Financial Management question
Hons 4th Year Exam -2021
Subject Code: 242603
[Financial Management (In English)]
[N.B. Different parts of the questions must be answered sequentially]
(Answer any ten questions)
(a) What is financial management?
(b) What is RADR?
(c) What is agency cost?
(d) What do you mean by stock repurchase?
(e) What is meant by capital market?
(f) What is operating lease?
(g) What is cash conversion cycle?
(h) What is stock splits?
(i) What is option price?
(j) What is cash dividend?
(k) What is right issue?
(l) What is corporate governance?
(Answer any five questions)
2. Discuss the functions of financial management.
3. Discuss the social responsibility of a financial manager.
5. Explain the different measures of capital structure of a corporate firm.
6. Discuss the various types of dividend policies.
7. The X Company needs to raise Tk. 8,00,00,000 to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. It offer price is Tk. 35 per share and the company’s underwriters charge an 8 percent spread. The SEC filing fee and associated administrative expenses of the offering are Tk. 9,00,000. How many shares need to be sold?
8. Discuss the distinction between lease and purchase.
9. Green Cosmetics calculates that its operating cycle for last year was 76 days. The company had Tk. 2,30,000 in its accounts receivable account and sales of Tk. 1-92 million. Approximately how many days does it take from the raw materials are received at green until the finished products they are used to produce are sold?
(The figures in right margin indicate full marks. Answer any five questions)
(a) Discuss the factors influencing financial decisions that a financial manager must take.
(b) Explain the types of agency problems?
12. The following is the data regarding two companies ‘A’ and “B belonging to the same risk class:
Particulars Company A Company B
Number of ordinary shares 90,000 1,50,000
Market price per share 1.20 1.00
6% Debentures 60,000 —
Profit before interest 18,000 18,000
All profits after debentures interest are distributed as dividends. Explain how under Modigliani and Miller Approach an investor holding 10 percent of shares in company A will be better off in switching his holding to company B
13. The Bajaj Company belongs to a risk class of which the appropriate capitalization rate is 10%. It currently has 1,00,000 shares selling at Tk. 100 each. The firm is contemplating the declaration of a Tk. 10 dividend at the end of current fiscal year, which has just begun. Answer the following questions based on the M & M Model and the assumption of no taxes:
(i) What will be the price of the shares at the end of the year, if a dividend is not declared? What will it be if it is declared?
(ii) Assuming that the firm pays dividend, has net income of Tk. 10,00,000 and make new investments of Tk. 20,00,000 during the period, how many new shares must be issued?
14. Consolidated Jewels needs to raise Tk. 2 million to pay for its diamonds in the Rough Campaign. It will raise the funds by offering 2,00,000 rights, each of which entitles the owner to buy one new share. The company currently has outstanding 1 million shares priced at Tk. 20 each.
(a) What must be the subscription price on the rights the company plans to offer?
(b) What will be the share price after the right issue?
(c) What is the value of a right to buy one share?
(d) How many rights would be issued to an investor who currently owns 1000 shares?
(e) Show that the investor who presently holds 1000 shares is unaffected by the right issue.
15. A company wants to lease an equipment of Tk. 10,00,000 The lessor requires five annual end of the year lease payment of Tk. 2,00,000. The company’s marginal tax rate is 35 percent. If it buys the equipment, it can depreciate the sum of the year’s digit method of depreciation. The company’s borrowing rate is 15 percent. Should the company follow lease or buy the equipment?
16. (a) Why working capital is needed of a firm?
(b) Discuss how to determine the optimal level of working capital.
17. The following data is of the ABC Company.
Expected level of production p.a. 44000 tons
Raw materials inventory 4 weeks
Processing period 2 weeks
Permanent material in process 200 tons
Finished goods in stock 6 weeks
Expected ratio of:
Materials to sale price 70%
Wages and overhead to sale price 20%
Selling price per ton Tk. 2000
Compute the working capital of the ABC Company.