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MC0-07 June, 2013 Financial Management

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June, 2013

MC0-07 : Financial Management

1. (a) What is financial management ? Explain the basic finance functions.

(b) In what ways the wealth maximisation objective is superior to profit maximisation objective ?

2. (a) Explain the concept of risk and return. What are the various statistical techniques available to measure risk ?

(b) What is Capital Asset Pricing Model (CAPM) ? Explain its assumptions and implications.

3. (a) What is capital budgeting ? Why is it significant for the business firms to prepare it ?

(b) A company is considering the following investment projects :

                                    Cash flows (Rs)





Project A





Project B





Rank the projects according to the Accounting (Average) rate of return (ARR) method.

4. Explain the concept of project finance. Also distinguish it from corporate finance.

5. (a) What is purpose of holding the inventories ? Why is the inventory management important ?

(b) What is Economic Order Quantity ? Explain the process of its determination.

6. (a) Explain the meaning, types and significance of working capital.

(b) Discuss the different methods of ascertaining working capital requirements.

7. (a) What is meant by the 'buy back of shares' ? What is its rationale ?

(b) Is 'buy back of shares' really beneficial to the company and shareholders ? Explain.

8. Given below is the information of Gaurav Enterprise :

(Rs. in lakhs)





Fixed Cost


 Calculate the following :

(a) Degree of operating leverage;

(b) Degree of financial leverage;

(c) Degree of combined leverage; and

(d) Percentage change in EPS if sales increase by 5%

9. Write explanatory notes on any two of the following :

(a) Yield to Maturity method

(b) Capital Rationing

(c) Lease financing

(d) Cash budget

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