Fundamentals of Financial management (Major/ Minor) — DU B.A.(Prog.) with Commerce (Accounting and Finance) Previous Year Question Papers

(i) "Financial Management is concerned with the solutions of three major decisions a firm must make, the investment, the financing and the dividend decisions." Explain this statement highlighting the inter-relationship amongst decisions. (7) (i) Find the company's dividend payout ratio so as to maintain the share price at ?42 using Walter's Model. (ii) Find the 'optimum dividend payout ratio' and the market price of a share at the optimum dividend payout ratio as per thJ ) Walter's odel. (iii) What will be the maximum and minimum share price as per the Walter's Model. Write Short Notes (any three) (i) Operating Cycle (ii) Bonus Shares (iii) Agency Problem (iv) Role of Finance Manager (v) Implicit cost of Capital ) (ii) What is the minimum amount which a person should be ready to accept today from a debtor who otherwise has to pay a sum of {5,000 today t6,000, (8,000, t9,000 and 110,000 at the end of year 1,2,3,4 respectively from today. The rate of interest may be taken at l4%. (8) (i) What is the relevance of time value of money in financial decision making? (5) (ii) ABC Ltd. is planning to buy a machine for {3,00,000 which is likely to bring the following earnings in the coming live years: The purchase of machine will result in increase of working capital by 730,000. The machine will be depreciated on Straight Line Method Basis and has a salvage value of 50,000. The tax rate applicable to the company is 30%. Find out the Initial, Subsequent and Terminal Cash Flows from the machine. (10) 5. (a) What are the various factors relevant in determining the capital structure. (5) (b) From the current year's annual report of ABC Ltd. the following information is supplied to you : Earnings of the firm ·18,00,000 Number of Equity Shares 3,00,000 Return on Investment (ROI) 22.50% Cost of Equity 15.00% (i) "Wealth Maximisation is a better criterion than Profit Maximisation." Do you agree? Explain. (ii) A firm is considering a proposal of in stalling a drilling machine. The machine would involve a cash outlay of 76,00,000 and working capital of 780,000. The expected life of the project is 5 years. There is no salvage value. Assume that the company charges depreciation on straight ) line basis for the tax purpose. The pre tax cash inflows are as follows: Pre tax cash flows 2,40,000 2,75,000 2,10,000 1,80,000 1,60,000 The applicable tax rate is 35%. The firm anticipates its cost of capital to be 12%. You are required to calculate (a) Pay Back Period and (b) Internal Rate of Return (10) (i) Why preference share is called a hybrid security? What are the advantages and disadvantages of preference shares? (5) ) (ii) A firm has sales of 740,00,000, variable cost of 725,00,000, fixed costs of 76,00,000, 10% debentures of 730,00,000 and equity share capital of 745,00,000. Calculate operating leverage, financial leverage and Operating Leverage. Retained Earnings {8,00,000