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AEREN FOUNDATION’S Maharashtra Govt. Reg. No.: F-11724
SUBJECT :FINANCE MANAGEMENT
- B.: 1)Attempt any 8 questions (10 marks each )
Marks 80
- 1.What is meant by financing decisions? Mention two limitations of accounting rate ofreturn.
Answer:
- 2. Explain Financial Risk.
Answer:Financial risk is an umbrella term for multiple types of risk associated with financing, including financial transactions that include company loans in risk of default. Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial loss.A science has evolved around managing market and financial risk under the general title of modern portfolio theory initiated by Dr. Harry
- 3. Mention the utility of public deposits as a source of fund.
Answer:
- 4. Explain operating Lease.
Answer:Operating lease is a contract wherein the owner, called the Lessor, permits the user, called the Lesse, to use of an asset for a particular period which is shorter than the economic life of the asset without any transfer of ownership rights.
Operating lease is a contract wherein the owner, called the Lessor, permits the user, called the Lesse, to use of an asset for a particular period which is shorter than the economic life of the asset without any transfer of ownership rights. The Lessor gives the right to the Lesse in return for regular payments for an agreed period of time.
As per the Indian accounting standard, lease payments
- 5. Discuss the relation between debt financing and financial leverage.
Answer:
- 6. Differentiate between Bonus issue and stock split.
Answer:Both does not result in reduction in face value of the share. I had earlier written an answer to a similar question but could not get it.
Here is the difference. Bonus shares are issued by capitalising the free reserves of the company. The share capital of the company increases. Shareholders get additional shares as per the proportion of the bonus issue. Assuming bonus issue is 1 for 1,
- 7. Define the term ‘take over.’
Answer:A welcome takeover generally goes smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can be quite unpleasant. The acquiring firm can use unfavorable tactics such as a dawn raid (where it buys a substantial stake in the target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening). The target firm’s management and board of directors may strongly resist takeover attempts through tactics such as a
- 8. What is Capital Asset pricing model?
Answer:A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.
- 9. How cost of preference share capital is calculated?
Answer:
- 10. What is dividend pay-out Ratio?
Answer: Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:
The part of the earnings not paid to investors is left for investment to provide for future earnings growth. Investors seeking high current income and limited capital growth prefer companies with high Dividend payout ratio. However investors seeking capital growth may prefer lower payout ratio because capital gains are taxed at a lower rate.
- 11. Explain the concept of Capital Rationing.
Answer:The act of placing restrictions on the amount of new investments or projects undertaken by a company. This is accomplished by imposing a higher cost of capital for investment consideration or by setting a ceiling on the specific sections of the budget. Companies may want to implement capital rationing in situations where past returns of investment were lower than expected. For example, suppose ABC Corp. has a cost of capital of 10% but that the company has undertaken too many projects, many of which are incomplete. This causes the company’s actual return on investment to drop well below the 10% level. As a
- 12. Define Economic Value added in relation to shareholder’s value criteria
Answer:
- 13. Mention two advantages of Lease financing
Answer:
- 14. What is a letter of credit
Answer:A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.
They are often used in international transactions to ensure that payment will be received where the buyer and seller may not know each other and are operating in different countries. In this case the seller is exposed to a number of risks such as credit risk, and legal risk caused by the distance, differing laws and difficulty in knowing each party personally. A letter of credit provides the seller with a guarantee that they will get paid as long as certain delivery conditions have been met. For this reason the use of letters of credit has become a very
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