M.Com. DEGREE EXAMINATION, APRIL 2016
Second Semester
FINANCIAL MANAGEMENT TECHNIQUES
(2012 onwards)
Time 3 Hours Maximum 75 Marks
Part A 3 15)
Answer all questions.
All questions carry equal marks.
1. State briefly the importance of financial management.
2. Explain the two concepts of working capital.
3. How will you compute the cost of debt capital?
4. What is meant by capital rationing?
5. What is meant by dividend policy? State the different
types of dividend policy.
Part B 10 50)
Answer all questions, choosing either or
All questions carry equal marks.
6. Explain the goals of financial management.
Or
How the financial decision making involves riskreturn
trade off?
Sub. Code
611504
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7. Discuss the different sources of working capital.
Or
X Ltd. is engaged in customer retailing. You are
required to forecast its working capital
requirements from the following information.
Projected Annual Sales Rs.6,50,000
Percentage of N.P. on cost of sales 25%
Average credit allowed to debtors 10 weeks
Average credit allowed to creditors 4 weeks
Average stork carrying 8 weeks
(in terms of sales requirement)
Add 20% to allow for contingencies.
8. Nippon Ltd. has issued 40000 shares of Rs. 10 each
fully paid. The company has earned a profit of
Rs.40,000 after tax. The market price of these
shares is Rs.16 per share. The company has paid a
dividend of Re.0.80 per share. Calculate the cost of
equity on the basis of
Dividend yield method and
Earnings price method.
Or
From the following data, determine the operating
leverage. Which company has the greater amount of
business risk?
Company X
Rs.
Company Y
Rs.
Sales 50,00,000 60,00,000
F.cost 15,00,000 30,00,000
Variable cost as a percentage of sales are 50% for
firm X and 25% for firm Y.
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9. A project costs Rs.50,000 and has a scrap value of
Rs.10,000. Its stream of incomes before depreciation
and taxes during the first five years are Rs.10,000;
12,000; 14,000; 16,000 and 20,000. Assume a 50%
tax rate and depreciation on original cost basis.
Calculate the ARR.
Or
From the following, calculate IRR.
Initial investment Rs. 1,80,000
Life of the asset 4 years
Estimated net annual cash flows
Year Rs.
I 45,000
II 60,000
III 90,000
IV 60,000
10. Explain the assumptions, implications and
criticisms of Walter's model of dividend policy.
Or
Explain the Modigliani Miller hypothesis of
dividend irrelevance. Does this hypothesis suffer
from deficiencies.
Part C 10 10)
Compulsory question.
11. Devji Ltd. has an EBIT of Rs. 4,50,000. The cost of debt is
10% and the outstanding debt is Rs.12,00,000. The
overall capitalisation rate is 15%. Calculate the total
value of the firm and equity capitalisation rate under
NOI approach.