GCET/IQAC/Q
GALGOTIAS EDUCATIONAL INSTITUTIONS
1, Knowledge Park-II, Greater Noida, Uttar Pradesh, 201310
Department of Management Studies, GCET
Question Bank
Course: MBA Semester: II Sem
Session: 2023-24 Section: A,B,C / LSCM
Subject: Financial Management & Corporate Finance Sub. Code: KMBN/KMLS 204
Unit -1 - CO-1 -
Short Questions:
1. What is corporate financial management?
2. What is time value of money?
3. Elaborate the concept Profit Vs. Wealth maximization Also state
which is more important for the company?
4. What is meant by Asset Based Valuation Model?
5. Define Arbitrage Pricing Theory.
Long Questions:
1. What is Capital Asset Pricing Model? Also discuss its assumptions.
2. Explain Corporate Valuation Model in Business Management.
3. What are the basic financial decisions? How do they involve risk-
return trade-off? Explain.
4. What is Finance Function? Explain in brief the different approaches
(concepts) to finance functions.
5. “Finance is the life blood of Industry.” Elucidate this statement with
suitable examples.
Unit -2 - CO-2 –
Short Questions:
1. What is meant by Composite Cost of Capital?
2. The average rate of dividend paid by Veer Co. Ltd. for the last five
year is 21 Percent. The earnings of the company have recorded a
growth rate of 3 percent per annum. The market value of the equity
share is estimated to be Rs. 105. Find out the cost of equity share
capital.
3. Why calculating of cost of capital is important for firm? State the
significance of WACC.
4. Define Profitability Index. How it is calculated?
5. A project cost Rs. 96,000 and is expected to generate cash inflows of
Rs. 48,000, Rs. 42,000 and Rs. 36,000 at the end of each year for next
3 years. Calculate project’s IRR.
Long Questions:
1. “Equity Capital has also a cost.” Explaining it discuss the various
methods of measuring the cost of equity capital.
2. A project will cost Rs. 4,00,000. Its stream of earnings before
depreciation, interest and taxes (EBDIT) during first year through five
years is expected to be Rs. 1,00,000, Rs. 1,20,000, Rs. 1,40,000, Rs.
1,60,000 and Rs. 2,00,000. Assume a 30% tax rate and depreciation
on straight-line basis. Calculate the project’s accounting rate of return.
3. What is Capital Budgeting? List various methods of Capital
Budgeting, Give merits and demerits of NPV method.
4. XYZ Ltd. issued 2,000 10% Preference Share of Rs. 200 each. Cost
of issue is Rs.3 per share. Calculate cost of preference capital if these
shares are issued: (1) at par (2) at premium and (3) at 2% discount.
Also calculate cost of preference shares after tax in the above
situations, if
corporate dividend tax is 10%.
5. The project will cost Rs. 50000 and will have life and no salvage
value. Tax rate is 50%. The Company follows straight line method of
depreciation. the net earnings before depreciation and tax is as
follows:
Year 1 2 3
4 5
EBDT 10000 11000
14000 15000 25000
Evaluate the project using:
(i) Payback period (ii) ARR
Unit -3 – CO-3 -
Short Questions:
1. What is point of indifference? How its determine?
2. What are the basic features of an optimum capital structure?
3. What is combined leverage?
4. What factors can affect the capital structure of firm?
5. Name the theories of irrelevant concept of capital structure.
Long Questions:
1. A Company has sales of Rs. 1 lakh. The variable costs are 40% of the
sales while the fixed operating costs amount to Rs. 30,000. The
amount of interest on long-term debt is Rs. 10,000. You are required
to estimate the operating, financial and composite leverages and
illustrate its impact if sales increased by 5%.
2. Explain the importance of leverage for business decisions. Highlight
the role of financial leverage.
3. Explain Net Income Approach. How it is different from Net Operating
Income Approach.
4. What do you mean by capital structure? Explain the theories of capital
structure in brief.
5. A company needs Rs. 10, 00,000 for the installation of a new factory.
The new factory is expected to yield annual earnings before interest
and taxes (EBIT) of Rs. 1,60,000. The current market price per share
is Rs. 25 and is expected to drop to Rs.20 if the funds are borrowed in
excess of Rs. 5, 00,000. It is considering the possibility of issuing
equity shares and raising debt of Rs. 1, 00,000 or Rs. 4,00,000 or Rs.
6, 00,000. Funds can be borrowed at the interest rates indicated
below:
Up to Rs. 1,00,000 at 8%
Over Rs. 1,00,000 to Rs. 5,00,000 at 12% and
Over Rs. 5,00,000 at 18%
Assume a tax rate of 50%. Determine the earning per share (EPS) and
suggest the
best alternative.
Unit -4 – CO-4 -
Short Questions:
1. What do you mean by dividend policy?
2. Name the theories of relevant and irrelevant concept of dividend.
3. What is meant by Interim dividend?
4. State the types of dividend.
5. What are essentials of a sound dividend policy?
Long Questions:
1. What is dividend? Discuss the various determinants regarding the
dividend decisions
2. XYZ Company currently has outstanding 2, 00,000 shares selling
at Rs. 200 each. The firm is thinking of declaring a dividend of Rs.
10 per share at the end of the current year. The Capitalizations rate
of this type of firm is 10%. Evaluate the price of the share at the
end of the year if
(i) A dividend is not declared and
(ii) A dividend is declared.
(by using M-M Approach)
3. As per M.M. approach “the wealth of share holders is equal
whether dividend is paid or not”. Explain along with example
4. Discuss the ‘Walter’s Approach’ with formula and various
assumptions of the relevance concept of dividend.
5. Discuss the Gordon’s approach and its various assumptions.
Unit-5- CO-5-
Short Questions:
1. Define De-Merger
2. What is Acquisition?
3. How to calculate exchange ratio and Post Merger EPS?
4. What do you mean by De-Merger? What are the reasons for it?
5. Explain the required rate of return or return on investment of a
merger company?
Long Questions:
1. Explain the synergy benefit in merger and acquisition.
2. Discuss the challenges faced during merger or acquisition.
3. Assume Firm A is the acquirer and Firm B is the target firm. Firm
B has 10,000 outstanding shares and is trading at a current price of
Rs. 17.30 and Firm A is willing to pay a 25% takeover premium.
Firm A is currently trading at Rs. 11.75 per share. Calculate the
exchange ratio
4. What are the reasons of merger? Also discuss the types of merger.
5. XYZ Ltd. is considering merger with ABC Ltd. XYZ Ltd.’s shares
are currently traded at Rs. 25. It has 2,00,000 shares outstanding
and its profits after taxes (PAT) amount to Rs. Rs. 4,00,000. ABC
Ltd. Has 1,00,000 shares outstanding. Its current market price is
Rs. 12.50 and its PAT are Rs. 1,00,000. The merger will be
effected by means of a stock swap (exchange). ABC Ltd. has
agreed to a plan under which XYZ Ltd. will offer the current
market value of ABC Ltd.’s shares:
(i) What is the pre-merger earnings per share (EPS) and P/E
ratios of both the companies?
(ii) If ABC Ltd.’s P/E ratio is 8, what is its current market price?
What is the exchange ratio? What will XYZ Ltd.’s post-
merger EPS be?
(iii) What must the exchange ratio be for XYZ Ltd.’s that pre and
post-merger EPS to be the same?
