NOVEMBER 2015 77362/PMD2M

Time : Three hours Maximum : 75 marks

PART A — (10 × 1 = 10 marks)

Answer any TEN questions.

Write short notes on the following :

1. What are agency costs?

2. Proforma analysis.

3. Sensitivity in financial planning.

4. Activity ratios.

5. What is degree of combined leverage?

6. Break even chart.

7. Commercial bills.

8. Current assets.

9. Dividend growth model.

10. Optimum credit policy.

11. Performance budget.

12. Assumptions of NI approach.

 PART B — (5 × 5 = 25 marks)

Answer any FIVE questions.

13. Explain how the comparative financial statement

analysis carried out.

14. What are the basic financial decisions? How do

they involve in risk-return trade off?

15. Explain the concept of operating leverage. What is

its impact on the EPS of the company?

16. List out various factors affecting the working

capital requirements of a firm.

17. What are the objectives of the collection policy?

How should it be established?

18. What is CAPM approach for calculating the cost of

equity? What is the difference between this
approach and the constant growth approach?

19. ‘‘Walter’s and Gordon’s models are essentially

based on the same assumptions. Thus there is no
basic difference between two models’’ – Do you
agree or not? Why?

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 PART C — (4 × 10 = 40 marks)

Answer Q.No. 20 compulsory and any THREE questions

from Q. No. 21 to Q. No. 24.

20. A company is currently selling 1,00,000 units of its

product at Rs. 50 each unit. At the current level of
production, the cost per unit is Rs. 45, variable
cost per unit being Rs. 40. The company is
currently extending one month’s credit to its
customers. It is thinking of extending credit period
to two months in the expectation that the sales
will increase by 25 percent. If the required rate of
return (before tax) on the firm’s investment is 30
percent, is the new credit policy desirable?

21. What are the long term and short term sources of
working capital?

22. Does financial leverage always increase the EPS of

the company? Illustrate your answer with an
example.

23. ‘‘Marginal cost of capital is nothing but the

average cost of capital’’ – Explain.

24. Briefly explain the factors which influence the

planning of the capital structure in practice.

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