Ranchi University 2007 M.B.A Financial Management [CP-204] - Question Paper

Full Marks: 70 Time three hours

Candidates are needed to provide their answers in their own word as far as practicable

The ques. are of equal value

ans any 5 ques..

1. 'The wealth maximization objective provides an operationally improper decision criterion.
Comment and discuss why the wealth maximization is a better operating goal than profit
maximization.

2. Why is 'Break even point' a significant factor in financial analysis? explain its method of
determination and various limitations.

3. What do you understand by capital structure of a corporation? explain the qualities of an
optimal capital structure.

4. Examine critically the various approaches to the computation of cost equity capital and
retained earnings.

5. A company is considering an investment proposal to install new milling controls. The project will cost RS. 5,00,000. Tshe facility has a life expectancy of five years and no salvage value. The company's Tax rate is 30%. The firm uses straight line depreciation. The estimated cash flow before tax (CFBT) from the-proposed investment proposal area s follows:
Year CFBT (Rs.)
1 1,00,000
2 1,10,000
3 1,40,000
4 1,50,000
5 2,50,000
calculate the following:
(i) Pay-Back period
(ii) Internal rate of return
(iii) Profitability index at 10% rate.

6. Explain the concept of operating leverage and financial leverage. What is the structural relationship ranging from them?

7. The subsequent data relates to Nova Scot Gear:
2004 2005 2006
Inventory (Average in million) 141 62 109
Sales (Rs. in million) 618 430 385

Suppose Nova Scot Gear sales only shoes and the avg. price per pair Is Rs. 60, carrying costs are Rs. 10 per pair and operating cost are Rs 10,000.
(a) compute the optimal inventory for Nova Scot in 2006.
(b) Suppose the firm now ells 100 various products (including shoes) the avg. price of every unit is Rs. 60, compute the optional inventory that Nova Scot should hold.

8. What factors determine the dividend policy of a company? Do you believe it will be justifiable for a company to find a short term loan from a bank to allow payment of a dividend?

9.(a) What is stable dividend policy? Why should a firm follow such a policy?
(b) What is cash operating cycle? Why various firms have various cash operating cycles?

10. Write short notes on the following:
(a) Time value of money
(b) Mm Hypothesis
(c) Bavmol Model for Cash management

Earning:   Approval pending.