• Scope of FM:
Contrast the salient features of traditional and modern approaches to financial management
• Three major Decisions:
Financial Management is concerned with the solution of three major decisions a firm must make: the investment decision, the financing decision, and the dividend decision. Explain this statement highlighting the interrelationship amongst these decisions. How do they involve risk-return trade off?
“The goal of wealth maximization is a better operative criterion over the profit maximization.” Do you agree with this statement?
• Time Value of Money:
“Individuals do have a time value for money” State the reasons for such preference. Explain the techniques of Time Value of money
What are capital budgeting decisions? Why these decisions are important for the firm? Discuss the problems associated with such decisions?
(a) Meaning, calculation, merits and demerits of:
• Pay back period method.
(‘Despite being conceptually unsound, payback method is quite popular as a criterion for assigning priorities to business proposals.’ Explain. How is it helpful in determing IRR?)
• Accounting Rate of Return
• Profitability Index
(“The virtue of IRR method is that it does not require the pre-calculation of the required rate of return” Critically examine.)
(b) Do NPV and IRR techniques always reach the same conclusion with regard to the selection of (1) single and (2) mutually exclusive proposals? Explain with suitable examples.
Cost of Capital
(a) What is ‘Cost of Capital’? How is it relevant in Capital Budgeting decisions?
(b) Does tax rate and flotation cost affect the cost of capital?
(c) Why is the debt cheapest source of finance?
(d) As there is no explicit cost of retained earnings, these funds are free of cost’. Critically comment.
Cost of fresh issue of share capital and existing share capital are always same? Do you agree?