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Financial Management MS 104 UNIT I Q1. Profit maximization is the primary objective of financial management. Comment. Q2.

Discuss the importance of Ratio analysis as a tool for analysis and interpretation of financial statements. Q3. Sound financial management is a key to progress of corporations. Explain. Q4. Explain the functions of a finance manager in a business organization. Q5. What is cash flow statement? Q6. Explain various financial ratios. Q7. Differentiate between cash flow statement and funds flow statement. Q8 Differentiate between funds flow statement and Income statement. Q9. What is sustainable growth rate? Q10. What do you understand by time value of money? Discuss the compounding and discounting technique of time value of money. Q11. Differentiate between annuity, annuity due and perpetuity. Q12. What is the agency problem? How do market forces act to prevent/ minimize this problem? Q13. Write a short note on Du Pont Analysis? UNIT: 2 I. Short answer type questions Q1. Depreciation is a source of funds. Do you agree? Q2. Define point of indifference? Q3. A high operating leverage is better than a high financial leverage. Comment. Q4. What are the Sources of long term finance? Q5. Assumptions of Modigliani and Millers approach (MM Hypothesis). Q6. Differentiate between Earnings per share (EPS) and diluted EPS. Q7. Differentiate between low gearing and high gearing. Q8. Market value weights are theoretically consistent and sound as compared to book value weights. Q9. Cost of capital comprises only of business risk. Q10. What is arbitrage? Q11. Differentiate between operating leverage and financial leverage. Q12. Why is EBIT considered to be a linking point in leverage analysis? Q13. What are internal source of fund? II. Long answer type questions Q1. What are the objectives of capital structure management? How might a firm go for determining its optimal capital structure? Q2. What is the degree of combined leverage? What do you think is the appropriate combination of operating and financial leverage? Q3. Differentiate between Net income and Net operating Income approach in capital structure decisions. Q4. According to MM approach, the value of a firm is affected by debt Equity Mix. Q5. Explain briefly the view of traditional writers on the relationship between capital structure and value of firm. Q6. Explain MM approach of capital structure.

Q7. What is financial risk? Is it necessary to assume that firms financial structure remains unchanged when evaluating the firms cost of capital? Why is this assumption impractical? UNIT 3 Working capital Management I. Short answer type questions (i) Differentiate between gross working capital and net working capital. (ii) Operating cycle (iii) What is current ratio and what is its effect on working capital estimation. (iv) What are the factors affecting the working capital need (v) Differentiate between temporary and permanent working capital. (vi) What is safety margin (vii) Explain how working capital management policies affect the profitability, liquidity and structural health. (viii) Explain the motives for holding cash (ix) What is lock-box system (x) What is concentration banking (xi) What do you understand by managing the float? Differentiate between disbursement float and collection float. (xii) Enumerate the various Cash Management Models. (xiii) Explain Baumols and miller-Orr model of cash management. (xiv) Explain ABC analysis of inventory management. (xv) Explain Economic order quantity (xvi) What is just in time inventory (xvii) What is factoring. Differentiate between pure and non-recourse factoring. (xviii) What is forfaiting? (xix) What is delinquency cost? (xx) Determine the cost and benefits of receivables management. (xxi) Explain various techniques of credit evaluation. (xxii) What role does credit rating agencies play in credit appraisal? (xxiii) Explain the motives of inventory management II. Long Answer type questions Q1. Length of operating cycle is the major determinant of working capital needs of the business firm Explain. Q2. What is conservative approach to working capital financing? How is it different from hedging approach? Q3. Is the Aggressive approach to working capital financing a good proposition? What may be the consequences? Q4. Explain the factors considered while determining the need for working capital? Q5. How the value of work-in-progress be estimated? What are the relevant factors? Q6. Depreciation should be ignored while determining working capital need for a firm Why? Q7. Explain the various reasons behind holding of cash by the companies although idle cash earns no return? Q8. Working capital is the life blood of a business firm and there is always an operating cycle involved in the cash to cash cycle. Draw up an operating cycle for industry. List out the individual components of the cycle and illustrate with example the computation of the operating cycle components and determination of the total cycle time.

Q9. Efficient cash management will aim at maximizing the availability of cash inflows by decentralising collections and decelerating cash outflows by centralizing the disbursements? Discuss and explain. Q10. What is credit policy? What are the determinants of credit policy? Q11.What is factoring? What are the types of factoring? Explain the benefits of factoring. Q12. Explain how factoring is different from forfaiting. Q13. Higher credit period has greater chances of recovery of debt. Q14. What is the general objective of accounts receivable management? In what ways is it similar and different from cash balance management and inventory management? Q15. What key variables should be considered when evaluating possible changes in the firms credit policy? Briefly explain the possible effects of a more restrictive credit policy on: (i) sales volume, (ii) average collection period, (iii) investment in receivables, (iv) cost of receivables investment, (v) bad debt costs. Q16. Differentiate among hedging, conservative and aggressive approach of working capital financing. Q17. Average age of receivables is an important yardstick of testing the efficiency of receivable management Explain. Q18. What do you mean by stock-out? Explain the trade off between stock out and carrying cost of inventory. Q19. XYZ Ltd. Company wants to minimize income foregone by holding cash by reducing the total cost comment on the statement using Baumols model. Retained Earnings vs. Dividend decision I. (i) (ii) (iii) (iv) (v) (vi) (vii) Short answer type Questions Distinguish between retained earnings and dividend. Why is retained earnings considered to be a source of finance. Do you agree with the proposition that dividends are irrelevant? What is dividend payout ratio? Distinguish between dividend payout ratio and retention ratio. A Bird in hand is worth two in bush Explain this argument with context to Gordons model. Explain the proposition of Lintner Model. What is sustainable growth rate? Explain using example.

II.Long Answer Type Questions Q1. Give the meaning of dividend. Discuss the different forms of dividend. Explain the characteristics of sound dividend policy. Q2. Do you agree with the proposition that dividends are relevant? Q3. What are the essentials of Walters model? Explain its shortcomings? Q4.What is the assumptions which underline Gordons model of dividend effect? Does dividend policy affect the value of the firm under Gordons model? Q5. The contention that dividends have an impact on the share p rice has been characterized as the bird-in-hand argument. Explain the essentials of this argument. Q6. The assumptions underlying the irrelevance hypothesis of Modigliani and Miller are unrealistic Explain. Q7. Explain the arbitrage process used by the Modigliani-Miller hypothesis in support of the argument for irrelevance of dividend. Q8. Mathematically explain how MM approach proved that dividend is irrelevant in determining the value of the firm.