POST GRADUATE DIPLOMA EXAMINATIONS, FEBRUARY 2009.

FINANCIAL MANAGEMENT
COURSE CODE: 130103
TIME: 3 HOURS

MAXIMUM MARKS: 100

PART A
ANSWER ANY FIVE QUESTIONS

(5 x 4 =20)

1. What is risk-return trade - off?

2. What is a Bond? What is Bond value Theorems?
3. What for valuation of Securities?
4. Mention the Phases of Capital budgeting process
5. What is net present value (NPV)? Define and express symbolically.
6. Define financial intermediaries and give examples
7. Define venture capital?
8. Differentiate operating leases and financial leases with their characteristics.

PART B
ANSWER ALL QUESTIONS

(4 x 16 = 64)

9. a) What is Financial Management? Discuss its phases of evolution.

(Or)
b)

Define Average Rate of Return. Mention its virtues and short comings. And
Calculate ARR from the following and comment upon.
Year
1
2
3
4
5

10 .a)

Book value of Investment

90,000
80,000
70,000
60,000
50,000

Profit after Tax

Rs.20,000
22,000
24,000
26,000
28,000

(i) The basic insight of Modern Portfolio Theory is represented by the

following relationship: Total Risk=Unique Risk +Market Risk. Discuss
(ii)What is the expected portfolio return considering the following?
A portfolio consisting of five securities with the expect returns:
= 15%,
= 18%, and
Say:
E ( ) = 10% ( ) = 12%,

= 20%

The portfolio proportions invested in these securities are:

X1 = 0.1, X2 = 0.2, X3 = 0.3, X4 = 0.2, X5 = 0.2.
(Or)
b) Discuss the Functions of the Financial System?

11.

a) (i) How is the expected rate of return on a portfolio defined/calculated?

(ii) How is the rate of return on an asset (share) calculated?
(Or)
b. What is called IPO? List out its principals steps.

12.

a. Is there any relationship between capital structure and firm value/ cost of capital?
Discuss.
(Or)
b. Differentiate operating cycle and cash cycle and calculate the Inventory
Period, Account receivable period, Account Payable period from the given data.

As per Profit and Loss Account

Sales Rs.800
Cost of goods sold Rs.720

As per Balance sheet

Inventory opening Rs.96, ending Rs.102
Account receivable opening Rs.86, ending Rs.90
Account Payable opening Rs.56, ending 60

PART C
CASE STUDY-COMPULSORY
13.

(1 x 16 = 16)

Forecast of Cash Receipt Budget

Manexcel Company manufactures razor blades. Its estimated sales for the period

January 2009 through June 2009 are as follows: Rs.1,00,000 per month from January through
March and Rs. 1,20,000 per month from April through June. The sales for November and
December of the previous year have been Rs. 1,00,000 each. Cash and credit sales are
expected to be 20 per cent and 80 per cent respectively. The receivables from credit sales are
expected to be calculated as follows: 50 per cent of receivables, on an average, one month from
the date f sale and balance 50 per cent, on an average, two months from the date of sale. No bad
debt losses are expected to occur. Other anticipated receipts are: (i) Rs 5,000 from the sale of a
machine in March, and (ii) Rs 2,000 interest on securities in June. As a Finance Manager forecast
the Cash Budget Receipt of the firm.
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