FACULTY OF MANAGEMENT
MBA II Semester Examination, July August 2016
Subject: Financial Management
Course No. 2.3
Time: 3 Hours Max. Marks: 80
PART A (10x2 20 Marks)
[Short Answer Type]
Note: Answer all the questions.
1. Write short notes on the following.
Wealth maximization
Time value of money
Net Present Value
Risk-return trade off
MARAKON Approach
Combined leverage
Safety stock and reorder level
Bonus shares
Weighted Average cost of capital
Horizontal merger
PART B (5x12 60 Marks)
[Essay Answer Type]
Note: Answer all the questions using internal choice.
2 What are the major types of financial management decisions that business firms
make? Describe each.
OR
'The profit maximization is not an operationally feasible criterion'. Do you agree?
Illustrate your views.
3 What are DCF methods? Describe the process of calculating NPV for a project.
OR
A choice is to be made between two competing projects which require an equal
investment of Rs. 50,000 and are expected to generate net cash flows as under:
Project
I
Project
II
End of year 1 25,000 10,000
End of year 2 15,000 12,000
End of year 3 10,000 18,000
End of year 4 Nil 25,000
End of year 5 12,000 8,000
End of year 6 6,000 4,000
The cost of capital of the company is 10 percent. Compute the Net Present Value
and Internal Rate of Return and suggest which project is acceptable.
4 Explain the factors that determine the capital structure of a firm.
OR
A firm is considering 3 alternative financial plans to raise Rs. 10 lacs. EBIT is Rs. 1
lac, and tax rate is 50%. Calculate the EPS under each financial plan, from the
details below:
Plan 1 Issue 1,00,000 equity shares with face value of Rs. 10 per share, issued
at par.
Plan 2 Issue 50,000 equity shares with face value of Rs. 10 per share, issued at
par, raise the balance of Rs. 5 lakhs through issue of debentures with
10% p.a. interest.
Plan 3 Issue 50,000 equity shares with face value of Rs. 10 per share, issued at
par, issue 5000 preference shares at Rs. 100 per share, and dividend of
p.a.
5 What are dividend theories? Explain any two dividend theories.
OR
Economic Enterprises require 90,000 units of a certain item annually. The cost per
unit is Rs. the cost per purchase order Rs. 3000, and the inventory carrying cost is
Rs. 6 per unit per year.
What is the Economic Order Quantity?
ii) What should the firm do if the supplier offers discount as below:
Order Quantity Discount
4500-5999
6000 and above
6 Examine the economic rationale of mergers.
OR
What are the principles of good corporate governance?