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M.com , B.Ed. , CMA (Inter),

CA (Inter) B.com (Hons) Rank Holder
Ex Teacher at Unacademy for UPSC
10 + Years of Experience
RAHUL SINGH | 8777203495
1. Explain the function of CFO or Manager in the Modern Business Environment. (Hons. & Gen.)
In modern days, no big concern runs without organizing its finance department the Chief Financial
Officer (CFO) is the head of Finance Department. Sometimes the CFO is designated as the Director in
Charge of Finance or the Finance Manager. A company may have its finance department headed by
the Director in Charge of Finance. He may be responsible for general accounting, cost accounting,
budgeting, investments and disbursement of wages and salaries (payroll section). The Finance
Manager has to function in coordination with Chief Accountant and Assistant Manager. All are under
the Managing Director. In any case, Finance Department is to be organized more or less on the lines
of other functional departments. Finance executives are to be recruited, selected, and trained
properly so that they become specialized in this particular area of management. The Finance
Manager, who is a staff person, advises the line executives, who are ultimately to take decisions. The
Finance Manager acts as controller and treasurer also. He is custodian and accountant of corporate
funds and investments.
2. Explain the inter-relationship between Financing Decision , Investing Decision & Dividend Decision.
(Hons. & Gen.)
The inter-relationship between Financing Decision, Investing Decision, and Dividend Decision is a
fundamental aspect of a firm’s financial management. Here’s how they are interconnected :
1. Investing Decision : This involves determining which projects or assets the firm should invest in
to generate returns. The quality of these investments directly affects the firm’s profitability and
ultimately the returns to shareholders.
2. Financing Decision : This decision pertains to how the firm raises capital to fund its chosen
investments. It involves choosing between debt, equity, or a mix of both. The cost of capital
from these sources influences the firm’s investment decisions and its ability to pay dividends.
3. Dividend Decision : This is about determining the portion of profits that will be distributed to
shareholders as dividends. The dividend policy impacts the amount of retained earnings, which
can be used for future investments or to repay debt.
The inter-relationship can be summarized as follows :
• The Investing Decision affects the firm’s need for financing. More profitable investment
opportunities may lead to more aggressive financing strategies.
• The Financing Decision influences the firm’s capital structure and cost of capital, which in turn
affects both the investing decisions and the dividend policy.
• The Dividend Decision impacts the amount of funds available for reinvestment. A higher
dividend payout could limit the funds available for future investments, while a lower payout
could signal more funds being available for growth opportunities.
In essence, these decisions are not made in isolation; they influence each other and collectively
determine the firm’s financial health and growth trajectory. For instance, a firm that decides to invest
in a high-return project may need to raise capital through equity or debt (Financing Decision). The
method of financing will affect the firm’s leverage and cost of capital. In turn, this influences the
firm’s ability to pay dividends (Dividend Decision) without compromising its growth prospects.
It’s a delicate balance, and firms must carefully consider the interplay between these decisions to
ensure long-term growth and profitability.
3. What do you mean by wealth maximization objectives of a firm ? (Hons. & Gen.)
The primary objective of wealth maximization for a firm is to increase shareholder wealth. Here are
some key points related to this objective :
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(i) Shareholder Value : Wealth maximization focuses on enhancing the value of shares held by
shareholders. The idea is that a company’s success is reflected in its stock price, and maximizing
this value benefits both shareholders and the firm.
(ii) Time Value of Money : Wealth maximization considers the time value of money. It recognizes
that a dollar received today is worth more than the same dollar received in the future due to
factors like inflation and opportunity cost.
(iii) Risk and Uncertainty : The objective takes into account the risk and uncertainty associated with
cash flows. Decisions should consider the trade-off between risk and expected returns.
(iv) Dividend Policy : Wealth maximization considers the impact of a firm’s dividend policy on share
prices. Balancing dividend payments with reinvestment opportunities is crucial.
In summary, wealth maximization aims to increase the unit price of shares over time, leading to long-
term benefits for both the firm and its shareholders.
4. Discuss the relationship between Risk & Return. (Hons. & Gen.)
To know relationship between risk and return may be main topic of any investor because investor is
always interest (zest) to get high return at low risk. But if he succeeds to quantify the relationship
and its direction, he can manage his investment with better way. Our aim to discuss this concept is
to explain what type of relationship between risk and return may happen.
Relationship between risk and return means to study the effect of both elements on each other. We
measure the effect of increase or decrease risk on return of investment. Following is the main type
of relationship of risk and return :
1. Positive Relationship between Risk and Return :

(a) High Risk - High Return : According to this type of relationship, if investor will take more risk, he
will get more reward. So, he invested million, it means his risk of loss is million dollar. Suppose,
he is earning 10% return. It means, his return is Lakh but he invests more million, it means his
risk of loss of money is million. Now, he will get Lakh return.
(b) Low Risk - Low Return : It is also direct relationship between risk and return. If investor decreases
investment. It means, he is decreasing his risk of loss, at that time, his return will also decrease.
2. Negative Relationship between Risk and Return :

(a) High Risk Low Return : Sometime, investor increases investment amount for getting high return
but with increasing return, he faces low return because it is nature of that project. There is no
benefit to increase investment in such project Suppose, there are 1,00,000 lotteries in which you
will earn the prize of You have bought 50 % of total lotteries. But, if you buy 75 % of lotteries.
Prize will be same but at increasing of risk, your return will decrease.
(b) Low Risk High Return : There are some projects, if you invest low amount, you can earn high
return. For example, Govt. of India need money: Because, govt. needs this money in emergency
and Govt. is giving high return on small investment. If you get this opportunity and invest your
money, you will get high return on your small risk of loss of money.
5. Discuss the Importance / Functions of Financial Management. (Hons. & Gen.)
Financial management is crucial for businesses as it involves planning, managing, and controlling
finances to achieve organizational goals. Here are some key functions :
(a) Resource Allocation : It helps in allocating financial resources efficiently and effectively.
(b) Informed Decision-Making : Supports making informed decisions regarding investments and
expenses.
(c) Cost Control : Aids in monitoring and controlling costs to maximize profits.
(d) Risk Reduction : Helps in identifying and mitigating financial risks.
(e) Stability : Ensures the business remains stable and competitive over the long term.
(f) Financial Goals : Provides a framework to set clear goals and assess potential risks.
(g) Liquidity Management : Ensures there is enough cash flow to meet the company’s short-term
obligations.
(h) Stakeholder Confidence : Builds confidence among investors and shareholders through sound
financial practices.
6. What are the Limits of Profit Maximization ? (Hons. & Gen.)
Profit maximization, while a common business goal, has several limitations :

(i) Imperfect Information: Difficulty in accurately knowing marginal revenue and marginal cost.
(ii) Competition: High profits can attract competitors, potentially reducing market share.
(iii) Demand Elasticity: Challenges in understanding how price changes affect demand.
(iv) Short-Term Focus: It may overlook the long-term sustainability and ethical considerations.
(v) Quality and Service: May lead to a compromise on product quality and customer service to cut
costs.
(vi) Stakeholder Interests: It might ignore the interests of other stakeholders like employees,
customers, and the community.
7. What are the objectives of Inventory Management ? (Hons. & Gen.)
Objectives of Inventory Management are as follows :

I. Having Material Available :
One of the main objectives of inventory management is to ensure you are always having material
available whenever the production department needs them ensuring that production is not
stopped or slowed down due to a lack of resources.
That’s why it is important to keep a buffer stock of all important materials in order to keep
production on track.

