University of Mumbai

Examinations Summer 2022

Time: 2 hour 30 minutes Finance Management Max. Marks: 80
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Choose the correct option for following questions. All the Questions are
Q1.
compulsory and carry equal marks
1. The concept that the value of a rupee to be received in future is less than the
value of a rupee on hand today is known as:

Option A: Recovery factor concept

Option B: Time value of money
Option C: Compounding factor concept
Option D: None of these.

2. The method of converting the amount of future cash into an amount of cash
and cash equivalents value in present is known as:
Option A: Compounding
Option B: Annuity
Option C: Discounting
Option D: None of these

3. Activity ratio is
Option A: ability to ensure adequate returns to its shareholders depends ultimately on the
profits earned by it
Option B: amount of capital that comes from debt.
Option C: used to measure how well a company is utilizing its assets and resources
Option D: adequate liquidity in the sense of the ability of a firm to meet current/ short-
term obligations

4. Identify the correct statement/statements - Profitability in relation to

investments is measured by (i) return on assets, (ii) return on capital employed
(iii) return on shareholders’ equity.
Option A: (i) & (iii)
Option B: (i) & (ii)
Option C: (ii) & (iii)
Option D: (i), (ii) & (iii)

5. Mukesh has two options to choose: 1. investment which would give him a return
of 15% with 15% standard deviation. 2. investment which would give him a
return of 13% with 25% standard deviation. He has chosen the second option.
What type of risk profile does he represent?
Option A: Risk - Average
Option B: Risk - Neutral
Option C: Risk - Premium
Option D: Risk – Seeking

6. EBITDA Margin is
Option A: ratio measures the margin left after meeting manufacturing expenses and
selling and general administration expenses
Option B: ratio shows the earnings left for shareholders as a percentage of total revenues
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Option C: is profitability ratio that provides how much profit company is able to generate
from its assets
Option D: is the result of the relationship between prices, sales volume and costs

7. Firms routinely invest in equipments meant to replace obsolete and inefficient

equipments, even though they may be in a serviceable condition it is called
_________________

Option A: Expansion Projects

Option B: Replacement Projects
Option C: Diversification Projects
Option D: Research and Development Projects

8. Purchasing equipment plus investing in modern technology indicates

Option A: Growth & Diversification
Option B: Increased profit
Option C: Happy Shareholders
Option D: Capital Financing

9. Identify the correct statement/s

i) The return on assets ratio measures how efficiently a company is using its
assets to generate profit
ii) Gross profit is the result of the relationship between prices, sales volume
and costs
iii) Net Profit Margin ratio shows the earnings left for shareholders (both
equity and preference) as a percentage of total revenues
Option A: (i) & (ii)
Option B: (ii) & (iii)
Option C: (i) & (iii)
Option D: (i) (ii) & (iii)

10. A low risk-taking individual will most probably invest in which of these
instruments
Option A: Equity
Option B: Debt
Option C: Deposits
Option D: Mutual Funds

Please use either of the 3 option given below while setting up the subjective/descriptive questions

Option 1
Q2, Q3 and Q4. Solve any Four out of Six 5 marks each
(20 Marks Each)
A Differentiate capital market and money market.
What do you understand by Annuity. Define ordinary annuity and
B
Annuity due.
C Define Activity ratio, Liquidity ratio and Profitability ratio.
A firm wants to open a new coal mine. The price of coal is very volatile and
the projected profits over the next five years are : Rs. 100,000 , Rs. 250,000
, Rs. 10,000 , Rs. 200,000 and Rs. 50,000 respectively. After that profits
D will be a constant Rs. 150,000 per year for next 20 years at which time the
mine closes. If 7% is the appropriate discount rate for the first five years and
is 8% after that, what is the present value of the mine?
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 E Write short note on Gordon’s Approach of Dividend policy.
F Define the concept of Optimal capital structure.

Option 2
Q2, Q3 and Q4. Solve any Two Questions out of Three 10 marks each
(20 Marks Each)
A Explain Components and function of financial system.
B Explain the Meaning and Importance of Capital Budgeting.
Find out the value of the firm with the help of given information:
Particulars Amount
Earnings before interest and tax 3, 50, 000
Cost of equity 10%
C Cost of debt 7.2%
Debenture 1,00,000
Find out the overall cost of capital with the help of net income approach.
(Assume tax rate-10%)

Option 3
Q2, Q3 and Q4. Please delete the instruction shown in front of every sub question
(20 Marks Each)
A Solve any Two 5 marks each
i. Define working capital. Explain various factors affecting working
capital management.
ii. Define Modigliani-Miller Approach of Capital structure
iii. Explain Characteristics and classification of financial market.
B Solve any One 10 marks each
i. Explain functions of corporate finance in details.
ii. Your Company is considering 2 projects M & N, each of which
requires an initial outlay of Rs 50 million, the expected cash inflows
from these projects are:
Year Project M Project N
1 11 38
2 19 22
3 32 18
4 37 10

a) What is the payback period for M & N

b) What is the discounted payback period for M & N if the cost of
capital is 12 %
c) If two projects are independent & the cost of capital is 12 % which
projects(s) the firm should invest in.
d) if the two projects are mutually exclusive and the cost of capital is
10 % which project should the firm invest in.

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