St.

Xavier’s Catholic College of Engineering

Chunkankadai, Nagercoil – 629 003

Question Bank
Subject:MS22202 - Financial Management
Unit-All
Course Outcomes (COs)
CO 1 Familiarizes with the concepts of financial decision of an organization
CO 2 Recognizes the time value of money
CO 3 Acquires the ability to apply the capital budgeting and cost of capital techniques
CO 4 Discover how to decide the decision of capital structure and distribution of dividend
Enhances the experience in assessing the short-term and long-term sources of finance
CO 5
CL-Cognitive Level; Re-Remember;Un-Understand;Ap-Apply;An-Analyze;Ev-Evaluate;Cr-
Create;
Q.
Question Marks CL CO
No.
Unit-1
Part-A
1. Define Financial Management. 2 Re CO1
2. What is meant by financial planning? 2 Re CO1
3. Identify the two aspects of financial management. 2 Re CO1
4. What are the goals of financial management? 2 Re CO1
5. What are the four functions of finance manager in an organization? 2 Re CO1
6. What is Financing decision? 2 Re CO1
7. State the features of a preference share. 2 Re CO1
8. What are the different types of Shares? 2 Re CO1
9. What are the emerging roles of the finance manager in India? 2 Re CO1
10. What is time value of money? 2 Re CO1
11. Differentiate Systematic Risk and Unsystematic Risk. 2 Re CO1
12. What is Risk Premium? 2 Re CO1
13. How is bond different from equity? 2 Re CO1
14. What is effective rate of interest? 2 Re CO1
15. List out the methods of valuation of equity share. 2 Re CO1
16. Kavin makes an initial deposit of Rs 3,00,000 in Thana Laxmi Bank Ltd.
Interest is compounded at 10% p.a for 6 years. What is the amount of 2 Re CO1
maturity?
17. What are the causes of risk? 2 Re CO1
18. Mr.Thanish deposits Rs3,00,000 for three years at 10% interest. What is
2 Re CO1
the compounded value his deposit?
19. List out the components of return. 2 Re CO1
20. How is the term finance more comprehensive than money management? 2 Re CO1
Part-B
1. State and explain the functions of finance. Why is wealth maximization
considered as the prime objective of financial management over profit 16 Un CO1
maximization?
 2. What inference can you make from the three major decisions in financial
16 Un CO1
management?
3. What ideas justify the scope of financial management in any
8 Un CO1
i) organization?
3.
Explain the functions of finance manager of a firm. 8 Un CO1
ii)
4. Can you list the types of risk & classify Non‐diversifiable risk”&”
16 Un CO1
Security market line”. How does it differ from capital market line?
5. How would you evaluate the general principles of valuation of shares? 16 Un CO1
6. Evaluate “The goal of profit maximization does not provide an
16 Un CO1
operationally useful criterion”‐ Explain.
7. What is return? Write the various types of total return. Whether
16 Un CO1
unrealized capital gain or loss is included in the calculations of returns?
8. Explain the concept of risk. Discuss the various methods of measuring
16 Un CO1
risk.
9. How would you explain the various concepts of value? State the formula
16 Un CO1
for bond valuation.
10. Critically examine how the finance function is typically organized in a
16 Un CO1
Large Organization.
11. What is systematic risk? Explain the concept of systematic risk. 16 Un CO1
12. What approach would you use to value bonds and shares? 16 Un CO1
13. Explain the major risk return decision areas in detail. 16 Un CO1
14. Explain the discounting and compounding technique of time value of
16 Un CO1
money.