II. Improve Order Fulfillment :

Improved order fulfillment is another important objective of inventory management to ensure
you avoid situations when you don’t have stock to fulfill all your orders and you’ll have to keep
your customer waiting or provide them with a refund.
Situations such as sales making a sale just to later find out your company won’t have enough
inventory to complete the order, or a customer bought your product from your eCommerce
store that is actually out of stock are one of the many order fulfillment problems that can cost
you customers, money, and business reputation.
To not experience this, an inventory management system should be used, and team members
should be knowing the inventory situation.
III. Having the Right Amount of Stock :

Another major objective of inventory management is to ensure you are having the right amount
of stock to ensure stockouts or overstocking does not happen.
For manufacturing, you always need to ensure supplies should be easily available for all stages
of production, from raw materials to completed goods. You need to make sure you have enough
of the necessary material on hand to meet client demand without having to cut corners and
being concerned about running out of materials, and components and stopping production.
For retail, this helps you to track the best-selling and low-selling items, so you don’t end up with
too much stock with items that are hard to sell and too little stock for those items that are selling
by themselves.
Inventory management helps companies that handle inventory to optimize their inventory stock
levels so they don’t spend too much capital on inventory, but also are not out of stock which
could mean losing customers to competitors.
IV. Keeping Wastage and Losses to a Minimum :

The fourth objective of inventory management is to keep wastage and losses to a minimum.
When businesses don’t have a complete view of their inventory it is easy for a stock to be
misplaced, stolen, disappeared, or become obsolete because the business did not sell it on time.
Inventory management helps you to ensure that these occurrences are being limited or
completely reduced by giving you a full view of your inventory, where it is stored, and its
movement of it.
Having processes and documents in place helps avoid waste and protects your business from
theft or losses. This is especially important when you are handling large quantities of goods.
Inventory management attempts to minimize inventory waste at all stages, such as during
storage in warehouse or during production in the plant.
Normal or uncontrolled waste should not be allowed to exceed a permissible level, whereas
abnormal and unmanageable wastage should be carefully regulated.
V. Increase Profit :
And the last main objective of inventory management I would like to mention here is to help
you increase profit.
An inventory management system can help you analyze your historical data and product sales
patterns and make a suggestion for you to have enough stock to avoid being out of stock and
losing profit.
It can also help you identify any low-selling items for you to market in order to sell them before
they become obsolete and liability to your company.

Inventory management gives you essential insights on your sales to keep profit high and cost
low, keeping your goods going in and out and helping you identify any important trends that you
should react to.
8. What are the factors in determining the size of debtors. (Hons. & Gen.)
Size of debtors is determined by the following debtors :

(i) Credit period allowed to debtors : If the demand of the product is inelastic, credit period maybe
small and vice-versa. Credit period depends on practice followed by the competitors, convention
in the industry, availability of funds, chance of bad debts.
(ii) Terms of discount : Cash discount is allowed to speed up collection of debts. Cash discount
improves liquidity of the seller. The rate of cash discount depends upon cost of carrying debts.
(iii) The degree of risk involved with providing credit to a particular customer : On the basis of past
experience, a credit analysis is made in order to rank the customers who want credit. When the
degree of risk is high, less credit is extended to the debtors, and size of debtors is kept low.
(iv) Efficient and time collection from debtors : When collection expenditure increases, bad debt
should decrease. It indicates that the collection expenditure should determine the size of debtor.
Further size of debtors depends upon the efficiency of the collection procedure. It means the
collection procedure must not create any resentment amongst the customers. Ability of the
"collection cell" in keeping constant check over outstanding amount is also a factor that
determines the size of debtors.
9. Discuss matching and aggressive approaches in the context of Working Capital Financing strategies.
(Hons. & Gen.)
In contrast, aggressive approaches of working capital management focus on minimising the amount
of working capital tied up in the business. This involves efficient inventory management, prompt
receivables collection, and strategic payables management. While it optimises resource utilisation, it
may expose the company to risks associated with inadequate liquidity.
Example
In certain situations, XYZ Retail might adopt an aggressive approach to capitalize on specific
opportunities.
• Inventory management : During peak shopping seasons, XYZ Retail adopts an aggressive
inventory management approach. They keep only the essentials in stock to maximize their cash
flow during high-demand periods.
• Receivables collection : During promotional events, XYZ Retail becomes more proactive in
collecting payments from customers to maintain healthy cash flow.
• Payables management : The company extends payment periods slightly to manage cash flow
more effectively, particularly when they anticipate strong sales in the near future.
Suggestion
An aggressive approach might be suitable during periods of high demand, such as holiday seasons or
special sales events. However, this should be managed carefully to avoid customer dissatisfaction
and supply chain disruptions.

10. What are the various sources of finance to meet working capital requirement ? (Hons. & Gen.)
A company has various sources of working capital. Depending upon its condition and requirements,
a company may use any of these sources of working capital. These sources may be spontaneous,
short-term, or long-term.
• Spontaneous Sources : The sources of capital created during normal business activity are called
spontaneous sources of working capital. The amount and credit terms vary from industry to
industry and depend on the business relationship between the buyer and seller. The main
characteristic of spontaneous sources is ‘zero-effort’ and ‘negligible cost’ compared to traditional
financing methods. The primary sources of spontaneous working capital are trade credit and
outstanding expenses.
• Short-term Sources : The sources of capital available to a business for less than one year are called
short-term sources of working capital.
• Long-term Sources : The sources of capital available to a business for a longer period, usually more
than one year, are called long-term sources of working capital.
11. What do you mean by Working Capital ? Why is working capital necessary for business ? (Gen.)
Working Capital Management is one of the most important area in the day-to-day management of
the firm. It is concerned with the short-term financial decisions. The primary objective of working
Capital Management is to manage the firm’s current asset and current liabilities in such a way that a
satisfactory level of working Capital is maintained. If a form is unable to maintain a satisfactory level
of working capital it will lead to an insolvency of the firm. Working capital is defined as the capital
(investment) which is needed for the day to day working of an organization.
Working capital is a crucial aspect of the financial health of your small business. It can show how well
you can manage your business expenses and operations. But you may wonder what makes it so
important in business financial management.
(a) Helps meet short-term financial obligations :
Working capital allows you to reliably pay off short-term liabilities like business expenses and
credit or loan payments. Without this capital, you may struggle to meet these short-term
obligations and increase your business’s debt.
Strong working capital means you can have sufficient cash flow, which is the money coming in
and out of your business over a given time. Even if your business is profitable, you may
overspend your earnings in the short term, so you run out of the cash you need.
Managing your working capital enables you to put that cash in the right place when need be.
Also, if you experience an unexpected expense, you’ll have the cash to cover it.
(b) Helps make business decisions :

