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 objective 6. What is wealth maximization objective 7. 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. 2. 3. 4. 5. 6. Write the meaning and scope of financial management. Give the meaning, definition and scope of financial management. Give the definition and significance of financial management. State the importance of financial management. What are objectives of financial management. 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 amortization 9. 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. 50000 12 Note : Pv = (1 + ) 3 x 4 4 50000 (1 + 0.03)12 50000 (1.03)12

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 = c r = 25000 10% = 25000 0.1 = 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 1 2 3 4 5 Cash follow 3000 4000 7000 10000 15000 pv factor at 14% discount rate 0.877 0.769 0.675 0.592 0.519

9. Calculate the F.V of series of payments made for deposit which carries 12% intrest for a period 4 years. Particulars 1 year 2 3 4 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 flows b) the present value of a series of cash flows c) the present value of an annuity. Deposit 25000 15000 10000 8000 compound interest factor at 12% 1.12 1.254 1.405 1.574

Unit III SOURCE 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. shares 10. 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 debentures 15. 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) 1. 2. 3. 4. 5. Five marks questions : Equity shareholders provide risk capital comment What are preference shares ? How do they differ from equity Shares? What are debentures ? How do you distinguish between shares and debentures. What is factoring ? Write its merits and demerits? 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.

A) 1. 2. 3.

4. 5. 6. 7. 8. B) 1. 2. 3. 4. 5. 6.

COST OF CAPITAL Two marks questios : Define cost of capital. Why determination of cost of capital is important. Explain the terms a) Specific cost b) Composit cost c) Future cost d) Implicit cost and e) Explicit cost (any one type may be asked) Define marginal cost of capital. Give the formula of cost of preference share capital which are redeemable. How is cost of retained earnings computed. How is cost of perpetual debt computed? 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. Five marks questions : State various methods of computing cost of equity Distinguish between WACC and MCC. How is cost of debt computed? How is cost of preference share calculated? What are the steps involved in calculating a firms WACC. A Ltd has th following capital structure : Equity (expected dividend 12%) Rs. 10,00,000 10% preference shares Rs. 5,00,000 8% 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