Hall Ticket No Question Paper Code: CMB008
INSTITUTE OF AERONAUTICAL ENGINEERING
(Autonomous)
MBA II Semester End Examinations (Regular) May/June, 2018
Regulation: IARE-R16
FINANCIAL MANAGEMENT
Time: 3 Hours Max Marks: 70
Answer ONE Question from each Unit
All Questions Carry Equal Marks
All parts of the question must be answered in one place only
UNIT I
1. Critically evaluate the goals of maximization of profit and maximization of return on equity.

"Maximization of wealth provides the more useful and meaningful guidance than the maximization
of profits for the evaluation of financial action or decision". Do you agree? Explain.
2. Explain the mechanism of calculating present value of cash flows giving suitable examples.[7M]
Calculate the present value of the following cash stream data shown in Table 1 if the discount
rate is 14 per cent.
Table 1
Year 0 1 2 3 4
Cash flow 5000 6000 8000 9000 8000
UNIT II
3. Discuss about txraditional methods and its merits and demerits.
From the Table 2 capital structure of a company, calculate the overall cost of capital, using book
value weights and market value weights.
Table 2
Source Cost of Capital Book Value Market Value
Eq. Share Capital(Rs.10 shares) 14 45000 90000
Retained earnings 13 15000 30000
Preference share capital 10 10000 10000
Page 1 of 3
4. Discuss the procedure for determining the weighted marginal cost of capital.
The initial cash outlay of a project is Rs.50,000 and it generates cash inflows of Rs.20000,
Rs.15000, Rs.25000 and 10000 in four years. Using present value index method, appraise profitability
of the proposed investment assuming 10% rate of discount.
UNIT III
5. Examine the relationship between NI and NOI approach.
Babu Trading Company has sales of Rs.1 Lakh. The variable costs are 40% of the sales while the
fixed operating costs amount of Rs.30000. The amount of interest on long term debt is Rs.10000.
You are required to calculate the composite leverage and illustrate its impact if sales increase by
5%.
6. Define financial leverage. Explain its importance.
Explain the concept of MM theory of capital structure.
UNIT IV
7. Define Dividend. Explain its determining factor under various Dividend theories.
Define working capital. Discuss the determinants of working capital
8. Discuss the approaches for financing current assets.
Discuss the relevant approach on a dividend decision given by James Walter and its limitations.

UNIT V
9. Describe briefly the components of working capital.
XYZ company plans to achieve annual sales of 1,00,000 units for the year 2005. The following is
the cost structure of the company as per the previous figures.
Materials 50%
Labour 20%
Overheads 10%
The following further particulars are available from the records of the company.
i. Raw materials are expected to remain in stores for an average period of one month before
issue to production.
ii. Finished goods are to stay in the warehouse for two months on an average before being sold
and sent to customers.
iii. Each unit of production will be in process for one month on the average.
iv. The credit allowed by the suppliers of raw material is one month from the date of delivery
of materials.
v. Debtors are allowed credit for two months from the date of sale of goods
vi. Selling price per unit is Rs.9 per unit
vii. Production and sales follow a consistent pattern and there are no wide fluctuations.
Determine the quantum of working capital required to finance the activity level of 00,000 unit
for the year 2005.
Page 2 of 3
10. Define cash budget. Explain its importance in an organization.
Economic Enterprises require 95000 units of certain items annually. The cost per unit is Rs.3.
The cost per purchase order is Rs.300 and the inventory carrying cost is Rs.6 per unit per year.
i. What is EOQ?
ii. What should the firm do if the suppliers offer discounts as shown in Table
Table 3
Order quantity Discount
4500 5999 3
6000 and above 4