QUESTION BANK B.COM. V SEM

PRINCIPLES OF FINANCIAL MANAGEMENT

UNIT – 1 INTRODUCTION TO FINANCIAL MANAGEMENT.

Two Marks questions (2 to 3 sentences) : 1. What is Business Finance?2. What is Financial Management?3. Give definition of Financial Management?4. Mention basic objectives of financial Management?5. What is profit maximisation objective6. What is wealth maximization objective7. What are financial decisions?8. Give the meaning of financing decision.9. What is investment decision?10. Enumerate any two objectives of financial management?11. Explain two important financial functions?12. Define controller?-13. Who is a treasurer?14. What is risk-return trade-off.

Five marks Question (30 lines) :

1. Write the meaning and scope of financial management.2. Give the meaning, definition and scope of financial management.3. Give the definition and significance of financial management.4. State the importance of financial management.5. What are objectives of financial management.6. How do you justify profit-maximization objective of financial management. What

are the defects of profit –maximization.7. What is profit maximization objective and why are you rejecting it? What is the

best objective of financial management?8. What is wealth maximization objective? How do you maximize the wealth of

shareholders?9. Explain wealth maximization objective and write its merits and demerits.10. “Profit is not an operationally feasible criterion for financial –decision-makin”

comment.11. In what way wealth maximization objective is superior to profit maximization

object? Explain.12. Explain briefly various financial management decisions.13. What are the functions of financial management.14. Give organization of finance function.15. Write the structure and organization of finance function. Mention duties of

controller and treasurer.16. Describe the relationship between financial management and production and

marketing.

Fifteen Marks Questions ( upto 120 lines) :

1. Give meaning and definition of financial management. What are its objectives? Explain its functions.

2. Explain the financial decisions that the business firm make. How such decisions are inter-related.

3. Explain the relationship between financial management and other areas of managements.

4. “Investment, financing and dividend decisions are all inter-related” comment.5. “The corporate firm will attempt to maximize the shareholders’ wealth by taking

actions that increase the current value per share of existing stock of the firm” comment.

6. “The financial goal of a firm should be to maximize profit and not wealth” do you agree with this statement? Comment.

UNIT – 2 TIME VALUE OF MONEY

Two marks questions:1. Define the term time value of money 2. What is time preference for money?3. Explain “Compound value concept”4. What is present value concept?5. Define an “Annuity”.6. What is deffered annuity?7. What is an annuity due?8. Give the meaning of loan amortization9. What are perpetuities?10. What is multiple compounding period?

Five marks questions :

1. Why was money a time value?Or

Why the present value of money is high?2. Define and distinguish between FV of money and PV of money.3. Explain the procedure to calculate the present value of a series of cash flows.4. Explain the techniques of time value of money.5. Calculate the future value when 10,000 is invested for 5 years and interest on it is

compounded at 10% half yearly.6. A certain investment proposal is expected to produce cash flows of Rs. 50,000 for

a period of 3 years at 12% What is the present value of annuity if compounded quarterly.

Note : Pv = 43)4

121(

50000x+ 12)03.01(

50000+ 12)03.1(

50000

7. A intends to have a return of Rs. 25000 p.a for perpetuity. In case the discount rate is 10% calculate the pv of this perpetuity.

Note: P = rc

= %10

25000=

1.025000

= 250000

Mr. A should invest Rs. 250000 at 10% to get an annual return of Rs. 25000 for perpetuity.

8. Calculate the PV of the following series of payment made for 5 years at a discount rate of 14%

Year Cash follow pv factor at 14% discount rate1 3000 0.8772 4000 0.7693 7000 0.6754 10000 0.5925 15000 0.519

9. Calculate the F.V of series of payments made for deposit which carries 12% intrest for a period 4 years.

Particulars Deposit compound interest factor at 12%

1 year 25000 1.122 15000 1.2543 10000 1.4054 8000 1.574

Fifteen marks questions :

1. Why is considerations of time important in financial decision making? How can time be adjusted.

2. “The financial analyst should take into account time value of money to take objective decision.” Explain the statement with suitable illustration.

3. Illustrate with an example the procedure to calculate.a) the future value of a series of cash flowsb) the present value of a series of cash flowsc) the present value of an annuity.

Unit IIISOURCE OF FINANCE

A) Two marks questions :1. How do you classify source of finance?2. Classify the source of finance according to period and ownership.3. Define a share and mention types of shares.4. What is sweat equity?5. What is no par stock?6. What is preference shares?7. Mention different types of preference share.8. Give two merits of raising funds through equity shares.9. Give two merits of issuing pref. shares10. What is debenture?11. What is deep discount bond?12. Mention different types of debentures.13. Mention two distinctions between shares and debentures.14. Why company may prefer financing through debentures15. What is convertible debenture?16. What are the sources of internal financing?17. What is ploughing back of profits.18. What is factoring?19. What is sans recourse factoring?20. What is Trade Credit?21. Expand ICRA and CRISIL and NSDL.

B) Five marks questions : 1. “Equity shareholders provide risk capital” – comment2. What are preference shares ? How do they differ from equity Shares?3. What are debentures ? How do you distinguish between shares and debentures.4. What is factoring ? Write its merits and demerits?5. What is factoring ? What are the functions of factoring ? Mention various types of

factors.6. What is ploughing-back of profit? Mention its merits and demerits.7. What are the different sources of long-term financing ? explain them briefly.

C) 15 marks questions :1. Critically examine the advantages and disadvantages of raising of funds by

issuing shares of different types?2. What different forms of securities can limited company issue? Discuss their

significance in detail in relation to the financial structure of the company.3. Give the meaning of preference shares and mention its various kinds. Write also

its advantages and disadvantages.4. What is equity share? What are its advantages and disadvantages. Give the

distinctions between shares and debentures.5. Give the meaning of ploughing back of profits. What are its advantages and

disadvantages.6. What is factoring ? Mention various kinds of factoring. State its merits and

demerits.

COST OF CAPITALA) Two marks questios :1. Define cost of capital.2. Why determination of cost of capital is important.3. Explain the terms –

a) Specific costb) Composit costc) Future costd) Implicit cost ande) Explicit cost(any one type may be asked)

4. Define marginal cost of capital.5. Give the formula of cost of preference share capital which are redeemable.6. How is cost of retained earnings computed.7. How is cost of perpetual debt computed?8. A company share is listed in BSE and it is currently selling at Rs. 56. The

company pays a dividend of Rs. 7 per share. Calculate cost of equity.

B) Five marks questions :1. State various methods of computing cost of equity2. Distinguish between WACC and MCC.3. How is cost of debt computed?4. How is cost of preference share calculated?5. What are the steps involved in calculating a firm’s WACC.6. A Ltd has th following capital structure :

Equity (expected dividend 12%) Rs. 10,00,00010% preference shares Rs. 5,00,0008% Debenture Rs. 15,00,000

You are required to calculated kw before tax and after tax, assuming 50% tax bracket,.

C) 15 marks questions :1. What is cost of equity? Write a detailed note the approaches available for

computation of cost of capital.2. Explain the problems faced in determining the WACC? Explain book value

weights and market value weights in calculating Kw.3. Define cost pf capital. What are the components of cost of capital? What is cost of

retained earnings? How is the cost of new equity determined?4. What is cost of preference capital? How do you calculate cost of redeemable and

irredeemable preference shares 5. “Cost of retained earnings is same as cost of equity.” comment