M.Com. DEGREE EXAMINATION, APRIL 2017
Second Semester
Commerce
FINANCIAL MANAGEMENT TECHNIQUES
(CBCS 2016 onwards)
Time 3 Hours Maximum 75 Marks
Section A x 3 15)
Answer all questions.
All questions carry equal marks.
1. Define Financial Management.
2. List down the short term sources of Working Capital.
3. When is Financial Leverage considered favorable?
4. What is CAPM?
5. What is the Dividend Payout Ratio?
Section B 10 50)
Answer all questions, choosing either or
All questions carry equal marks.
6. Define the scope of Financial Management. What
role should the financial manager play in a modern
enterprise?
Or
Wealth Maximization is superior to Profit
Maximization. Explain.
Sub. Code
611504
RW-010
2
Wk 11
7. What are the important features of a Convertible
Security? What reasons are generally given to
issuing Convertible Securities?
Or
A firm issued, 5 years Rs. 500 debentures at a net
price of Rs. 460. The debentures carry a coupon of
12% p.a. and redeemable at premium. The tax
rate is 40%. Find the pre-tax and post-tax cost of
debentures.
8. Explain the assumptions and implications of the
Net Income approach and the Net Operating Income
approach. Illustrate your answer with hypothetical
examples.
Or
Compute the market value of the firm, value of
shares and the average cost of capital from the
following information.
Rs.
Net operating income 2,00,000
Total Investment 10,00,000
Equity capitalisation rate
If the firm uses on debt 10%
If the firm used Rs. 4,00,000 debentures 11%
If the firm uses Rs. 60,000 debentures 13%
Assume the Rs. 4,00,000 debentures can be raised
at rate of interest whereas Rs. 6,00,000
debentures can be raised at rate of interest.
RW-010
3
Wk 11
9. What is the Capital Asset Pricing Model? Explain
its assumptions and implications.
Or
Calculate the Internal Rate of Return from the
following information.
Initial investment Rs. 60,000
Estimated life 4 years
Estimated net annual cash flows (in Rs.)
1st year 15,000
2nd year 20,000
3rd year 30,000
4th year 20,000
10. What are the essentials of Walter's Dividend Model?
Explain its shortcomings.
Or
Write short note on the advantages and limitations
of MM Theory approaches in financial decision
making aspects.
Section C 10 10)
Compulsory question.
11. Company A and Company B are in the same risk class
and identical. In all respects except that company A uses
debt. While company B does not. Levered company has
Rs. 20 lakh debentures. Carrying 12% rate of interest.
Both companies earn 20% before interest and taxes on
their total assets of Rs. 50 lakh. Assume perfect capital
markets, tax rate of 50% and capitalization rate of 10%
for an equity company. Compute the value of both
companies under Net Income approach; and
Net Operating Income approach.