M.Com. DEGREE EXAMINATION,
NOVEMBER 2017
Second Semester
Commerce with Computer Applications
FINANCIAL MANAGEMENT
(CBCS 2015 onwards)
Time 3 Hours Maximum 75 Marks
Section A (10 x 2 20)
Answer all questions.
1. Write a short note on wealth maximization.
2. What are the major types of financial decisions that a
firm makes?
3. What do you mean by perpetual debt?
4. Write a short note on
Marginal weights and
Market value weights.
5. Give some situations where capital budgeting decision is
made.
6. What is profitability index?
Sub. Code
5MCC2C2
AFF-5088
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7. Write a short note on
Permanent working capital and
Temporary working capital.
8. Give some examples for current assets.
9. What does stability dividend refer to?
10. Write a note on dividend retention ratio.
Section B x 5 25)
Answer all questions.
11. What are the objectives of financial management?
Or
Is financial management science or art?
12. What are the problems faced while determining cost
of capital?
Or
XYZ Ltd. Has the following capital structure
Equity (expected dividend Rs. 20,00,000
12% Preference Capital 5,00,000
Loan 15,00,000
You are required to calculate the weighted average
cost of capital before and after tax, assuming 50%
tax rate.
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13. State the factors which affecting capital investment
decisions.
Or
Mohan and Co. is considering the purchase of a
machine. Two machines X and Y each costing
Rs. 50,000 are available. Cash inflows are expected
to be as under. Calculate Pay back period
Year 1 2 3 4 5
Machine 15,000 20,000 25,000 15,000 10,000
Machine 5,000 15,000 20,000 30,000 20,000
14. Describe the various sources of working capital
finance.
Or
The following details are available in respect of a
firm.
Annual consumption of inventory 10,000 units
Cost per unit (excluding carrying cost and ordering
cost) Rs. 32
Carrying cost is estimated to be 15% per year
Cost of placing an order Rs.960 per order
Ascertain the economic order quantity.
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15. Explain the different forms of dividend.
Or
The earning per share of a company is Rs. 16. The
market capitalization rate applicable to the
company is 12.5%. Retained earnings can be
employed to yield a return of 10%. The company is
considering a pay-out of 50% and 75%. Which
of these would maximize the wealth of shareholders
as per Walter's model?
Section C x 10 30)
Answer any three questions.
16. What do you mean by financial management? Explain its
evolution.
17. Explain the various approaches available for the
determination of cost of equity.
18. A company is considering an investment proposal to
install new milling control. The project will cost
Rs. 2,50,000. It has an expected life of 5 years and no
salvage value. The company's tax rate is 55% and no
investment allowance is allowed. The firm has the
practice of using straight line method of depreciation. The
estimated cash flows before tax (CFBT) from the
proposed investment proposal are follows
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Year CFBT

1 50,000
2 55,000
3 70,000
4 75,000
5 1,25,000
Compute
Pay back period;
Average rate of return;
IRR;
NPV at 10% discount rate;
Profitability index at 10% discount rate.
19. You are given the following information
Maximum consumption 2000 units per day
Minimum consumption 1500 units per day
Normal consumption 1700 units per day
Re-order quantity 17000 units
Re-order period 10-15 days
Normal re-order period 13 days
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Determine
Re-order level;
Maximum stock level and
Minimum stock level.
20. Explain the concept of MM theory to dividend policy.