GALAXY INSTITUTE OF MANAGEMENT

PGDM DEGREE EXAMINATION

FINANCIAL MANAGEMENT - II
III TRIMESTER

PART A
Answer all the questions
I) Multiple Choice Question: (20 x 1 = 20 Marks)
1) Financial Planning deals with:
a) Preparation of Financial Statements,
b) Planning for a Capital Issue,
c) Preparing Budgets,
d) All of the above.
2) Capital Budgeting is a part of
a) Investment Decision
b) Working Capital Management
c) Marketing Management
d) Capital Structure.
3) Capital Budgeting deals with
a) Long-term Decisions
b) Short-term Decisions
c) Both (a) and (b)
d) Neither (a) nor (b).
4) The market value of the firm is the result of
a) Trade off between risk and return
b) Dividend decisions
c) Working capital decisions
d) Capital budgeting decisions
5) The primary capital market
a) Imparts liquidity and marketability to long term financial instruments
b) Helps companies to raise funds to finance their projects
c) Provides an auction market for long term securities
d) Operates through the medium of stock exchanges
6) In stock market, the delivery of traded share is completed
a) On the same day of trade
b) On the next day of trade
c) Two days after trade
d) Four days after trade
7) Which of the following members would you not find in the secondary stock market?
a) Investors
b) Stock exchanges
c) Stock brokers
d) Companies
8) Money has time value because
a) The individuals prefer future consumption to present consumption
b) A rupee today is worth more than a rupee tomorrow in terms of its purchasing power
c) A rupee today can be productively deployed to generate real returns tomorrow
d) Both b & c
9) Investment in Post Office time deposit is
a) Zero risk investment
b) Low risk investment
c) Medium risk investment
d) High risk investment
10) Portfolio beta
a) Is the risk of a portfolio
b) Business risk
c) Interest risk
d) Market risk
11) Risk return trade off implies
a) Increasing the profit of the firm through increased production
b) Not taking any loans which increases the risk of the firm
c) Not granting credit to risky customers
d) Taking decisions in such a way which optimizes the balance between risk and return
12) Standard deviation is the most preferred measure of risk because
a) Many calculator and computers are programmed to calculate it
b) Standard deviation considers every possible event and assigns each event a weigh equal to its
probability
c) Standard deviation considers every possible event and assigns each event a equal weigh
d) Both a & b
13) The price of the share will increase if
a) Dividend decreases
b) Company makes good profit
c) Demand for share increases
d) None of the above
14) Which of the following is not used in Capital Budgeting?
a) Time Value of Money
b) Sensitivity Analysis
c) Net Assets Method
d) Cash Flows.
15) Which of the following components forms a part of capital structure?
a) Debt, Equity
b) Debt , Debentures
c) Loan, Equity
d) Loan, Debentures
16) Which of the following is not a source of long term finance?
a) Equity capital
b) Preference capital
c) Debenture capital
d) Term loan
17) "Shareholder wealth" in a firm is represented by:
a) the number of people employed in the firm.
b) the book value of the firm's assets less the book value of its liabilities.
c) the amount of salary paid to its employees.
d) the market price per share of the firm's common stock.
18) Assume that a project requires an outlay of Rs50,000 and yields annual cash inflow of Rs12,500 for
7 years. The payback period for the project is:
a) 4 years
b) 4.5 years
c) 5 years
d) 5.2 years
19) Which is the most expensive source of funds?
a) New Equity Shares
b) New Preference Shares
c) New Debts
d) Retained Earnings
20) Financial Leverage arises because of:
a) Fixed cost of production
b) Variable Cost
c) Interest Cost
d) None of the above

II) Short Answers (10 x 2 = 20 Marks)
1. Define Financial Management
2. When is financial leverage considered favorable?
3. State the decisions involved in Financial management.
4. List few type of securities
5. Write short notes on the rights of shareholders.
6. What are the functions of stock market in India?
7. List few risks in business.
8. What do you mean by capital structure?
9. The initial cash outlay of a project is Rs1,00,000 and it can generate cash inflow of
Rs40000, Rs30000, Rs50000 and Rs20000 in year 1 through 4. Assume a 10%
discount rate and calculate Profitability Index.
10. What are the various methods of Capital Budgeting?






PART B
Answer all the questions (3 x 15 = 45 Marks)
1. (a) What are the determinants of capital structure of a company?
(or)
(b) Every Manager has to take three major decisions while performing the finance function
briefly explain them.
2. (a) What is meant by Financial management Explain its importance.
(or)
(b) Explain briefly various sources of finance.
3. (a) Describe various capital structure theories
(or)
(b) Describe various dividend theories.

PART C
CASE STUDY (5 x 3 = 15 Marks)
1) Calculate the value of the firm and cost of equity for the following capital structure and
sugesst which is optimum.
EBIT = Rs2,00,000/-, WACC(k
o
) = 10%, K
d
= 6%, Debt = Rs3,00,000/- (or) Rs4,00,000/- (or)
Rs5,00,000/-