6. It is the minimum required rate of return needed to justify the use of capital a. From investors
b. Firms point
c. Capital expenditure point
d. Cost of capital
7. It arises when there is a conflict of interest among owners, debenture holders and the management a. Seasonal variation
b. Degree of competition
c. Industry life cycle
d. Agency costs
8. Some guidelines on shares & debentures issued by the government that are very important for the constitution of the capital structure are
a. Legal requirement
b. Purpose of finance
c. Period of finance
d. Requirement of investors
9. It is that portion of an investments total risk that results from change in the financial integrity of the investment
a. Bull- bear market risk
b. Default risk
c. International risk
d. Liquidity risk
10. _____________ measure the systematic risk of a security that cannot be avoided through diversification
c. Probability distribution
1. What is Annuity kind of cash flow?
2. What do understand by Portfolio risk?
3. What do you understand by ‘Loan Amortization’?
4. What is the Difference between NPV and IRR?
END OF SECTION A
Examination Paper Semester I: Financial Management
IIBM Institute of Business Management
Section B: Case lets (40 marks)
· This section consists of Case lets.
· Answer all the questions.
· Each Case let carries 20 marks.
· Detailed information should form the part of your answer (Word limit 150 to 200 words). Case
This case provides the opportunity to match financing alternatives with the needs of different companies. It allows the reader to demonstrate a familiarity with different types of securities. George Thomas was finishing some weekend reports on a Friday afternoon in the downtown office of Wishart and Associates, an investment-banking firm. Meenda, a partner in the firm, had not been in the New York office since Monday. He was on a trip through Pennsylvania, visiting five potential clients, who were considering the flotation of securities with the assistance of Wishart and Associates. Meenda had called the office on Wednesday and told George's secretary that he would cable his recommendations on Friday afternoon. George was waiting for the cable. George knew that Meenda would be recommending different types of securities for each of the five clients to meet their individual needs. He also knew Meenda wanted him to call each of the clients to consider the recommendations over the weekend. George was prepared to make these calls as soon as the cable arrived. At 4:00 p.m. a secretary handed George the following telegram. George Thomas, Wishart and Associates STOP Taking advantage of offer to go skiing in Poconos STOP Recommendations as follows: (1) common stock, (2) preferred stock, (3) debt with warrants, (4) convertible bonds, (5) callable debentures STOP. See you Wednesday STOP Meenda. As George picked up the phone to make the first call, he suddenly realized that the potential clients were not matched with
the investment alternatives. In Meenda's office, George found folders on each of the five firms seeking financing. In the front of each folder were some handwritten notes that Meenda had made on Monday before he left. George read each of the notes in turn. APT, Inc needs $8 million now and $4 million in four years. Packaging firm with high growth rate in tri-state area. Common stock trades over the counter. Stock is depressed but should rise in year to 18 months. Willing to accept any type of security. Good management. Expects moderate growth. New machinery should increase profits substantially. Recently retired $7 million in debt. Has virtually no debt remaining except short-term obligations. Sandford Enterprises
Needs $16 million. Crusty management. Stock price depressed but expected to improve. Excellent growth and profits forecast in the next two year. Low debt-equity ratio, as the firm has record of retiring debt...