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Unit 4

The document is a test paper for Unit-4 covering chapters 9 and 10, with a total of 17 questions related to financial management concepts such as working capital, capital structure, financial planning, and market functions. It includes theoretical questions, case studies, and requires explanations of various financial terms and their implications. The test is designed to assess understanding of key financial principles and their applications in real-world scenarios.

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29 views2 pages

Unit 4

The document is a test paper for Unit-4 covering chapters 9 and 10, with a total of 17 questions related to financial management concepts such as working capital, capital structure, financial planning, and market functions. It includes theoretical questions, case studies, and requires explanations of various financial terms and their implications. The test is designed to assess understanding of key financial principles and their applications in real-world scenarios.

Uploaded by

v4vidyalekshmi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Test Unit-4(Ch.

-9, 10)

MM: 47 Time 1hour 30 min

1. Discuss about working capital affecting both liquidity as well as profitability of a business(1)
2. Amit is running an ‘Advertising agency’ and earning a lot by providing this service to big
industries. State whether the working capital requirement of the firm will be ‘less’ or ‘more’.
Give reason in support of your answer (1)
3. How Secondary market does contributes to Economic Growth? (1)
4. What is DSCR and how does it affect choice between debt and equity? (1)

5. State which type of capital structure (more equity based or debt based) would a company adopt
when.
a) The stock market is bullish b) The stock market is bearish. (1)
6. What is meant by ‘near money’? (1)
7. What do you mean by Zero coupon Bonds and why? (1)
8. Name the concept which increases the return to equity shareholder due to the presence of fixed
financial charges. (1)
9. Few years ago, there were many malpractices and unfair trade practices like price rigging etc.
All these had eroded investor’s confidence and multiplied their grievances. To overcome these,
Govt. of India decided to set up separate regulatory body for this purpose.
a) Name the separate body set up by Govt. of India and when it was established.
b) Explain the regulatory function performed by it. (3)
10. A capital budgeting decisions is capable of changing the financial fortune of a business. Do
you agree? Why or why not? (3)
11. Sharma ltd needs machinery for production purpose. The manager has two options
Available :i)Machinery which has quality certification marks and approved by the government
Costing Rs 500000 ii)Machinery which has the same production capacity but its not approved
by government costing Rs 300000.The manager decides to go with the second alternative.
A) Identify and state the decision of financial management taken by the manager.
B) State any one value which is overlooked by the manager. (3)

12. Capital structure of two companies is as follows:


Company A COMPANY B
Equity capital
(Equity shares of Rs 100 each) 8 lacs 4 lacs
No.of equity shares 8000 4000
Debentures 15% nil 4 lacs
Profit before interest 1.5 lacs 1. 5 lacs
Interest nil 60,000
Profit after interest 1.5 lacs 90,000
(Profit available to shareholders)
In which of the above cases shareholders shall get more benefit and why? (3)

13. Explain following terms briefly :


Dematerialisation, Depositary, Depositary participant (3)
13. Financial Planning is essentially the preparation of financial blueprint of the organisation future
operations .The objective of Financial Planning is to ensure that enough funds are available at right
time. The management of Croman Ltd. Decided to raise funds through public issue .Keeping in view
the protective function executed by government agency, the management decided not to indulge in
unfair trade practices.
a) State any one importance of Financial Planning
b) What will happen if enough funds are not available at right time?
c) Name the government agency referred above.
d) Identify the value which is being emphasized in the Financial Planning. (4)

14. Suresh and Mahesh are two brothers who are interested to deal in shares. Suresh wants to
subscribe for shares of a new company. Five years ago, Mahesh had bought 200 shares of AB
Company from some investor. Now Mahesh wants to sell existing shares as he requires money for his
personal reason.
(a)Suggest the type of market in which both brothers can deal.
(b)Explain any two functions of the market in which Mahesh is dealing (4)

15. S’ Limited is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its
products as economic growth is about 7%-8% and the demand for steel is growing. It is planning to
set up a new steel plant to cash on the increased demand it is facing. It is estimated that it will require
about Rs. 5000 crores to set up and about Rs 500 crores of working capital to start the new plant
a. What is the objective of financial management for this company?
b. Keeping in mind that it is a highly capital intensive sector name any three factors that will affect
the working capital requirements of this company giving reasons in support of your answer.(4)

16. Investors in general consider increase in dividend as good news and stock market reacts positively
to it. On the other hand, the Companies Act, places certain restrictions on pay-outs as dividend. To
avoid these types of restrictions, the management of Crompton Ltd decided to raise funds through
treasury bills, commercial bills etc.
a) With reference to above case study, state two factors that affect dividend decision of the
company.
b) Identify the type of market through which company decided to raise funds. State its two
features.
c) Mention the values which is being emphasized by the Companies Act in placing restrictions
on pay-outs as dividends. (6)

17. Explain the effect of the following:


a) Growth opportunities – on dividend decision
b) Shareholder’s decision not to lose control – on financing decision
c) Production Cycle- on working capital requirement
d) Debt Service Coverage ratio – on the choice of capital structure.
e) Financing alternatives – on fixed capital requirement
f) Rate of return – on capital Budgeting decision. (6)

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