DECEMBER 2009 EXAMINATION

FM12
FINANCIAL MANAGEMENT
Time: Three Hours Maximum Marks: 100

NOTE : The paper is divided into two sections. Section A and Section B. There are seven
questions in Section A. Students are required to attempt any four questions from Section
A. Question No. 8 (Section B) is compulsory. Each question carries 20 Marks.

The Present Value Table provided along with the question paper.

SECTION-A

1 (a) Discuss the nature of financial decisions in a firm. (10)

(b) What changes in the economic environment have thrust additional responsibility on
finance manager? (10)

2 (a) What are the different types of ‘annuity’? (10)

(b) If you deposit Rs. 1000 every year for 5 years. What would be its future value under
ordinary annuity and annuity due plans compounded at 7% at the end of 5 years. (10)

3. What are the areas of risk connected with capital budgeting? What are the techniques for
risk analysis? Explain any two techniques. (20)

4. Explain what is meant by Leverages. Explain operating leverage, financial leverage and
combined leverage with appropriate example. (20)

5 Explain the theory of relevance and theory of irrelevance in dividend policy and which
one is better. (20)

6 (a) Explain the following terms with the help of examples:

(i) Gross Working Capital
(ii) Net Working Capital
(iii) Permanent working capital
(iv) Fluctuating working capital
(b) What are the factors influencing the level of working capital requirement of a firm?
(10+10)

7 (a) Explain what is meant by factoring? Describe its essential features. (10)
(b) Explain ABC analysis for inventory control with suitable example. (10)
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 SECTION-B

8. CASE STUDY

Following is the summarized Balance Sheet of the Progressive Corporation Ltd. as on 31st
March 2009.

Liabilities Rs. Assets Rs.

Share capital 8,00,000 Fixed assets 4,48,000
Reserves 11,84,000 Stock 11,52,000
Bank overdrafts 5,76,000 Debtors 16,00,000
Trade creditors 6,40,000
32,00,000 32,00,000

Trade creditors are equal to the last month’s purchases and debtors are equal to the last
two months’ sales. For the half-year ending 31-3-2009, sales amounted to Rs 50,42,000
and gross profit earned at a uniform rate was Rs 10,08,000. The following estimates and
information are available. :

• With effect from 1-4-2009, goods purchased will cost 25% higher and sale price
will be increased by 20%.
• Sales and purchases are spread evenly throughout the year.
• Credit terms for purchases and sales will remain unchanged.
• Value of closing stock of 30-9-2009 is expected to be 10% higher than on 31-3-
2009.
• All expenses will be paid within the month in which they accrue and are estimated
at Rs 64,000 per month.
• No fixed assets are proposed to be acquired or sold during the period.

You are required to prepare proforma balance sheet of the Progressive Corporation Ltd
for the half year ended 30-9-2009.
(20)
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