Mangalore University 2008 B.B.M FINANCIAL MANAGEMENT - Question Paper

BBMBMC 205

Credit Based 3rd Semester B.B.M Degree exam
October / November 2008
(2006 Scheme)
FINANCIAL MANAGEMENT


Time : three Hours Max. Marks : 120

Note: one Show working notes wherever necessary

SECTION - A (2 MARKS EACH)

1.Answer any Ten ques. from the subsequent in 1 or 2 phrases every. 20 10*2=20

a) What is discounted cash flow ?
b) describe explicit cost of capital.
c) elaborate bonus shares ?
d) describe payout ratio.
e) elaborate 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) elaborate mutually exclusive projects ?
l) What do you mean by financing decision ?

SECTION- B (8 Marks each) 40

ans any 5 of the following:

2. A company wishes to determine the optimal capital structure. From the different
choices provided beneath 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 subsequent info 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. describe capital rationing. discuss the project selection process under capital
rationing.

5. describe the concept of 'time value of money' and discuss its significance.

6. discuss the causes and effects of over capitalisation.

7. Expalin the need for financial planning.

8. Briefly discuss the meaning and kinds of leverages.


part - C (20 marks each) 60


9. What do you mean by "optimum capital structure" ? discuss the view point of Modigliani
and Miller with the assumptions underlying their arguments on optimum capital structure.

OR

describe cost of capital. discuss the different concepts of cost of capital and comment on
their significance.

10. elaborate the different 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 subsequent
respective net cash flows after tax before depreciation.

Years Cash Flows
(Rs)

one 70,000
two 70,000
three 70,000
four 70,000
five 70,000
six 80,000
seven 1,00,000
eight 1,50,000
nine 1,00,000
10 40,000

Using 10% as the cost of capital, determine the subsequent

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
nine 0.424 0.284
10 0.386 0.247

Should the comapny accept this investment ?

Earning:   Approval pending.