Paper – 3.

4 : Financial Management - Scheme

Section – A (4x2=8)
a) Accoding to Soloman “Financial Management is concerned with the efficient use of
important economic resource, namely, Capital Funds”. According to James C. Van Horne
“Financial Management is concerned with the acquisition, financing, and management of
assets with some overall goal in mind”. Financial Management may be defined as raising of
funds, their effective utilization enabling to achieve overall objectives of the firm. In simple
words financial management means manage the finance. In other words financial
management is the overall management effort which is closely associated with planning and
controlling of a company’s financial resources. (any one definition)
b) Incorporation of debt in the total composition of capital of an enterprise is called as
Trading on equity.
c) Wealth Maximisation means to maximise the net present value (or wealth) (NPV) of a
course of action. It NPV is the difference between the gross present value of the benefits of
that action and the amount of investment required to achieve those benefits. The gross
present value of a course of action is calculated by discounting or capitalising its benefits at a
rate which reflects their timings and uncertainty.
d) Determining the financial needs, determining the sources of funds, financial analysis,
optimum capital structure, cost volume profit analysis, profit planning & control, fixed asset
management, capital budgeting, corporate taxation, working capital management, dividend
policies and acquisitions and mergers (any four)
e) Calculate the present value of Rs.30000 received after 6 years, if the discount rate is 9%.
Section – B
Answer any three Questions out of four of the following. Each question carries Six Marks

(3x6=18)
2. Consider the following data of Tenzim Ltd.
Selling price per Unit Rs. 60
Variable cost per unit Rs.10
Fixed cost Rs.300000
Interest Burden Rs.100000
Calculate operating leverage and financial leverage if the number of units sold in
10000 units.
3. TNS Ltd is considering 2 alternatives. The first alternative costs Rs.12000 and t
he estimated
annual cash inflows from it amounts to Rs.4000. its economic life is 5 years. The
second
alternative costs Rs.10000 and its estimated cash inflow is also Rs.4000 p.a. its
economic life
however is only 4 years. Advise the management by using ‘Pay back period’.
4. “Financial Planning is concerned with future”. Do you agree?
5. Explain the need for time value of money.

Section - C
Answer any One out of the following two questions and each question carries fourteen marks

(1x14=14)
6. Maxi pickup auto ltd has an equity share capital of Rs.500000 divided into shares
of Rs.100
each. It wishes to raise further Rs.300000 for modernization. The Operating Profit
is Rs.100000 The Company plans the below financing structure:
a) All equity shares. b) Rs.100000 in equity shares and Rs.200000 in 10% Debt.
c) All
in 10% debt. d) Rs.100000 in equity shares and Rs.200000 in 10% Preference
Shares.
The Corporate Tax is 50%. Calculate the EPS in each case and comment on the
best plan. .

7. Explain the characteristics of Sound Financial Plan.