Managing your working capital can also show you how you operate your business financially. If
you understand how much working capital you have, this clarity will help you know when to
spend more or less on your business.
Low working capital might suggest it’s a good time to reduce spending and focus on improving
your profits. Being aware of it will help you know when to alter your business operations.
Alternatively, when your financial health is good, you analyse what you did right. Plus, high
liquidity could be the best time to invest in growth.

(c) Improves business value :

Since your working capital shows your business financial health, it can also help you understand
your business value. With high working capital, you have excess cash and convertible assets with
lower liabilities. This ability to convert assets to cash increases your worth. As a result, you have
strong business value, which looks good to investors or loan servicers.
Positive working capital makes your business appear less risky and more reliable because you
don’t struggle to cover expenses. Knowing your worth is useful if you plan to insure or sell your
business.
(d) Helps for growth planning :

Another reason working capital is important to your business financial management is that it
can show you when to invest in growth. For example, you have excess cash for product
development, new locations, or marketing when you have positive working capital.
12. Explain the Working Capital Cycle. (Gen.)
Working capital cycle refers to the length of time between the firms paying cash for materials, etc.,
entering into the production process/stock and the inflow of cash from debtors i.e., sales.
The American Institute of Certified Public Accountants defined the operating cycle as "the average
time intervening between the acquisition of material or services entering the process and the final
cash realization.
Suppose a company has a certain amount of cash it will need raw materials. Some raw materials will
be available on credit but, cash will be paid out from the other part immediately. Then it has to pay
labour costs and incurs factory overheads. These three combined together will constitute work-in-
progress. After the production cycle is complete, work-in-progress will get converted into finished
products.
The finished products when sold on credit get converted into sundry debtors. Sundry debtors will
be realized in cash after the expiry of credit period. This cash can again be used for financing of raw
materials, work-in-progress etc.
Cash
Cash Purchases
Collection
Accounts Raw
Receivable Materials
Customer Production
Invoices Finished
Goods
Thus, there is a complete cycle from cash to cash wherein cash gets converted into raw materials,
work in-progress, finished goods, debtors and finally into cash again.

13. Explain Trading on Equity with an example. (Gen.)
Also known as financial leverage, trading on equity is a strategy that involves taking on debt to
enhance the profits of the company and ultimately the returns to shareholders.
A company may choose to take on debt through term loans, bonds, debentures or preference share
issues. The funds that the company borrows are used to purchase assets that can generate returns
or help the company earn more revenue.
For trading on equity to be successful, the company employing the strategy must generate more
revenue than the overall cost of borrowing.
Example
Assume there’s a company A with a total equity of ₹ 50 crores. The company decides to borrow funds
to the tune of ₹ 20 crores by issuing debentures. The rate of interest on the debentures is 12% per
annum. The company plans to use the borrowed funds (₹ 20 crores) to purchase a few assets that
would help it generate more income, boost profitability and enhance the returns to its shareholders.
Now, the interest cost on the borrowed funds comes up to about ₹ 2.40 crores per annum (₹ 20 crores
x 12%). Thanks to the efficient use of the borrowed funds, the company’s revenue has increased by
about ₹ 3 crores per annum. Since the revenue earned by it is more than the cost of the borrowed
funds, the company’s trading on equity strategy is successful.
14. Discuss the role of debentures in company’s financing. (Gen.)
Debentures as a source of finance suit companies which have regular earnings to service the debt,
have higher proportion of fixed assets in their assets structure which offers adequate security and
motivates investors. The company has to ensure maintenance of prudent debt equity ratio.
Recent trend in the issue of debentures has been quite encouraging and important because of the
following factors :
(i) Support from investment institutions is adequately available. LIC, UTI, GIC and others have been
in field to invest public funds in the debenture issues;
(ii) Emergence of institutions acting as trustees for debentures holders have reposed confidence in
the investing public for the security of their money and safeguard of their interest as creditors;
(iii) Institutional underwriters, merchant banks in public and private sector have come up to render
successful underwriting services to the investor as well as the needy companies;
(iv) Investors preference to high yielding securities with minimum risk has encouraged issue of
debentures by the companies.
(v) Cost of raising money through debenture is minimum as against the cost involved in
other sources of finance;
(vi) Debenture issuing company is obliged now to create a debenture redemption fund to protect
the interest of debenture holders.
15. Write short note on : (Gen.)

(i) Commercial Paper
Commercial paper is not backed by any form of collateral, making it an unsecured debt and
will usually have a higher yield. It differs from asset-backed commercial paper (ABCP), a class of
debt instrument backed by assets selected by the issuer. In either case, commercial paper is only

issued by firms with high ratings from credit rating agencies. These firms can easily find buyers
without having to offer a substantial discount (at a higher cost to themselves) for the debt issue.
(ii) Trade Credit

Trade Credit is an understanding between companies and their suppliers/customers involved in
business with each other. It helps in the transfer of goods and services between two parties
without the immediate exchange of money. When the seller of a commodity or service has
allowed the buyer to make the payment at a later date, the seller has extended Trade Credit to
the buyer. This credit usually gets offered for a fixed number of days (like a week, month, six
months or a year), but businesses can also extend it for a longer duration depending on the
agreement between two parties.
(iii) Dividend Policy

The decisions regarding the dividend payments to the shareholders of a company is a crucial
area of financial management Hence, a firm should frame an appropriate dividend policy that
would maximise the wealth of its shareholders. According to Weston and Brigham, 'Dividend
policy determines the division of earnings between payments to shareholders and retained
earnings'. Thus, the term 'dividend policy' refers to the policy concerned with the distribution of
a portion of profits among the shareholders of the business firm. The power to declare dividends
vests completely in the Board director's of company.
(iv) Accounting of Firm