15. Explain the Objectives of Financial Management. 16 Un CO1
Unit-2
Part-A
1. Define ‘payback period’ method. 2 Re CO2
2. Identify any two important advantages of payback period method. 2 Re CO2
3. What is capital budgeting? 2 Re CO2
4. Define cost of capital. 2 Re CO2
5. What are the features of a capital budget? 2 Re CO2
6. How would you measure the time value of money in capital budgeting? 2 Re CO2
7. Write the importance of cost of capital. 2 Re CO2
8. What are the merits of NPV method? 2 Re CO2
9. What are the features of ARR method? 2 Re CO2
10. What is internal rate of return? 2 Re CO2
11. Compare NPV & IRR. 2 Re CO2
12. Define the term cost of debt capital. 2 Re CO2
13. What are the various costs in computing the cost of capital? 2 Re CO2
14. What is meant by Weighted average cost of capital? 2 Re CO2
15. Define floatation costs in computing the cost of capital. 2 Re CO2
16. What do you mean by NPV? 2 Re CO2
17. How do you classify financial assets? 2 Re CO2
18. Define cost of retained earnings. 2 Re CO2
19. What is benefit cost ratio? 2 Re CO2
20. What is Capital Rationing? 2 Re CO2
Part-B
1. Explain the different techniques of Capital budgeting with practical
16 Un CO2
examples.
2. Explain the process of capital budgeting. 16 Un CO2
3. Capital expenditure decisions are by far the most important decisions in
16 Un CO2
the field of management – Justify.
4. How is accounting rate of return calculated? Explain its merits and
16 Un CO2
demerits.
5. Explain the advantages and disadvantages of IRR. 16 Un CO2
6. How would you show your understanding on factors influencing capital
16 Un CO2
budgeting decisions?
7. Each of the following projects requires a cash outlay of rs.20,000. You
are required to suggest which project should be accepted if the standard
payback period is 5 years.

Year Cash in flow

Project X Project Y Project Z
1 2,500 4,000 1,000 16 Ap CO2
2 2,500 3,000 2000
3 2,500 2,000 3,000
4 2,500 1,000 4,000
5 2,500 2,000 5,000
8. Machine X has a cost of Rs.75, 000 and net cash flow of Rs.20000 per
year, for six years. A substitute machine Y would cost Rs.50, 000 and
generate net cash flow of Rs.14000 per year for six years. The required 16 Ap CO2
rate of return of both machines is 11%. Calculate the IRR and NPV for
the machines. Which machine should be accepted and why?
9. Discuss the importance and factors affecting cost of capital. 16 Un CO2
10. How would you show your understanding of the concept capital
rationing? Discuss the steps involved in calculating overall cost of
16 Un CO2
capital and also outline the conditions that should be satisfied for using a
firm’s overall cost of capital for evaluating new investments.
11. Explain the nature and principles of capital budgeting. 16 Un CO2
12. How would you explain the factors influencing overall cost of capital of
the firm? How would you explain about Specific cost and overall cost of 16 Un CO2
capital?
13. Elaborate the different measurement of specific cost of capital. 16 Un CO2
14. Discuss the various methods for evaluating and ranking of investment
16 Un CO2
proposals.
15. Explain the important techniques used for decision making under risk
16 Un CO2
and uncertainty in capital budgeting.
Unit-3
Part-A
1. How would you categorize the term leverage? 2 Re CO3
2. Define Operating Leverage. 2 Re CO3
3. What is Financial Leverage? 2 Re CO3
4. What are the uses of financial leverage? 2 Re CO3
5. What is meant by interest coverage ratio? 2 Re CO3
 6. What is meant by debt equity ratio? 2 Re CO3
7. What are the different forms of dividend policy? 2 Re CO3
8. How would you show your understanding about trading on equity? 2 Re CO3
9. What is Dividend? 2 Re CO2
10. Define EBIT. 2 Re CO3
11. Define dividend payout ratio. 2 Re CO3
12. Define composite leverage. 2 Re CO3
13. What is share split? 2 Re CO3
14. What is a stock split? 2 Re CO3
15. What are the difference between ‘bonus issue’ and ‘share‐split’? 2 Re CO3
16. List out the NI & NOI approaches. 2 Re CO3
17. Define optimum capital structure. 2 Re CO3
18. Interpret arbitrage pricing in capital structure theory. 2 Re CO3
19. What is the Modigliani and Miller approach for dividend policy? 2 Re CO3
20. What are the trends of earnings as determinants of dividend policy? 2 Re CO3
Part-B
1. Describe magnitude and trend of earnings as determinants of dividend
8 Un CO3
i) policy.
1. Explain how to measure the degree of operating and financial leverage?
8 Un CO3
ii) Illustrate with an example.
2. Summarize the factors to be considered in determining capital structure
16 Un CO3
of a company.
