Course: Financial Management
Course code: 20MBAC710
Question bank
Module 1
1. What is Financial Management?
2. What are the objectives of Finance Function?
3. Name the areas of finance function.
4. Explain the scope of financial management.
5. Outline the functional areas of financial management.
6. What are the responsibilities of the financial manager in a modern business
organization?
7. Write short note on functions of a financial manager.
8. Critically analyze the functions of Financial Manager in large industrial establishments.
9. Explain the objectives of financial management.
10. Explain the objectives of a modern firm.
11. What are the various components of a financial system?
12. “Maximization of Profit is regarded as the proper objective of investment decision, but
it is not as exclusive as maximizing shareholders’ wealth”. Comment.
13. Explain the appropriate goal of the firm and why alternative goals are inappropriate.
14. Critically examine profit and wealth objective of organizations goal.
15. Why is maximizing wealth a better goal than maximizing profits?
16. What is agency problem? Discuss the steps to minimize it.
17. Write short notes on:
a. Cash budget
b. Master budget
c. Production budget
d. Sales budget
18. “Budgets are roadmap for every organization to attain the desired objectives”,
comment.
19. Discuss the advantages and disadvantages of budgets.
Module 2
Time Value of Money
1. What is time value of money? Write short notes on compounding and discounting.
2. Explain the different compounding techniques.
3. Numerical problems.
Capital Budgeting
1. What is capital budgeting? Explain its need and importance.
2. Explain various methods of ranking investment proposals.
3. Give a comparative description of net present value method and internal rate of return
method.
4. Critically evaluate the Pay Back Period and Accounting Rate of Return as a method of
investment appraisal.
5. What are the components of capital budgeting analysis?
6. Discuss the various methods used for risk factor in capital budgeting decisions.
7. Write short note on: (i) risk adjusted discount rate (ii) certainty – equivalent coefficient
(iii) sensitivity analysis and (iv) decision tree analysis.
Module 3
1. What is cost of capital? Explain the significance of cost of capital.
2. What is the importance of cost of capital? Discuss the problems in determining it.
3. Examine critically the different approaches for computing the cost of equity. Discuss
the merits and demerits.
4. Write short notes on cost of debt. Explain its merits and demerits.
5. How is the cost of preference share determined?
6. Write short note on: (i) Specific cost Vs composite cost of capital (ii) Historical cost Vs
Future cost (iii) Explicit cost Vs Implicit cost.
7. What is weighted average cost of capital? Examine the rationale behind the use of
weighted average cost of capital of a firm.
WORKING CAPITAL MANAGEMENT
1. What do you understand by Working Capital? What factors would you take into
considerations in estimating the working capital need of a concern?
2. Describe the need and significance of working capital in a business.
3. Explain briefly the different types of working capital.
4. What shall be the effects if a firm has (a) excess working capital (b) inadequate
working capital?
5. What is operating cycle? Explain its significance.
6. What is operating cycle? M/s. Veeresh Enterprises is involved in manufacturing of
industrial products. Draw out the operating cycle with imaginary days
7. Explain briefly the different sources of working capital.
8. What are the advantages and disadvantages of trade credit as a source of short-term
finance?
Cash and Receivables Management
1. What is nature of cash? Name the various motive for holding cash.
2. What do you understand by cash management? How can it be undertaken?
3. “Efficient cash management will aim at maximizing the cash inflows and showing cash
outflows”. Discuss.
4. Explain the various methods of investing surplus cash. What criteria should a firm use
in investing marketable securities?
5. Explain and illustrate the utility and preparation of cash budget as a tool of cash
management.
6. What do understand by Receivables Management? Why is it essential to a business
concern?
7. Discuss the various aspects or dimensions of receivable management.
8. What is meant by Economic Ordering Quantity? What are the various costs which
affect the EOQ?
9. What is credit policy? What are the elements of credit policy of a firm?
10. Write short notes on (i) collection policy (ii) credit analysis
11. Explain the various costs involved in management of debtors.
12. What is credit management? Explain the factors involved in credit management.
13. What is credit standards? Explain the factors considered in setting credit standards.
14. Explain the various sources of obtaining credit information in large organizations.
Long Term and short-term Sources of Capital
12. What is meant by leverage? Explain the types of leverages.
13. What is meant by financial leverage? How does it magnify the revenue available for
equity shareholders?
14. What is operating leverage? How does it help in magnifying revenue of a concern?
15. Distinguish between operating leverage and financial leverage.
16. Write a critical note on financial leverage and financial decision.
Module 4
1. What is personal finance? How it is guide for retirement?
2. What is financial planning? Explain the steps to be followed in financial planning.
3. Explain the different avenues for investment.
4. What are the sources available for investment.
5. Mr. Rajkumar, aged 22 years is working in MNC. He presently draws salary of Rs.
50,000/- per month out of which 40% he spends. Suggest him with financial planning
avenues.