An accounting firm is a group of accounting professionals that provides clients with financial
management services. These services could include auditing, tax preparation and planning,
payroll processing, bookkeeping, and advisory services. Some of these accountants could be
certified public accountants—CPAs—but not every accountant is a CPA.
An accounting firm's structure often depends on its size. Some accounting firms are run by one
person out of their home. Others employ thousands of people in multiple locations across the
country or worldwide.
Accounting firms also vary in how they charge their clients. Some may charge by the project,
which is often the case when it comes to preparing taxes. Others may charge their clients an
hourly rate depending on the service provided. Still others offer flat monthly rates for ongoing
services like simple financial reporting. The rate they charge will vary with the size of the firm,
the services they provide, and the degrees and certifications of the staff.
(v) Capital Ration

Capital rationing is necessarily an approach of management in allocating the funds available
across various opportunities of investment, thereby enhancing the bottom line of the company.
The company will go on to accept the blend of projects that have the net present value (NPV) on
the higher side.
The primary intention of the capital rationing is to make sure that a company is not going to
invest heavily in assets. With insufficient rationing, a company may go on to witness the returns
provided by their investments going on the lower side and may even reach a scenario where the
company enters the stage of financial insolvency.

VISIT OUR OFFICIAL WEBSITE – SKY HIGH INSTITUTE
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M.com , B.Ed. , CMA (Inter),

CA (Inter) B.com (Hons) Rank Holder
Ex Teacher at Unacademy for UPSC
10 + Years of Experience
Section A ( 4 X 5 Marks )
Question 1. Theory ( with option )

Question 2. Practical ( Time Value of Money ) ( no option )
Question 3. Theory ( Working Capital Management / Capital Budgeting ) ( with option )
Question 4. Practical ( Capital Budgeting ) ( no option )
Section B ( 6 X 10 Marks )
Question 5. Practical ( Leverage ) ( no option )

Question 6. Practical ( Cost of Capital ) ( no option )
Question 7. Practical ( Working Capital Management ) ( no option )
Question 8. Practical ( Capital Budgeting ) ( no option )
Question 9. Practical ( Dividend Policy ) ( no option )
Question 10. Practical ( Working Capital Management / Capital Budgeting ) ( with option )
( can be asked for 5 Marks also, without option )

1. Ms. B is considering two investment proposals for an amount of ₹ 5,000 with following details :
Return from Investment (₹)
Proposal / Period Maturity Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

D 5 years 600 600 600 600 600 N.A
G 6 years NIL NIL 2,400 NIL NIL 800
PV for Re. 1 at 1 % 0.909 0.826 0.751 0.683 0.621 0.564
Suggest her for selecting the better option considering 10 % discounting rate.
[Ans : Total Present Value : Proposal D = ₹ 5,379 , Proposal G = ₹ 5073.60 ]
2. You want to make a gift of ₹ 1,00,000 to one of your friend after 4 years from now. What amount of
money you need to invest every year starting from the beginning of the first year so that you can get the
required amount after 4 years ? The normal return is 10 %.
[Ans : ₹ 21,547 (Approx.) ]
3. X borrows ₹ 59,36,000 from Y at a compound interest rate of 12 % p.a. It is agreed that the Loan shall be
payable in two equal instalments, which shall be payable at the end of the 1st year and 2nd year
respectively. Calculate the amount of each instalments.
[Ans : Amount of each Instalment = ₹ 35,12,426.]
4. Mr. Sen estimates that he needs to withdraw ₹ 2,40,000 every year from his bank for the next three
years. He wants to know the amount of deposit he should have in his bank today to meet the above
requirement if the rate of interest is 4 % p.a.
[Given PVAF (4% .3) =2.775]
[Ans : PV = ₹ 6,66,000.]
5. Mrs. Sunita has ₹ 50,000 at her disposal. She wants to get her money doubled.
a) If interest is compounded @12 % p.a. annually, then how long she has to wait to fulfil her desire?
[Given log (1.12) = 0.0492; log 2 = 0.3010]
b) If she is ready not to wait for more than 4 years then what should be the approximate rate of
compound interest ?
[Ans : a) 6.12 years ; b) 18 %.]
6. Mr. X needs ₹ 1,00,000 at the end of 10 years. He has two options :

Option 1 : Deposit some lump sum amount today at 6 % rate of interest.
Option 2 : Make equal payments into bank account starting a year from now, on which he earns 6 %
rate of interest.
You are required to :

(a) Find out the amount to be deposited under option 1 today.
(b) Ascertain what amount must be deposited annually into the bank account under option 2.

CVIF (6% .10) = 1.791 , CVIFA (6% .10) = 13.181

PVIFA (6% .10) = 7.360 , PVIF (6% .10) = 0.558
[Ans : (a) = ₹ 55,835 ; (b) = ₹ 7,587 (Approx.) ]
7. You are approached by an insurance agent to buy an annuity of ₹ 50,000 for 6 years starting from the
beginning of first year. How much you should be ready to pay now for this annuity if you consider a
discount factor of 8% per annum?
[Ans : PV = ₹ 2,49,640 ; Present Amount = ₹ 31,500.]

1. Work out the marginal cost of capital from the following data:
Existing Capital : ₹ (in Lakh) Cost (%)
Equity 6,000 15
Preference Capital 1,000 10
Debt 4,000 12
Retained Earnings 1,000 18
Additional Requirements :
Equity 4,000 18
Preference Capital 2,000 12
Debt 3,000 16
Retained Earnings 1,000 18
[Ans : Marginal cost of Capital = 13.8 % ; Weighted marginal cost of Capital = 13.63 %.]
2. The capital structure of a company is given below :

Equity Share Capital (5,000 shares of ₹ 100 each) ₹ 5,00,000
10 % Preference Share (2,000 shares of ₹ 100 each) ₹ 2,00,000
12 % Debentures ₹ 3,00,000
_____________
₹ 10,00,000
_____________
Its operating profit is ₹ 2,90,000. The market price of each equity share is ₹ 250 and of each preference
share is ₹ 125.
Find the cost of each source of capital assuming :
(i) Corporate tax to be 30 % and
(ii) Corporate dividend tax to be 10 %.
[Ans : Cost of : Equity Share Capital (Ke) = 12.46 % ; Preference Share Capital (Kp) = 8.8 % ; Debentures
(Kd) = 8.4 %. ]
3. Indrani Ltd. has the following Capital Structure :

₹ (in Lakhs)
Equity Share Capital (10 Lakh Shares) 100
12 % Preference Share Capital (10,000 shares) 10
Retained Earning 120
14 % Debentures (70,000 shares) 70
14 % Term Loan 100
_______
400
_______
The market price per equity share is ₹ 25. The next expected dividend per share is ₹ 2 and is expected to
grow at 8 %. The preference shares are redeemable after 7 years at par and are currently quoted at ₹ 75
per share. The debentures are redeemable after 6 years at par and their current market quotation is
₹ 90 per debenture. The rate applicable to the firm is 50 %.
You are required to compute Weighted Average Cost of Capital of the Company using :
(a) Book Value
(b) Market Value as Weights.
[Ans. Cost of Equity (Ke) = 16 % ; Cost of Preference Share (Kp) = 17.79 % ; Cost of Debentures (Kd) = 8.25
% ; Cost of Term Loan = 7 % ; Cost of Retained earnings = 16 % ; Weighted Average cost of capital - (using
book value weight) = 12.44 % ; (using market value weight) = 12.73 %.]