3. Show the operating leverage for Maruti Ltd., from the following
information:
No. of Units produced : 50,000
16 Ap CO3
Selling price per unit: Rs.50 Variable cost per unit: Rs.20
Fixed cost per unit at current level of sales is Rs.15. What will be the
new operating leverage, if the variable cost is Rs.30perunit?
4. Explain the main idea of Modigliani Miller approach on cost of capital. 16 Un CO3
5. What are the essentials of Gordon’s model? Illustrate with an example.
16 Un CO3
State the criticism against Gordon’s model.
6. What are the practical considerations in formulating the dividend policy? 16 Un CO3
7. Define the essentials of Walters Dividend model? Explain its
16 Un CO3
shortcomings.
8.
Elaborate in detail the various forms of dividends. 8 Un CO3
i)
8. Examine the legal and procedural aspects of dividend according to
8 Un CO3
ii) Company’s Act.
9. What is dividend policy? Explain the nature of factors which determine
16 Un CO3
the dividend policy of a company.
10. Illustrate how EBIT –EPS analysis can be used to design the appropriate
16 Un CO3
capital structure for a firm.
11. A firm has sales of Rs.75, 00,000, variable cost of Rs.42, 00,000 and
fixed cost of Rs.6, 00,000. It has a debt of Rs.45,00,000 @ 9% and
equity of Rs.55,00,000
16 Ap CO3
i) What is the firm’s ROI?
ii) Does it have favorable financial leverage?
iii) What are the operating, financial and combined leverages of the
 firm?
iv) If the sale drops to Rs.50, 00,000, what will be the new EBIT?
12. You are required to calculate the overall cost of capital, from the
following capital structure of a company. 1,000 12% preference shares
of Rs.100 each issued at par Rs.1,00,000;10,000 Equity shares of Rs.10
each issued at par Rs.1,00,000;5,000 10% debentures of Rs.100 each
issued at par;Rs.5,00,000 12% term loan Rs.2,00,000;Retained Earnings
Rs.1,50,000.
16 Ap CO3
The market price of an equity share is Rs.30. The next expected
dividend is Rs.3 per share and the dividend per share is expected to grow
at 10%. The preference shares are redeemable after 7 years at par and are
currently quoted at Rs.75 per share. The debentures are redeemable at
par after 5 years and are quoted at Rs.90 per debenture. The tax rate
applicable to the company is 40%.
13. Distinguish between operating and financial leverage. Explain the scope
of operating and financial leverage analysis for a financial executive in 16 Un CO3
corporate profit and financial structure.
14. Chetan Ltd. Earns Rs.50 per share.
The capitalization rate is 15% and the return on investment is 18%.
Under Walter’s Model, Determine
a) The optimum Pay-out 16 Ap CO3
b) The market price of the share at this payout
c) The market price of the share if pay-out is 40%. The market price of
the share if pay-out is 80%
15. The EPS of a company is Rs 8 and the rate of capitalization applicable is
10%. The company has an option of adopting (i) 50,(ii)75 and (iii) 100
percent dividend payout ratio. Compute the market price of the company 16 Ap CO3
share as per Walter Model if it can earn a return of (1) 15% (2) 10% (3)
5% on its retained earnings.
Unit-4
Part-A
1. Define working capital. 2 Re CO4
2. What are the different types of working capital? 2 Re CO4
3. State the meaning of Working Capital Management. 2 Re CO4
4. What is the significant of working capital analysis? 2 Re CO4
5. What is meant by networking capital? 2 Re CO4
6. What is operating cycle? 2 Re CO4
7. Why Working Capital Management is needed? 2 Re CO4
8. What are the factors influencing current assets with the help of short as
2 Re CO4
well as long term funds?
9. What is your opinion about NWC? 2 Re CO4
10. How would you apply the steps in receivables forecasting? 2 Re CO4
11. What is credit evaluation? 2 Re CO4
12. What is Factoring? 2 Re CO4
13. Define Cash Management. 2 Re CO4
14. What is cash cycle? 2 Re CO4
15. What is Cash planning? 2 Re CO4
16. List out the motives for holding cash. 2 Re CO4
17. What is Treasury Bill? 2 Re CO4
18. Define ‘Commercial paper’. 2 Re CO4
19. What do you mean by operating efficiency? 2 Re CO4
20. What are the important considerations in Inventory Control? 2 Re CO4
Part-B
1. Explain the factors affecting working capital requirement. 16 Un CO4
2. Explain the concept of working capital cycle and various principles of
16 Un CO4
working capital.
