Manav Rachna International Institute of Research and Studies

Faculty of Management Studies

End Semester Examination, July 2021
MBA –Second Semester
MBA-DS-207 (FINANCIAL MANAGEMENT)

Time: 3 hours. (+20 minutes to scan and upload the answer sheets on ERP/ EMS
and/or on MS Teams)

Max Marks: 100

No. of pages: 03

Note: From Part A, Q 1 and Part B are compulsory; Attempt any 3 questions
from the remaining. Marks are mentioned against each question.
Clear images/ pictures of answer scripts with hand written answers
should be uploaded (as notified through date sheet). Please write
your name, roll no. and section on the answer script and sign. On all
sheets. Please put page numbers.

PART-A (SECTION A)

Q 1. For the statements given below, state whether true or false and justify your
answer suitably.
1. The project cost of capital and the firm’s cost of capital are different?
2. The overall cost is also called the weighted average cost of capital (WACC).
3. As per Net Income approach both the cost of debt and the cost of equity are
independent of the capital structure?
4. According to NOI approach the value of the firm and the weighted average cost
of capital are independent of the firm’s capital structure.
5. Does the value of a business is calculated based on the book value of its net
assets?
6. The enterprise value of a company is typically defined as the market value of its
capital (debt and equity), net of cash?
7. Firms maintain some minimum level and then replenish them by ordering a pre-
determined quantity?
8. When carrying costs are high and order cost are low, it makes sense to place
more frequent orders and maintain higher levels of inventory.
9. There is a trade offs involved in the decision of how much inventory the firm
should carry?
 10.Does the cash manager face a trade off while going for working capital
management?

(10x2 marks) (MBA-DS-207.1) (L3)

PART-A (SECTION B)

Q 2. a) Two basic concepts in financial management are future value and present value
of investments, the basic quantitative technique for financial decision making are net
present value method and internal rate of return. Discuss these in light of practical
application for a company with appropriate interest rate reflecting time and risk
associated with such investments.
b) BTX Sweets is planning and investment of Rs. 1 million in four new outlets in Delhi.
Its promoter Mr. Bharat Bhusan has estimated that the investments will pay out cash
flows of Rs. 2,00,000 per year for nine years at the end of each year and nothing
thereafter. Mr. Bharat has determined that the relevant discount rate for this
investment is 15%. This is the rate of return that the firm can earn on comparable
projects. Should BTX sweets make the investments in the new outlets? Discuss with
justification for the same based on NPV and IRR
(2*10=20 marks) (MBA-DS-207.1) (L4)

Q 3.
a) It is sometimes suggested that firms should follow a ‘residual’ dividend policy. With
such a policy, the main idea is that a firm should focus on meeting its investment
needs and maintaining its desired debt-equity ratio. Having done so, a firm pays out
any leftover, or residual, income as dividends. Share your opinion about the main
drawback of such a policy in the Indian market?
b) How is it possible that dividends are so important, but at the same time dividend
policy is irrelevant too? Comment with relevant examples
(20 marks) (MBA-DS-207.2) (L3, 5)
(20 marks) (MBA-DS-207.2) (L3)

Q 4. Discuss any two of the following:

a). Bonus share and share split
b). Factors which influence capital structure
c). Retained earnings are zero cost fund
(2x10=20 marks) (MBA-DS-207.3) (L3)

Q 5. “Managing short term cash flows involves the minimization of costs. The two major
costs are carrying cost (the interest and related cost incurred by overinvesting in
 short term assets such as cash) and shortage costs (the cost of running out of
short-term assets) The optimal trade-off between these costs is being done with an
effective working capital management.” Elaborate with relevant examples
(20 marks) (MBA-DS-207.4) (L5)

PART-B
Financial management for a corporate entity is the study of generation of corporate
capital and its allocation among competing investment needs in a manner consistent
with company goals. In as much as solvency is certainly one of these goal, this
necessarily implies that financial management concern itself with the planning and
control of cash flows through the organization. Elucidate this statement with the help of
relevant examples
(20 marks) (MBA-DS-207.4) (L6)