of working capital? Level 6 Creating
i) How would you describe the principles, needs and determinants (8)
of working capital to a manufacturing firm?
7 Level 1 Remembering
ii) Can you list the various basic problems in the cash (5)
management?
8 Will you interpret in your own words i) Trade discount, Level 2 Understanding
ii) Commercial paper iii)Lock box system iv)Credit Policy variables
i) Explain the three principal motives for holding cash. (4)
Iii) What facts would you select to show the cash management (9)
9 Level 3 Applying
models proposed by Baumol and Miller Orr with their merits and
demerits?
i)Can you a give brief note on factoring, its process? (8)
10 Level 4 Analysing
ii) How would you explain factoring types? (5)
PC ltd sells its product on a gross profit of 20% on sales. The
following information is extracted from its annual accounts for the
year ended 31.12.2011.

 Sales @ 3 months credit 40,00,000

 Raw material 12,00,000
 Wages paid – avg time lag 15 days96,0000

Manufacturing expenses paid – 1 montharrear
12,00,000
11 Level 1 Remembering
 Admin expenses paid in 1 month arrear48,0000
 Sales promotion expenses payable half yearly in
advance 2,00,000
The company enjoys 1 month credit from the suppliers of raw
material and maintains 2 months stocks of a Raw materials &
1.5 month stock of a finished goods.

The cash balance is maintained as Rs 10, 0000 as a

precautionary measure assuming a 10% margin. Find out the
working capital requirement of PC Ltd.
From the following data prepare a statement showingrequirement
for

(a) Estimated output for the year 130000 units ( 52weeks)

(b) Stocks of R.M – 2 weeks &materials in process for 2weeks,
50% of wages & OH are incurred
(c) Finished goods remains in storage for 2week
12 Level 2 Understanding
(d) Creditors 2 weeks
(e) Debtors 4 weeks
(f) Outstanding wages and overheads 2 weekseach
(g) Selling price / units RS 15
(h) Analysis of cost per unit is as below.
Raw Material 5 UNIT
Labour 3 UNIT
 Overheads 2 UNIT
Profit 5 UNIT
Find out the working capital requirement?
(7)
i)What are the methods of preparing short term cash forecast?
13 Level 4 Analysing
ii) Whatare the uses of long term cash forecasting? (6)

i)What criteria are followed to select marketable securities for

(6)
investing cash surplus?
14 Level 1 Remembering
ii) What are the short term investments in India for investing short (7)
term cash?

PART - C
S.NO QUESTIONS

1 Illustrate the methodology to raise working capital finance.

From the following information of VSGR Company Ltd., estimate working capital needed to
finance a level of activity of 1,10,000 units of production after adding a 10 per cent safety
contingency.

Raw materials Rs.78

Direct Labour Rs.29
Overheads(excluding depreciation) Rs.58

Total cost Rs.165

Profit Rs.24
Selling price Rs.189

Additional information:

2 (i) Average raw materials in stock : onemonth

(ii) Average materials–inprocess (50% completionstage):1/2month

(iii) Average finished goods in stock: one month

(iv)Credit allowed by suppliers: onemonth

(v) Credit allowed to customers : Twomonths

(vi) Time lag in payment of wages : one and halfweeks

(vii) Overhead expenses : onemonth

One fourth of the sales are on cash basis. Cash balance is expected to be Rs. 2, 15,000. You
may assume that production is carried on evenly throughout the year and wages and overhead
expenses accrue similarly.
Calculate the working capital allow 10% contingencies
Cost per unit
3
Raw Material Cost Rs.100
 Labour cost Rs20

Overheads Rs.20

Total Cost Rs.140

Profit Rs.60

Selling price Rs.200

Additionalinformation:

No. of units sold =25000 units

Average Raw material stock 2months

Average work in process 1 month

Finished goods 2month

One fourth of the sales is based on cash.