3. What is dividend Policy? Explain the factors determining dividend
16 Un CO4
policy.
4. Explain the different types of working capital. 16 Un CO4
5. Explain the various methods of cash receivable control techniques. 16 Un CO4
6. Define factoring. What are its types and services? Discuss the
16 Un CO4
advantages and disadvantages.
7. Explain the estimation of working capital requirement. 16 Un CO4
8. Discuss the various opportunities available to the companies to park
16 Un CO4
their surplus funds for a short term.
9. Explain the eligibility criteria for the issues of commercial paper. 16 Un CO4
10. Explain the cash management models proposed by Baumol and Miller
16 Un CO4
Orr with their merits and demerits.
11. Discuss the various basic problems in the cash management. 16 Un CO4
12. Give the proforma for estimation of working capital requirement. 16 Un CO4
13. Define trade credit. Explain the importance and cost of trade credit. 16 Un CO4
14. Describe the determinants of working capital requirement. 16 Un CO4
15. What are the objectives of inventory control management? Explain the
16 Un CO4
factors affecting the volume of inventories.
Unit-5
Part-A
1. What is the role of Indian capital market? 2 Re CO5
2. List any four intermediaries ‘associates with a company’ issue of capital. 2 Re CO5
3. Define the internal financing of a firm. 2 Re CO5
4. Define the term debenture. 2 Re CO5
5. What is the difference between debenture and preference share capital? 2 Un CO5
6. What are preferential issues of securities? 2 Un CO5
7. What is New Issue market? 2 Un CO5
8. What is Secondary Market? 2 Un CO5
9. Relate a distinction between term loans and bought out deal. 2 Re CO5
10. What is book building and listing? 2 Un CO5
11. Define Hire purchase. 2 Re CO5
12. What can you say about Venture Capital? 2 Un CO5
13. Compare Hire Purchase and lease. 2 Un CO5
14. What are the benefits of project financing? 2 Un CO5
15. What are the different types of debentures? 2 Un CO5
16. Define leasing. 2 Re CO5
17. What are the merits of lease financing? 2 Un CO5
18. What are the functions of primary market? 2 Un CO5
19. What are the key functions of venture capital? 2 Un CO5
20. Name at least four intermediaries associated with a company issue of 2 Un CO5
 share capital.
Part-B
1. Write a detailed note on Indian Stock Market. 16 Un CO5
2. What facts can you compile to discuss the rights and position of equity
16 Un CO5
shareholders?
3. List the features of various long term sources of finance. Recall the
16 Un CO5
importance of long term sources of finance.
4. Differentiate between leasing and hire purchasing. Describe the
essentials elements of leasing and characteristic of a hire purchases 16 Un CO5
agreement.
5. How would you explain in detail about New issues market? List the
16 Re CO5
difference of primary & secondary market?
6. Discuss the various procedure involved in obtaining a term loan. Can
you elucidate about the Venture Capital financing and explain its 16 Un CO5
features & steps in detail.
7. List the features of equity shares, preference shares and debentures as a
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source of long term finance.
8. Elaborately discuss the different classification of shares traded in stock
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exchanges.
9. Do you agree that there is a significant growth in FDI equity inflows
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after the launch of “Make In India”? Critically examine the fact.
10. Describe the SEBI regulations in IPO processing. 16 Un CO5
11. Venture Capital Fund is a Non-Banking Financial Company’s business –
16 Un CO5
Discuss.
12. Explain debenture and attractive features of a debenture. How would you
16 Un CO5
summarize the advantages and disadvantages of debt financing?
13. Discuss briefly the regulations given by SEBI to Venture Capital
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Finance.
14. Explore the current trends in Indian Capital market with specific
16 Un CO5
reference to the secondary market.
15. Explain the types of leasing and discuss the advantages of lease
16 Un CO5
financing.