Saturday, December 22, 2012

Dibrugarh University - Financial Management (2012 - Old Course)

1. (a) What do you mean by “Financial Management”? Explain the functions and importance of financial management. 2+6+6=14
(b) “Maximization of profit is regarded as the proper objectives of investment decision but it is not as exclusive as maximizing shareholder’s wealth.” Comment.  14

2. (a) Define the concept of “Cost of Capital”. Explain its significance. Discuss the problems concerning the determination of cost of capital.  3+5+6=14
(b) Calculate the operating leverage and financial leverage under situation 1 and Situation 2 and financial plan A and B respectively from the following information relating to the operation and capital structure of a company:

Installed capacity – 2000 units
Annual Production and Sales – 50% of installed capacity
Selling price per unit – Rs. 20
Variable cost per unit – Rs. 10

Fixed cost: Situation 1 – Rs. 4000 and Situation 2 – Rs. 5000

Financial Plan A
Financial Plan B
Debt (Cost 10%)
What are the combinations of operating and financial leverage which gave highest and least value?  7+7=14

3. (a) Explain the importance of debentures as a source of long term finance.  14
(b) “Lease financing has proved its unique adaptability to various financial problems. Its use is being rapidly extended both to new industries as also to new applications.” Do you agree? Discuss the merits and demerits of lease financing as a source of finance.  8+6=14

4. (a) “Retained earnings do not involve any cost.” Do you agree? Justify your answer.  14
(b) Explain the Walter’s approach to the theory of dividend decisions. What are the short – comings of this theory?  10+4=14

5. (a) from the following information, prepare a statement showing the working capital requirements:  14
Budgeted Sales – Rs. 260000 per annum
Analysis of one rupee of sales:
Raw Material                                     Rs. 0.30
Direct Labour                                    Rs. 0.40
Overheads                                         Rs. 0.20
Profit                                                 Rs. 0.10

It is estimated that
a)      Raw materials are carried in stock for 3 weeks and finished goods for 2 weeks.
b)      Factory processing will take 3 weeks.
c)       Suppliers will give 5 week’s credit.
d)      Customers will require 8 week’s credit.

(b) What do you understand by Receivable management? Discuss the factors which influence the size of receivables?  4+10=14