Debtors 1 month

Lag in wages 1/2 month

Lag in payment to Creditors 1 month

Lag in payment in overhead expenses 1/2 month

Cash balance ‐Rs.1, 00,000

“Maintaining optimum working capital is required”- Justify. Discuss the consequences
4
of inadequate or excess working capital.
 UNIT – V –LONG TERM SOURCES OF FINANCE
SYLLABUS:Indian capital and stock market, New issues market Long term finance: Shares, debentures
and term loans, lease, Types of Lease, hire purchase, venture capital financing, Private Equity.
PART- A
BT
S.NO QUESTIONS COMPETENCE
LEVEL
Define the term debenture.
1 Level 1 Remembering
How would you Compare debenture and preference share
2 Level 2 Understanding
capital?
What are the benefits of project financing?
3 Level 3 Applying
Can you list any four intermediaries ‘associates with a company’
4 Level 4 Analysing
issue of capital.
How will you estimate risk in venture capital firms?
5 Level 5 Evaluating
Can you assess preferential issues of securities?
6 Level 6 Creating
Who is a lame duck?
7 Level 1 Remembering
Compare Hire Purchase and lease.
8 Level 2 Understanding
How do you examine the intermediaries associated with a
9 company’s issue of capital? Level 3 Applying
What inference can you make from pre‐ emptive right of equity
10 Level 4 Analysing
shares?
11 What facts can you compile for the lease financing? Level 5 Evaluating
How would you interpret “Restrictive covenants”? State two
12 Level 6 Creating
features of it.
13 Define the internal financing of a firm. Level 1 Remembering
14 What can you say about Venture Capital? Level 2 Understanding
What approach would you use to classify “BOOT” in project
15 financing? Quote a practical example. Level 3 Applying

Can you make a distinction between term loans and bought out
16 Level 4 Analysing
deal.
Define Hire purchase.
17 Level 1 Remembering
What is book building and listing?
18 Level 2 Understanding
What is private equity?
19 Level 1 Remembering
What is the role of Indian capital market?
20 Level 1 Remembering
PART- B
BT
S.NO QUESTIONS COMPETENCE
LEVEL
i)List the features of various long term sources of finance. (8)
1 Level 1 Remembering
ii)Recall the importance of long term sources offinance. (5)
Can you explain lease financing? How does it differ from a hire
2 purchase? What are the cash flows consequences of a lease? Level 2 Understanding
Illustrate.
3 Write a detailed note on Indian Stock Market. Level 3 Applying

Discuss the various procedure involved in obtaining a term loan.

4 Level 4 Analysing

Can you elucidate about the Venture Capital financing and explain
5 Level 5 Evaluating
its features & steps in detail.
i)What facts can you compile to discuss the rights and position
(5)
ofequityshareholders?
6 Level 6 Creating
ii) Elaborately discuss the different classification of sharestraded
(8)
instockexchanges.
Discuss briefly the regulations given by SEBI to Venture Capital
7 Level 1 Remembering
Finance?
i)Can you explain debenture and attractive features of a debenture? (9)
8 ii)How would you summarize the advantages and disadvantages Level 2 Understanding
(4)
ofdebtfinancing?
i) Discuss in detail the process of selecting investment by venture (7)
9 capitalists. Level 3 Applying
iiii)Differentiate between Hire Purchase and leasing. (6)
List the features of equity shares, preference shares and
10 Debentures as a source of long term finance. And define primary & Level 4 Analysing
secondary Capital market.
i)How would you explain in detail about New issues market? (8)
11 Level 1 Remembering
ii)List the difference of primary & secondarymarket. (5)
i)Can you differentiate between term loan and working capital
(8)
loan.
12 Level 2 Understanding
ii)Explain the criteria in evaluating term loan proposalsand
(5)
working capital proposals.
i)Distinguish Shares, Debentures and Venture capitalfinance. (8)
13 ii)How would you classify the various instruments through which Level 4 Analysing
(5)
venture capital investments is made.
14 Explain the types of leasing and discuss the advantages of lease Level 1 Remembering
financing.

PART - C
S.NO QUESTIONS
Explore the current trends in Indian Capital market with specific reference to the secondary
1
market.
Venture Capital Fund is a Non Banking Financial Company’s business – Discuss.
2

3 Describe the SEBI regulations in IPO processing.

Do you agree that there is a significant growth in FDI equity inflows after the launch of “Make In
4
India”? Critically examine the fact.