6. “Setting financial goals is easy” comment. / Explain the steps setting financial goals.
7. Explain Personal Financial Planning Lifecycle.
8. “Penny saved is penny earned” justify your answer with 50/30/20 rule.
TYPE 1:
1. M/s. ABC Pvt. Ltd., has planned to buy a machinery costing Rs. 5,00,000/-. The
machine is expected to generate cash flows as below:
Year 1 2 3 4 5
CFAT (In 1,00,000 1,50,000 2,00,000 2,50,000 3,00,000
Rs.)
The machine is financed through a bank at 10% per annum. Is it feasible to buy?
Disc Discounted Cash Flow After
Year CFAT factor Tax
0 -500000
1,00,00
1 0 0.9091 90909
1,50,00
2 0 0.8264 123966
2,00,00
3 0 0.7513 150262
2,50,00
4 0 0.6830 170753
3,00,00
5 0 0.6209 186276
TOTA
L 722168
Net Present Value = Total of Discounted Cash Flow After Tax – Initial
Investment
NPV = 7,22,168 – 5,00,000 = 2,22,168
Profitability Index = Total of Discounted Cash Flow After Tax
----------------------------------------------
Initial Investment
= 7,22,168 / 5,00,000 = 1.44
IRR = {Lower interest rate + [(NPV at Lower rate)/ (NPV at Lower rate + NPV at Higher
rate)] * (Higher – Lower rate)}
NPV at 23% = Rs. 3709/-
NPV at 24% = Rs. -8829/-
IRR = { 23% + [3709/(3709-(-8829)]1%}
IRR = { 23% + [3709/( 12538)]1%}
IRR = { 23% + [0.26]1%} = 23.26%
Also practice problems related to:
1. Simple payback period
2. Discounted payback period
3. Accounting Rate of return
TYPE 2:
2. M/s. ABC Pvt. Ltd., has planned to buy a machinery costing Rs. 5,00,000/-. The
machine is expected to earnings before tax as below:
Year 1 2 3 4 5
CFAT (In 1,50,000 2,50,000 2,75,000 3,50,000 4,50,000
Rs.)
The machine is financed through a bank at 10% per annum. The company incurs
variable cost of 40% and fixed cost amount Rs. 35,000/- per year. The tax rate is 30%.
The company follows straight line depreciation at 10% per annum. At the end of 5
years, machine will be sold at Rs. 1,00,000/-. Is it feasible to buy?
Year 1 2 3 4 5
Sales 1,50,000 2,50,000 2,75,000 3,50,000 5,50,000
Less Depreciation 50,000 50,000 50,000 50,000 50,000
EBIT 1,00,000 2,00,000 2,25,000 3,00,000 5,00,000
Less Tax @ 30% 30,000 60,000 67,500 90,000 1,50,000
EAT 70,000 1,40,000 1,57,500 2,10,000 3,50,000
Cash flows 1,20,000 1,90,000 2,07,500 2,60,000 4,00,000
PV Factor 0.9091 0.8264 0.7513 0.6830 0.6209
Present value of
cash flows 1,09,091 1,57,025 1,55,898 1,77,583 2,48,369
Net Present Value = Total of Discounted Cash Flow After Tax – Initial Investment
NPV = 4,38,650 – 5,00,000 = Rs. -61,350/- (NPV is negative hence project is rejected)
TYPE 3:
3. M/s. ABC Pvt. Ltd., has planned to buy a machinery costing Rs. 5,00,000/-. The
machine is expected to increase sales as below:
Year 1 2 3 4 5
CFAT (In 1,50,000 2,50,000 2,75,000 3,50,000 4,50,000
Rs.)
The machine is financed through a bank at 10% per annum. The tax rate is 30%. The
company follows straight line depreciation at 10% per annum. Is it feasible to buy?
Year 1 2 3 4 5
Sales 1,50,000 2,50,000 2,75,000 3,50,000 4,50,000
Less Depreciation 50,000 50,000 50,000 50,000 50,000
EBIT 1,00,000 2,00,000 2,25,000 3,00,000 4,00,000
Less Tax @ 30% 30,000 60,000 67,500 90,000 1,20,000
EAT 70,000 1,40,000 1,57,500 2,10,000 2,80,000
Cash flows 1,20,000 1,90,000 2,07,500 2,60,000 3,30,000
PV Factor 0.9091 0.8264 0.7513 0.6830 0.6209
Present value of
cash flows 1,09,091 1,57,025 1,55,898 1,77,583 2,04,904
Net Present Value = Total of Discounted Cash Flow After Tax – Initial
Investment
NPV = 8,04,501 – 5,00,000 = Rs. 3,04,501/- (NPV is positive hence project is
accepted)
In similar way
1. Simple payback period
2. Discounted payback period
3. Accounting Rate of return
4. Profitability index
5. IRR
Can be calculated.