4. X Ltd. requires additional finance of ₹ 20 Lakh for meeting its investment plans. It has ₹ 4 lakh in the form
the retained earnings available for investment purposes. The following are the further details:
i. Debt-Equity mix 40 : 60
ii. Cost of Debt upto ₹ 4,00,000, 10 % (Before tax)
beyond ₹ 4,00,000 12 % (Before tax)
iii. Earning per share ₹5
iv. Dividend Payout 60 % of earnings
v. Expected growth rate in dividend 5%
vi. Current market price per share ₹ 35
vii. Tax rate 35 %
Compute the overall weighted average after tax cost of additional finance.
[Ans : Weighted Average Cost of Capital = 11.26 %.]
5. A company has following amount of capital with corresponding specific cost of each type :
Type of Capital Book Value (₹) Market Value (₹)
Equity Capital (25,000 shares of ₹ 10 each) 2,50,000 4,50,000
13 % Preference Capital (500 shares of ₹ 100 each) 50,000 45,000
Reserve and Surplus 1,50,000 –
14 % Debentures (1,500 Debentures of ₹ 100 each) 1,50,000 1,45,000
The expected dividend per share is ₹ 1.40 and the dividend per share is expected to grow at a rate of
8 % forever. Preference Shares are redeemable after 5 years at par, whereas debentures are redeemable
after 6 years at par. The tax rate for the company is 50 percent.
You are required to compute weighted average cost of capital using market value as weight.
[Ans : Weighted Average Cost of Capital using market value as weight = 13.96 % ; Cost of Equity (Ke) =
15.8 % ; Cost of Pref. (Kp) = 15.79 % ; Cost of Debenture (Kd) = 7.68 %.]
6. The existing capital structure of X Ltd. is as follows :

Equity Share Capital and retained earning (Ke = 17 %) ₹ 5,00,000
14 % Preference Share Capital ₹ 2,00,000
10 % Debt ₹ 3,00,000
The company to implement the expansion of the plant with capital outlay of ₹ 5,00,000. Besides using
the available retained earning of ₹ 1,00,000, the balance additional fund will be raised as follows:
10 % Debt ₹ 3,00,000
14 % Preference Share Capital ₹ 1,00,000
Corporate tax rate is 20 %.
Assuming that specific cost of different components of capital remaining same, you are required to
(a) Calculate weighted average cost of capital after the issue of fresh securities;
(b) Calculate the marginal cost of capital, and
(c) Comment on the acceptance of the expansion.
[Ans : Weighted Average Cost of Capital after the issue of fresh securities = 12.497 ; Cost of Debentures
(Kd) = 8 % ; Marginal Cost of Capital = 9.5]

1. Zica Ltd. provides you the following information :

Capital structure : 12 % Debentures ₹ 2,00,000 ; 9 % Preference Share Capital ₹ 3,00,000 and 4,000 Equity
Share of ₹ 100 each.
Revenue and Operating cost details : Sales 3,000 units @ 600 p.u. ; Variable Operating Cost p.u. ₹ 350 ;
Fixed Operating Cost ₹ 3,20,000.
Corporate Income Tax rate and Dividend Distribution Tax rate may be assumed at 30 % and 10 %
respectively.
Calculate DOL , DFL and DCL of Zica Ltd. using the concept of leverage, find the percentage change in EPS
when sales increase by 10 %.
[2016 (H)]
[Ans : Contribution = ₹ 7,50,000 ; EBIT = ₹ 4,30,000 ; EBT = ₹ 4,06,000 ; EAT = ₹ 2,84,200 ; EATESH = ₹
2,54,500. DOL = 1.74 ; DFL = 1.18 ; DCL = 2.063]
2. The capital structure of Moon Ltd. is given below:

₹ (Lakh)
Equity Share Capital (₹ 10 each per share) 10.00
Retained earning 6.00
10 % Preference Share Capital 4.00
_____
20.00
_____
The firm has planned to undertake an expansion scheme of ₹ 10,00,000 which can be financed (i) entirely
by issue shares of ₹ 10 each ; or (ii) by issue of 12 % debentures of ₹ 100 each at par.
As a result of expansion, sales and operating fixed cost will increase by 60 % and 75 % respectively. The
other relevant information are given below:
Sales ₹ 50,00,000
Variable Cost 60 %
Operating Fixed Cost ₹ 5,00,000
Corporate Tax 40 %
Calculate leverages and EPS before and after expansion and give your opinion for taking appropriate
decision with respect to financing.
[2010 (H)]
[Ans : Particulars Before Expansion After Expansion
Plan 1 Plan 2
₹ (Lakh) ₹ (Lakh)
a. EPS 8.60 6.77 12.83
b. DOL 1.33 1.38 1.38
c. DFL 1.05 1.3 1.09
d. DCL 1.40 1.42 1.50 ]
3. The following details of P Ltd. for the year ended 31.3.2016 are furnished :
Operating leverage – 3 : 1
Financial leverage – 2 : 1
Interest charges per annum ₹ 20 lakhs
Corporate tax rate 50 %
Variable cost as percentage on sale 60 %.
Prepare the Income Statement of the Company. [2017 (H)]
[Ans : Earning after tax (EAT) = ₹ 10,00,000.]

