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Posted Date: 10 Sep 2009 Posted By: Dora Noronha Member Level: Silver
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2008 Mangalore University B.B.M FINANCIAL MANAGEMENT Question paper
BBMBMC 205
Credit Based Third Semester B.B.M Degree Examination
October / November 2008
(2006 Scheme)
FINANCIAL MANAGEMENT
Time : 3 Hours Max. Marks : 120
Note: 1 Show working notes wherever necessary
SECTION - A (2 MARKS EACH)
1.Answer any Ten questions from the following in ONE or TWO sentences each. 20 10*2=20
a) What is discounted cash flow ?
b) Define explicit cost of capital.
c) What are bonus shares ?
d) Define payout ratio.
e) What are zero coupon bonds?
f) State the meaning of over capitalisation.
g) What is incremental cash flow?
h) What is trading on equity ?
i) What is discounted pay back period ?
j) State the meaning of 'EBIT'.
k) What are mutually exclusive projects ?
l) What do you mean by financing decision ?
SECTION- B (8 Marks each) 40
Answer any FIVE of the following:
2. A company wishes to determine the optimal capital structure. From the various
options given below suggest the optimal capital structure.
Situation Debt Amount Equity After Tax Cost of
(Rs.) Amount Cost of Debt Equity
(Rs.)
1. 8,00,000 2,00,000 9% 10%
2. 5,00,000 5,00,000 6% 11%
3. 2,00,000 8,00,000 5% 14%
4. 6,00,000 4,00,000 8% 10%
5. 4,00,000 6,00,000 11% 9%
3. From the following information supplied to you, ascertain the price of the share
under Walter's and Gordon's model :
Earning of the firm Rs. 2,00,000
Dividend paid Rs. 1,50,000
Number of shares outstanding 20,000 at Rs. 100.
Capitalisation Rate 12%
Internal rate of return 18%
4. Define capital rationing. Explain the project selection process under capital
rationing.
5. Define the concept of 'time value of money' and explain its significance.
6. Explain the causes and effects of over capitalisation.
7. Expalin the need for financial planning.
8. Briefly explain the meaning and types of leverages.
SECTION - C (20 marks each) 60
9. What do you mean by "optimum capital structure" ? Explain the view point of Modigliani
and Miller with the assumptions underlying their arguments on optimum capital structure.
OR
Define cost of capital. Explain the various concepts of cost of capital and comment on
their significance.
10. What are the various internal and external factors affecting the dividend policy of a
firm ?
OR
Critically evaluate Walter's model on dividend policy with an illustration.
11. Manish Motor's Ltd. has an investment opportunity costing Rs. 4,00,000 with the following
respective net cash flows after tax before depreciation.
Years Cash Flows
(Rs)
1 70,000
2 70,000
3 70,000
4 70,000
5 70,000
6 80,000
7 1,00,000
8 1,50,000
9 1,00,000
10 40,000
Using 10% as the cost of capital, determine the following
i. Payback period
ii. NPV at 10 % discount factor
iii. Pl at 10% discount factor
iv. IRR with the help of 10% and 15% discount factors.
Years P.V. of Re 1.00 P.V. of Re 1.00
@ 10% @ 15%
1. 0.909 0.870
2. 0.826 0.756
3. 0.751 0.658
4. 0.683 0.572
5. 0.621 0.497
6. 0.564 0.432
7. 0.513 0.376
8. 0.467 0.327
9 0.424 0.284
10 0.386 0.247
Should the comapny accept this investment ?
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