Financial Management - II CA QP

PSG COLLEGE OF ARTS AND SCIENCE COIMBATORE
DEPARTMENT OF MANAGEMENT SCIENCE

BBA - INFORMATION SYSTEM
II CONTINUOUS ASSESSMENT – MAY’ 2021
Time: 3 Hours Marks: 75 Marks
Class II BBA - IS Date 10.05.2021

Title of the Official Mail id of
FINANCIAL MANAGEMENT(18ISU20) sadhanandared@ymail.com
subject the Faculty
SECTION A (10 X 1 = 10 Marks)

CHOOSE THE BEST ANSWER
1. Which represents the "Shareholder Wealth" in a firm?

a) The number of people employed in the firm.
b) The book value of the firm's assets less the book value of its liabilities
c) The amount of salary paid to its employees.
d) The market price per share of the firm's common stock.
2. Name the process of determining present value of future cash flows

a) Sinking b) Billing
c) Discounting d) Amounting
3. Current ratio is 4:1.Net Working Capital is Rs.30, 000. Find the amount of current Assets.
a) Rs.10,000 b) Rs.40,000
c) Rs.24,000 d) Rs.6,000
4. Profit of two years 2019 and 2020 were Rs.50000 and Rs.60000.Non-operating Expenses
for the year 2020 was Rs.5000. Find FFO
a) Rs.10,000 b) Rs.5,000
c) Rs.15,000 d) Rs.20,000
5. Which capital budgeting method defined as the length of time required recovering the
initial cash out-lay
a) Payback-period b) Inventory conversion period
c) Discounted payback-period d) Budget period
6. Define Cost of the capital.

a) Required minimum rate of return expected by investors.
b) Required maximum rate of return expected by investors.
c) Required higher rate of return expected by investors.
d) Required reduced rate of return expected by investors.
7. The use of leverage is essential to maximize

a) Profit b) Loss
c) Earnings d) Contribution
8. Define Optimum Capital Structure
a) Combination of debt and equity that leads to maximum value of the firm
b) Combination of preference and equity that leads to maximum value of the firm
c) Combination of preference, equity and debt that leads to maximum value of the firm
d) Combination of preference and debt that leads to maximum value of the firm
9. Which motive a firm holding some cash to meet its routine expenses that are incurred in
the ordinary course of business?
a) Speculative motive b) Transaction motive
c) Precautionary motive d) Compensating motive
10. Which of the dividend policy means payment of certain minimum amount of dividend
regularly?
a) Irregular b) Unstable
c) No Dividend d) Stable
SECTION B
Answer ALL the questions (5X7=35 MARKS)
11a. What are the objectives of Financial Management? Explain

OR
b. Distinguish between leasing and hire purchasing.
12a. Current Ratio 3.5, Liquid Ratio 2.5, Working Capital 80,000. Calculate Current Assets,
Current Liabilities and Stock.
OR
b. From the following information prepare statement of changes in working capital.
March 2019 March 2020
Debtors 90,000 94,000
B/R 20,000 25,000
Creditors 40,000 50,000
B /P 16,000 12,000
Outstanding expenses 2,000 2,400
Prepaid expenses 1,600 1,400
Income received in advance 600 500
13a. Mr.Kumar Ltd. issued 10% debentures for Rs.5, 00,000. Cost of issue 2%, Tax bracket
30%. Calculate cost of debt before tax and after tax.
OR
b. The Alpha Co.ltd is considering the purchase of a new machine: Machine A with the
initial cost of Rs.4,00,000. The estimated life of the machine - 5 years. The cash inflows
of the machine as follows:
Year Machine A
1 40,000 P/V factor
2 1,20,000 @ 10%
3 1,60,000
4 2,40,000
5 1,60,000
Calculate i) Payback period and ii) Profitability Index
14a. Following are the details regarding Kannan. Ltd
Share Capital
Equity (Rs.10) Rs 1, 00,000,
10% Preference share Rs.10) Rs.50,000
10% Debentures Rs.1, 00,000
Tax rate 40%
EBIT Rs.25000
Calculate EPS: i) At present level of EBIT b) If EBIT increases to Rs 50,000
OR
b. From the following information, calculate value of firm and overall cost of capital (Ko)
under Net Income Approach:
EBIT – 500000; 10% debentures 600000; Capitalisation rate (Ke) 12%. Tax rate 30%
15a. What are the determinants of Working capital?

OR
b. From the following data, calculate the Market Price of a share of ABC Ltd., under
Walter’s model.
EPS = Rs. 10; DPS = Rs. 6; Ke = 18%; r = 25%
SECTION C
Answer any THREE Questions (3X10=30 MARKS)
16. Explain Time Value of Money and its Techniques
17. From the following balance sheets of Sri Ltd. on 31st March 2019 and 2020, you are
required to prepare
i) A schedule of changes in working capital
ii) A funds flow statement
Liabilities 2019 2020 Assets 2019 2020
Share Capital 1,00,000 1,00,000 Goodwill 12,000 12,000
General Reserve 14,000 18,000 Building 40,000 36,000
Profit & Loss A/c 16,000 13,000 Plant 37,000 36,000
Sundry Creditors 8,000 5,400 Investments 10,000 11,000
Bills payable 1,200 800 Stock 30,000 23,400
Provision for taxation 16,000 18,000 Bills receivables 2,000 3,200
Provision for doubtful 4,00 6,00 Debtors 18,000 19,000
debts
Cash at Bank 6,600 15,200
1,55,600 1,55,800 1,55,600 1,55,800
The following additional information has also been given:

i) Depreciation charged on Plant was Rs.4,000 and on Building Rs.4,000 ii) Provision for
taxation of Rs. 19,000 was made during the year 2020 iii) Interim dividend of Rs.8,000
was paid during the year 2020.
18. From the following Capital Structure of Mr. Z Ltd. calculate Weighted Average Cost of
Capital.
Equity share capital (Rs.10 shares) Rs.45, 000
Retained earnings Rs. 15,000
Preference Share Capital Rs. 10,000
Debentures Rs. 30,000
The after tax cost of different sources of finance is as follows:
Equity share capital: 14%; Retained Earnings: 13%;
Preference share capital: 10% and Debentures: 5%.
19. From an analytical statement of Karthik Company Ltd., Calculate the degree of
i) Operating leverage ii) Financial leverage and iii) Composite leverage.
Sales 9,60,000
Variable cost 5,60,000
Fixed costs 2,40,000
Interest 60,000
Tax 35%
20. From the following information extracted from the books of a manufacturing company,
compute the operating cycle in days and the amount of working capital required:
Period Covered 365 days

Average period of credit allowed by suppliers 20 days
Average Total of Debtors Outstanding 400
Raw Material Consumption 4,900
Total Production Cost 11,000
Total Cost of Sales 11,500
Sales for the year 20,000
Value of Average Stock maintained:
Raw Material 340
Work-in-progress 380
Finished Goods 280

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PSG COLLEGE OF ARTS AND SCIENCE COIMBATORE

DEPARTMENT OF MANAGEMENT SCIENCE

Class II BBA - IS Date 10.05.2021

SECTION A (10 X 1 = 10 Marks)

1. Which represents the "Shareholder Wealth" in a firm?

2. Name the process of determining present value of future cash flows

6. Define Cost of the capital.

7. The use of leverage is essential to maximize

11a. What are the objectives of Financial Management? Explain

15a. What are the determinants of Working capital?

16. Explain Time Value of Money and its Techniques

The following additional information has also been given:

Period Covered 365 days

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