4. Malancha Plast Ltd. provides you the following information:

Capital Gearing Ratio : 3
Fixed Cost : 1 / 3rd of total operating cost
Dividend Yield : 6%
Operating Ratio : 75 %
Ratio of 18 % Preference Shares to 15 % Debentures : 12.5 %
Dividend Payment Ratio : 30 %
Accumulated Reserves : ₹ 4,00,000
Capital Employed : ₹ 24,00,000
Market Price of an Equity Shares of ₹ 10 : ₹ 135
Tax Rate : 40 %
Prepare an Income statement and calculate the degree of operating leverage, financial leverage and
combined leverage.
[2011 (H)]
[Ans : DOL = 2 ; DFL = 1.33 ; DCL = 2.67]
5. Relevant information about two companies are given below :

Particulars X Y
Annual production capacity (Units) 1,00,000 1,50,000
Capacity utilisation and sales 75 % 75 %
Unit selling price (₹) 40 50
Unit variable cost (₹) 15 15
Fixed cost for the year (₹) 2,00,000 3,00,000
Equity capital (₹ 10 per share) 5,00,000 7,00,000
10 % Preference share capital (₹) 50,000
15 % Debentures (₹) 1,00,000 2,00,000
Determine the degree of Operating Leverage, degree of Financial Leverage, and Earning per Share of two
companies. (Tax rate 40 %).
[2020 (H)]
[Ans : Earning Available to Equity Shareholders : X = 9,96,000 , Y = 21,59,500 ; EPS : X = ₹ 19.92 , Y = ₹
30.85 ; DOL : X = 1.1194 , Y = 1.0825 ; DFL : X = 1.0090 , Y = 1.0083 ; DCL : X = 1.1295 , Y = 1.0914. ]

1. Cosmos Ltd. sells its product on a gross profit of 20 % on sales. The following information is extracted
from its annual accounts for the current year ended 31st March, 2014.
₹
Sales at 3 months credit 40,00,000
Raw Materials 12,00,000
Wages paid – average time lag 15 days 9,60,000
Manufacturing expenses paid – one month in arrears 12,00,000
Administration expenses paid – one month in arrears 4,80,000
Sales promotions expenses- payable half-yearly in advance 2,00,000
The company enjoys one month’s credit from the suppliers of raw materials and maintains a 2 month’s
stock of raw materials and one-and-half month’s stock of finished goods. The cash balance is maintained
at ₹ 1,00,000 as precautionary measure.
Assuming 10 % margin, find out the working capital requirements of Cosmos Ltd.
[Ans : Amount of required working capital = ₹ 16,72,000]
2. A Manufacturing company has a capacity to produce 60,000 units p.a. The cost structure at that capacity
and selling price p.u. are given below :
Material ₹5
Labour ₹2
Overhead ₹ 5 (60 % variable ; of the fixed overhead ₹ 30,000 represents depreciation)
_____
₹ 12
Profit ₹3
_____
Selling Price ₹ 15
_____
The other details are –
• Raw material storage period – 2 months ; Processing time – 1 month and Finished Goods in store – 1
month.
• Debtors and Creditors turnover are 6 and 12 times a year respectively.
• Lag in payment of overhead is 1/2 month.
Assuming that the company will be ale to utilize 80 % of its capacity – estimated the working capital
requirement on cash cost basis.
[Ans : Cash Cost of Sales = ₹ 5,70,000 ; Working Capital Requirement = ₹ 1,86,500.]
3. From the following details concerning a manufacturing enterprise estimate the amount of working
capital needed to finance an activity level of 50 %. The capacity of the concern to produce 2,40,000
units p.a.
Expected Selling Price – ₹ 10.00 per unit
Cost of Raw materials – ₹ 3.00 per unit
Direct Labour Cost – ₹ 2.50 per unit
Overhead (including depreciation ₹ 50,000) – ₹ 2,50,000
Raw materials are in stock on average for one month. Materials are in process on average for two
months. Finished goods are in stock on average for two months. Credit allowed to Debtors three months
and that received from suppliers of Raw Materials is one month. Lag in payment of wages half a month
and of overhead on month. Cash on hand and at bank 10 % of net working capital. You may assume that
production is carried on eventually throughout the year and overheads accrue similarly. One fourth pf
output is sold against cash.
[Ans : Non-Cash Working Capital = ₹ 4,31,461 ; Cash & Bank = ₹ 47,940 ; Net Total Working Capital = ₹
4,79,401.]

4. The production capacity of Quick Profit Ltd. is 5,20,000 units per annum. Due to power crisis, the
Company can operate at 80 % of the capacity level. You are asked to ascertain the Working Capital
requirements at the current level of operation. Add 10 % to your compound figure, to allow for
contingencies.
Other information :
a) Selling Price – ₹ 20 per unit.
b) Elements of cost (per unit) :
i. Raw Materials – 40 % of selling price.
ii. Labour – 30 % of selling price.
iii. Budgeted overhead ₹ 32,000 per week.
(Overhead includes depreciation ₹ 8,000 per week)
c) Planned Stock will include 24,000 units of finished goods.
d) Time lag information :
i. Raw Materials in stores – 3 weeks.
ii. Materials will stay in process – 2 weeks.
iii. Credit allowed to Debtors – 5 weeks.
iv. Credit allowed by creditors – 1 month.
v. Lag in Payment of wages and Overhead – 11/2 months.
25 % of Sales may be considered to be for Cash. Assume that production is carried on evenly
throughout the year and Wages and Overhead accrue similarly.
[Ans : Working Capital Requirement = ₹ 10,67,000.]
5. From the following information presented by a manufacturing company, prepare statement showing
working capital requirement for 2019-2020 :
Expected monthly sales of ₹ 1,00,000 units at ₹ 15 per unit. The anticipated ratios of raw materials cost
and wages of selling price are : Raw material cost – 40 % , Wages – 30 %.
Budgeted overhead is worked out at ₹ 50,000 per week. Overhead expenses include depreciation of
₹ 20,000 per week. Planned stock will include raw material of ₹ 1,20,000 and 40,000 units of finished
stock.
Material will stay in process for 2 weeks. Credit period allowed to debtors in 5 weeks. Credit period
allowed by creditors is 1 month. Lag in payment of wages and overhead is 2 weeks. 20 % of sales may be
assumed to be made against cash and cash in hand expected to be ₹ 50,000.
Assume that production is carried on evenly throughout the year and wages and overhead accrue evenly.
[Ans : Average weekly sales = 25,000 units ; Total Working Capital Requirement = ₹ 16,15,500. ]
6. B. Ltd. supplies you the following information.

₹
i. Sales (at 2 months credit) 36,00,000
ii. Material consumed (suppliers extend 2 months credit) 9,00,000
iii.Wages paid (lag in payment – 1 month) 7,20,000
iv. Manufacturing expenses outstanding at the end of the year
( lag in payment – 1 month) 80,000
v. Total administrative expenses paid ( lag in payment – 1 month) 2,40,000
vi. Sales promotion expenses paid quarterly in advance 1,20,000
The company sells its products at a gross profit of 25 % counting depreciation as part of the cost of
production. It keeps one month’s stock of each of raw materials and finished goods and cash balance of
₹ 10,000. Assuming a 20 % safety margin, work out of the working capital requirement of the company
on the cash-cost basis, ignore work-in-progress.
[Ans : Working Capital Requirements = ₹ 7,50,000. ]

7. From the following data compute the money block period of working capital :
( ₹ in 000 )
Stock : Raw Materials 20
W.I.P 14
Finished Goods 21
Purchases 96
Cost of Goods sold 140
Sales 160
Debtors 32
Creditors 16
1 year = 360 days
[Ans : Money Block Period of working capital = 177 days.]

