Question Paper Code:

J6509

M.B.A. DEGREE EXAMINATION, JUNE 2010 First Semester

BA9222 FINANCIAL MANAGEMENT (Regulation 2009) Time : Three hours Answer ALL Questions PART A (10 2 = 20 Marks) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

How is the term finance more comprehensive than money management? How would you have a fresh look at the finance function in business? What is capital rationing? State the principles of capital rationing. What are the components of a capital expenditure management programme?

What you mean by an optimal capital structure? State the different types of working capital. How are receivables forecasted? State the various features of term loans.

Define the term Venture Capital. PART B (5 16 = 80 Marks)

11.

(a)

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Financial Management is the appendage of the finance function. Comment. Or

(b)

Discuss fully the organization of the finance functions in a business.

State the advantages of trading on equity.

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Maximum : 100 Marks

Reg. No. :

(b)

The following information is available in respect of both models Complex Shrilex Estimated life in years Cost of machines Estimated savings in scrap p.a. Additional cost of supervision p.a. Additional cost of maintenance p.a. Cost of indirect material p.a. Estimated savings in wages (ii) No. of workers p.a. not required (i) Wages per worker p.a. 10 12

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1,000 Units 800 Units Rs. 20 Rs. 15 Rs. 800 Rs. 1,500 I Rs. 5,000 Rs. 5,000 Or 2

Using method of payback period, suggest which should be purchased. Ignore tax. 13. (a) Calculate financial leverage and operating leverage under situations A and B financial plans I and II respectively from the following relating to the operations and capital structure of ABC ltd. Installed capacity

Actual production and sales Selling price per unit

Variable cost per unit

Fixed costs : Situation A Situation B Capital structure :

Financial plan II Rs. 7,000 Rs. 2,000

Equity Capital Debt

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(b)

Explain the approach of weighted average cost of capital and state its limitations.

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Rs. 40,000 Rs. 48,000 Rs. 28,000 Rs. 24,000 Rs. 2,400 Rs. 150

Someshwar industries limited is considering the purchase of a new machine which would carry out some operations, at present being performed by hands, the two alternatives models under consideration are complex and shrilex.

Rs. 6,00,000 Rs. 10,00,000 Rs. 60,000 Rs. 64,000 Rs. 44,000 Rs. 32,000 Rs. 2,500 Rs. 200

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12.

(a)

State the different kinds of capital budgeting proposals. How would you rank them for the purpose of their selection? Or

Or (b)

27,000 28,000 29,000 30,000 31,000 32,000 33,000 34,000

0.04 0.07 0.17 0.32 0.20 0.10 0.06 0.04

It takes 2 days to place an order and receive delivery. The average monthly carrying cost is Re. 1 per unit and the stock outs are estimated to cost Rs. 3 per unit. You are required to find out the optimal safety stock. 15. (a) Bring out the relationship of term financing with the capital market. Or

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(b)

Discuss the various sources of long-term finance of Indian companies.

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3

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A corporation has presently no safety stock of raw materials of orders 30,000 units every 30 days. Due to recent fluctuations in usage, the company finds it necessary to establish an optimal safety stock. The probability distribution for inventory usage is as follows : Usage (in units) Probability

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14.

(a)

Discuss the factors determining working capital.