First Semester
(Regulation 2009)
Time : Three hours                                                                                         Maximum : 100 Marks
Answer ALL Questions
PART A — (10 × 2 = 20 Marks)

1. How is the term finance more comprehensive than money management?
2. How would you have a fresh look at the finance function in business?
3. What is capital rationing? State the principles of capital rationing.
4. What are the components of a capital expenditure management programme?
5. State the advantages of trading on equity.
6. What you mean by an optimal capital structure?
7. State the different types of working capital.
8. How are receivables forecasted?
9. State the various features of term loans.
10. Define the term ‘Venture Capital’.

PART B — (5 × 16 = 80 Marks)

11. (a) ‘Financial Management is the appendage of the finance function’. –
(b) Discuss fully the organization of the finance functions in a business.
Question Paper Code: J6509  132  132  132
J6509 2
12. (a) State the different kinds of capital budgeting proposals. How would you
rank them for the purpose of their selection?
(b) Someshwar industries limited is considering the purchase of a new
machine which would carry out some operations, at present being
performed by hands, the two alternatives models under consideration are
complex and shrilex.
The following information is available in respect of both models
Complex Shrilex
Estimated life in years 10 12
Cost of machines Rs. 6,00,000 Rs. 10,00,000
Estimated savings in scrap p.a. Rs. 40,000 Rs. 60,000
Additional cost of supervision p.a. Rs. 48,000 Rs. 64,000
Additional cost of maintenance p.a. Rs. 28,000 Rs. 44,000
Cost of indirect material p.a. Rs. 24,000 Rs. 32,000
Estimated savings in wages
(i) Wages per worker p.a. Rs. 2,400 Rs. 2,500
(ii) No. of workers p.a. not required Rs. 150 Rs. 200
Using method of payback period, suggest which should be purchased.
Ignore tax.
13. (a) Calculate financial leverage and operating leverage under situations A
and B financial plans I and II respectively from the following relating to
the operations and capital structure of ABC ltd.
Installed capacity 1,000 Units
Actual production and sales 800 Units
Selling price per unit Rs. 20
Variable cost per unit Rs. 15
Fixed costs : Situation –A Rs. 800
Situation –B Rs. 1,500
Capital structure :
Financial plan
Equity Capital Rs. 5,000 Rs. 7,000
Debt Rs. 5,000 Rs. 2,000
(b) Explain the approach of weighted average cost of capital and state its
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14. (a) Discuss the factors determining working capital.
(b) A corporation has presently no safety stock of raw materials of orders
30,000 units every 30 days. Due to recent fluctuations in usage, the
company finds it necessary to establish an optimal safety stock. The
probability distribution for inventory usage is as follows :
Usage (in units) Probability
27,000 0.04
28,000 0.07
29,000 0.17
30,000 0.32
31,000 0.20
32,000 0.10
33,000 0.06
34,000 0.04
It takes 2 days to place an order and receive delivery. The average
monthly carrying cost is Re. 1 per unit and the stock outs are estimated
to cost Rs. 3 per unit. You are required to find out the optimal safety
15. (a) Bring out the relationship of term financing with the capital market.
(b) Discuss the various sources of long-term finance of Indian companies.

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