1. Project I costs – ₹ 8,00,000 and Project II costs – ₹ 12,80,000. Both have a ten year life. Uniform cash
receipt expected from Project I – ₹ 1,60,000 and Project II – ₹ 3,20,000. Salvage Value expected are
Project I – ₹ 5,60,000 declining at an annual rate of ₹ 80,000 and Project II – ₹ 6,40,000 declining at an
annual rate of ₹ 1,60,000. Which one is to be selected ?
[Ans : Project I will be selected.]
2. You are requested to advise management about the purchase of a new machine on the basis of a payback
reciprocal of the two :
Machine X Machine Y
Initial Investment ₹ 2,00,000 ₹ 3,00,000
Estimated Life (years) 10 14
Annual Cash inflow after Tax ₹ 25,000 ₹ 30,000
[Ans : Pay-Back Reciprocal : Machine X – 12.5 % ; Machine Y – 10 %.]
3. A company is considering an investment proposal to install a new machine at a cost of ₹ 50,000. The
facility has a life expectancy of 5 years with ₹ 5,000 salvage value. For the project additional working
capital of ₹ 10,000 will also be required. The applicable income tax rate is 30 %.
Estimated EBDIT from the proposal are : 20,000 ; ₹ 22,000 ; ₹ 19,000 ; ₹ 17,000 and ₹ 24,000 respectively
for 5 years.
Compute the Accounting rate of return for the proposal.
[Ans : EAT : 1st year = ₹ 7,700 , 2nd year = ₹ 9,100 , 3rd year = ₹ 7,000 , 4th year = ₹ 5,600 , 5th year = ₹
10,500 ; Average Net Profit = ₹ 7,980 Average Investment = ₹ 37,500 ; Account rate of return = 21.28 %.]
4. Using the information given below compute the Pay Back Period discounted Pay Back Method and
comment.
Initial outlay ₹ 80,000
Estimated life 5 years
Profit after tax : ₹
End of year 1 6,000
2 14,000
3 24,000
4 16,000
5 Nil
Depreciation has been calculated under the straight line method. The cost of capital may be taken at 20
% p.a. and the P.V. ₹ 1 at 20 % is given below :
Year 1 2 3 4 5
P.V. factor 0.83 0.69 0.58 0.48 0.40
[Ans : Discounted Pay-Back Period = 4.39 years]
5. A company will purchase either Machine X or Machine Y. Following are the information regarding the
two. The estimated life of both the machine is five years with no salvage value.
Cost (₹) Anticipated Cash flows after tax per year (₹)
Year 1 Year 2 Year 3 Year 4 Year 5
Machine X 17,18,750 1,50,000 1,80,000 13,75,000 9,62,000 4,12,000
Machine Y 27,50,000 6,78,500 9,62,000 11,00,000 11,68,750 5,50,000

The company’s cost of capital is 10 %. You are required to advise the management as to which one should
be procured use both (i) NPV and (ii) IRR method of project appraisal.
End of Year 10 % 12 % 14 %
1 0.909 0.893 0.877
2 0.826 0.797 0.769
Present Value of ₹ 1
3 0.751 0.712 0.675
4 0.683 0.636 0.592
5 0.621 0.567 0.519
[Ans : NPV : X = ₹ 5,11,803 , Y = ₹ 6,27,688 ; NPV Discount @ 12 % : X = ₹ 3,83,096 , Y = ₹ 4,61,388 ; NPV

Discount @ 14 % : X = ₹ 2,62,677 , Y = ₹ 3,05,058 ; IRR (10 % & 12 %) : X = 17.95 % , Y = 17.55 % ; IRR
(10 % & 14 %) : X = 18.22 % , Y = 17.78 % ; IRR (12 % & 14 %) : X = 18.36 % , Y = 17.90 %. ]
6. A company is exploring the proposal of replacing its existing machine which is unable to meet the
production schedule to match the rapidly rising demand of its product. The company has two options:
either to overhaul the existing machine at a cost of ₹ 30 lakhs or to go in for a new machine with higher
capacity at cost of ₹ 48 lakhs. Both the machines are expected to be operational for 5 years.
The expected cash flows from these two alternatives are as follows :
Cash Inflows (₹ in lakhs)
Year Overhauled Machine (₹) New Machine (₹)
1st year 5 12
2nd year 6 16
3rd year 24 20
4th year 16 20
5th year 15
_____ 18
_____
Total 65 86
The cost of capital to be considered is 10 %. You are required to appraise the two alternatives with the
help of (a) Net Present Value Method and (b) Discounted Pay Back Period Method.
Present Value of ₹ 1 at 10 % discount rate are as follows :
Year : 1 2 3 4 5
P.V. 0.91 0.83 0.75 0.68 0.62
[Ans : NPV : Overhauled Machine = ₹ 17,09,000 , New Machine = ₹ 15,96,000 ; Discounted PBP :
Overhauled Machine = 3.227 years , New Machine = 3.6471 years. ]
7. Reliance Industries Ltd. has an Investment budget of ₹ 10 lakh for the current year. It has short listed two
projects X and Y. Further Particulars regarding them are given below :
Project X Y
(₹) (₹)
Investment Required 10,00,000 9,00,000
Average estimated cash inflows before depreciation and tax 2,40,000 2,05,000
Salvage value is assumed to be nil for both the projects after the estimated life of 10 years are being
over. The company follows straight line method of charging depreciation and tax rate is 35 %. Assuming
cost of capital to be 12 % , find out the
(a) NPV of both the Projects, and
(b) IRR of both Project X and Project Y.
Given PV of an annuity of ₹ 1 for ten years at different discount rates :
Rate (%) 10 11 12 13 14 15
Annuity Value for 10 years 6.1446 5.8992 5.6502 5.4262 5.2161 5.0188

[Ans : Annual Cash Inflow : X = ₹ 1,91,000 , Y = ₹ 1,64,750 ; NPV : X = 79,188 , Y = 30,870 ; IRR : X =
13.91 % , Y = 12.84 %. ]
8. PP Construction Ltd. is considering the five possible projects to invest in, as shown below :
Project Cash Outflow (₹) PV of Cash Inflows (₹)
A 5,00,000 7,50,000
B 2,00,000 2,10,000
C 5,00,000 8,00,000
D 1,00,000 80,000
E 3,00,000 3,30,000
Available fund is ₹ 12,00,000. Apply Capital rationing decision concept and select the projects. All the
projects are divisible in nature.
[Ans : Total Cash Outflow = ₹ 12,00,000 ; Total NPV = ₹ 5,70,000. ]
9. A company is considering an investment project which requires an initial cash outlay of ₹ 5,00,000 on
equipment and ₹ 20,000 as working capital. The project’s economic life is 6 years. An additional
investment of ₹ 50,000 each would also be necessary at the end of second and fourth year to restore the
efficiency of the equipment. The annual cash inflows expect from the project are :
Year Cash inflows (₹)
1 80,000
2 1,20,000
3 1,80,000
4 2,00,000
5 2,60,000
6 3,00,000
If the realisable scrap value of the equipment is ₹ 20,000 after 6 years and cost of capital is 20 %. Justify
whether the project should be accepted or not by determining the net present value. Assume that
working capital will be recovered in full at the end of the project life.
Given that,
Year 1 2 3 4 5 6
P.V. factor at 20 % 0.833 0.694 0.579 0.482 0.402 0.335
[Ans : Since the NPV of the project is negative, the company should not accept the project.]
10. Following figures relate to a new project for which a machine is to be acquired at a cost of ₹ 2,50,000 and
initially ₹ 60,000 is to be invested as working capital :
Year 1 2 3 4
EBDIT (₹) 80,000 90,000 1,45,000 1,20,000
Depreciation (₹) 75,000 62,000 48,000 25,000
At the beginning of 2nd year, an account of ₹ 10,000 is to be introduced as additional working capital.
On completion of project, at the end of 4th year, it is expected that ₹ 40,000 will be realized from sale of
scrap and working capital will be recovered in full.
Cost of capital is 12 % and applicable tax rate is 30 %.
Calculate NPV of the project and comment on its acceptability.
(Given the present value of ₹ 1 receivable at the end of each year for 4 years at 12 % p.a. compounded
annually are 0.893, 0.797, 0.712 and 0.636 respectively.
[Ans : Net Cash Inflow : 1st year = ₹ 78,500 , 2nd year = ₹ 81,600 , 3rd year = ₹ 1,15,900 , 4th year = ₹
91,500 ; Present value of cash outflow = ₹ 3,18,930 ; NPV = ₹ 26,881.]

1. From the following information, determine the theoretical market price of each equity share of a
company as per Walter’s Model :
Earnings of the Company ₹ 10,00,000
Dividend paid ₹ 5,00,000
No. of equity shares outstanding 2,00,000
Cost of Equity capital 12 %
Rate of return on investment 15 %
[Ans : Price = ₹ 46,875 ]
2. From the following information, calculate the market value of equity share of a company as per Walter’s
model :
Earning after tax = ₹ 15,00,000 ; Number of equity shares outstanding = 3,00,000 ; Dividend paid =
₹ 6,00,000 ; Price-earning ratio = 10 ; Rate of return on investment = 20 %. What is optimum dividend
pay out ratio in this case ?
[Ans : Price per share = ₹ 80 ; Dividend pay out ratio = 0 ]
3. Determine the market price of equity shares of company from the following information using Walter
Model :
Earnings of company ₹ 5,00,000
Number of shares 1,00,000
Price earning ratio 8
Rate of Return on Investment 15 %
Are you satisfied with the dividend policy of the firm ? If not, what should be the optimal dividend payout
ratio and the consequent market price of equity shares of he company according to Walter Model ?
[Ans : Cost of Capital (Ke) = 0.125 ; Price per share (P) = ₹ 43.20. ]
4. From the following information supplied to you, ascertain whether the firm's dividend pay-out ratio is
optimal, according to Walter. The firm was started a year before, with equity capital of ₹ 20 lakh.
Earning of the firm ₹ 2,00,000
Price earning ratio 12.5
Number of shares outstanding 20,000 of ₹ 100 each
The firm is expected to maintain its current rate of earnings on investment.
What should be the price-earnings ratio at which dividend pay-out ratio will have no effect on the value
of the share ?
Will your decision change if the P/E ratio is 8 instead of 12.5 ?
[Ans : D/P ratio =75 % , Market Price per share (P) = ₹ 132.81 , Optimum Market Price per share = ₹ 156.25
; P/E ratio = 10 ; Ke = 0.125 ]
5. P Mitter Ltd. is having cost of capital 10 percent and return on investment 12 percent. The company
earned ₹ 20 as profit per share and declared 30 % dividend.
(a) Calculate the market price of equity share under Walter’s model.
(b) To increase the market price per share, the management is willing to increase the dividend pay-out
in the next financial year, but the CFO Mr. Tapesh has opposed such a decision.
Give your opinion in this matter.
[Ans : (a) Market Price of each Equity share = ₹ 228 ; (b) Price per share = ₹ 240. ]

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M.com , B.Ed. , CMA (Inter),

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1. Positive Relationship between Risk and Return :

2. Negative Relationship between Risk and Return :

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5. Discuss the Importance / Functions of Financial Management. (Hons. & Gen.)

6. What are the Limits of Profit Maximization ? (Hons. & Gen.)

Profit maximization, while a common business goal, has several limitations :

7. What are the objectives of Inventory Management ? (Hons. & Gen.)

Objectives of Inventory Management are as follows :

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II. Improve Order Fulfillment :

III. Having the Right Amount of Stock :

IV. Keeping Wastage and Losses to a Minimum :

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Size of debtors is determined by the following debtors :

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(b) Helps make business decisions :

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(c) Improves business value :

(d) Helps for growth planning :

12. Explain the Working Capital Cycle. (Gen.)

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13. Explain Trading on Equity with an example. (Gen.)

14. Discuss the role of debentures in company’s financing. (Gen.)

15. Write short note on : (Gen.)

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(ii) Trade Credit

(iii) Dividend Policy

(iv) Accounting of Firm

(v) Capital Ration

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M.com , B.Ed. , CMA (Inter),

Question 1. Theory ( with option )

Question 5. Practical ( Leverage ) ( no option )

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Proposal / Period Maturity Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

[Ans : Total Present Value : Proposal D = ₹ 5,379 , Proposal G = ₹ 5073.60 ]

[Ans : ₹ 21,547 (Approx.) ]

[Ans : Amount of each Instalment = ₹ 35,12,426.]

[Ans : a) 6.12 years ; b) 18 %.]

6. Mr. X needs ₹ 1,00,000 at the end of 10 years. He has two options :

You are required to :

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CVIF (6% .10) = 1.791 , CVIFA (6% .10) = 13.181

[Ans : (a) = ₹ 55,835 ; (b) = ₹ 7,587 (Approx.) ]

[Ans : PV = ₹ 2,49,640 ; Present Amount = ₹ 31,500.]

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2. The capital structure of a company is given below :

3. Indrani Ltd. has the following Capital Structure :

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6. The existing capital structure of X Ltd. is as follows :

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1. Zica Ltd. provides you the following information :

2. The capital structure of Moon Ltd. is given below:

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