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NET-SET Unit Financial Management

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1. The document discusses various topics in financial management including capital structure, cost of capital, leverage, working capital management, capital budgeting, and dividend policy. 2. It provides definitions and explanations of key concepts such as different approaches to capital structure, types of costs, operating and financial leverage, approaches to working capital management, capital budgeting methods, and forms of dividends. 3. The document concludes with practice questions related to financial management concepts for exam preparation.

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1 NET/SET Guidance Workshop Presentation by: Dr Jyoti Thakur j
2 Unit VII: Financial Management Capital Structure, Financial & Operating Leverage Cost of Capital, Capital Budgeting Working Capital Management Dividend Policy
Capital Structure Factors Determining Capital Structure. Principles of Capital Structure Theories of Capital Structure. Net Income Approach Theory- Durand Net operating Income theory- Durand. Traditional Approach Theory MM Approach 3
Cost of Capital Types of cost component and composite cost. Average and Marginal cost Explicit and Implicit cost Importance of Cost. Cost of Capital: Cost of Debt Cost of Equity Cost of Preference Shares Cost of Retained Earnings 4
Leverage Operating Leverage Contribution/ EBIT Financial Leverage (Trading on Equity) EBIT/ PBT Combined Leverage Contribution/ PBT 5
Working Capital Management Gross Working Capital Net Working Capital Factors Determining Capital Sources of Working Capital Approaches of Working Capital Daheja Committee Tandon Committee Chore Committee Marathe Committee Nayak and Var Committee 6
Capital Budgeting Process of Capital Budgeting. Time Value of Money. Methods of Capital Budgeting Traditional Discounted Cash Flow Method Pay Back Net Present Value method ARR method Discounted Pay Back Profitability Index Method Internal Rate of Return 7
Dividend Policy Factors affecting Dividend Policy Forms of Dividend. Cash Dividend Stock Dividend (Bonus Shares) Guidelines on Issue of Bonus Shares Types of Dividend Policy. 8
Practice Questions for Exam Financial Management 9
I.R.R. is the rate at which present value of inflow is _________ present value of outflows. A.Greater Than B.Less Than C.Equal to. D.Unequal to. 10
I.R.R. is the rate at which present value of inflow is _________ present value of outflows. A.Greater Than B.Less Than C.Equal to. D.Unequal to. 11
Classification of reports based on frequency is ___________ reports. A. Special and Regular B. Production and Finance C. Descriptive and Tabular. D. Tabular and Graphical. 12
Read the following statements (i) Working Capital is the amount of funds necessary to cover the cost of operating the enterprise. (ii) Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another. (A) (i) and (ii) both are correct. (B) (i) and (ii) both are false. (C) (i) is correct, but (ii) is false. (D) (i) is false, but (ii) is correct. 13
Read the following statements (i) Working Capital is the amount of funds necessary to cover the cost of operating the enterprise. (ii) Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another. (A) (i) and (ii) both are correct. (B) (i) and (ii) both are false. (C) (i) is correct, but (ii) is false. (D) (i) is false, but (ii) is correct. 14
Which one of the following is correct ? (i) A ratio is an arithmetical relationship of one number to another number. (ii) Liquid ratio is also known as acid test ratio. (iii) Rule of thumb for current ratio is 2 : 1. (iv) Debt equity ratio is the relationship between outsiders fund and shareholders fund. (A) All (i), (ii), (iii) and (iv) are correct. (B) Only (i), (ii) and (iii) are correct. (C) Only (ii), (iii) and (iv) are correct. (D) Only (ii) and (iii) are correct. 15
Examine the following statements : (i) Pay Back Period method measures the true profitability of a project. (ii) Capital Rationing and Capital Budgeting mean the same thing. (iii) Internal Rate of Return and Time Adjusted Rate of Return are the same thing. (iv) Rate of Return Method takes into account the time value of money. (A) (i), (ii) and (iii) are correct. (B) (ii) and (iii) are correct. (C) Only (iii) is correct. (D) All (i), (ii), (iii) and (iv) are False. 16
Examine the following statements : (i) Pay Back Period method measures the true profitability of a project. (ii) Capital Rationing and Capital Budgeting mean the same thing. (iii) Internal Rate of Return and Time Adjusted Rate of Return are the same thing. (iv) Rate of Return Method takes into account the time value of money. (A) (i), (ii) and (iii) are correct. (B) (ii) and (iii) are correct. (C) Only (iii) is correct. (D) All (i), (ii), (iii) and (iv) are False. 17
The basic objective of Financial Management is: (A) Maximization of profits. (B) Profit Planning of the organization. (C) Maximization of shareholders wealth. (D) Ensuring financial discipline in the organization. 18
The basic objective of Financial Management is: (A) Maximization of profits. (B) Profit Planning of the organization. (C) Maximization of shareholders wealth. (D) Ensuring financial discipline in the organization. 19
Which of the following term is used to represent the proportionate relationship between debt and equity ? (A) Cost of Capital (B) Capital Budgeting (C) Assets Structure (D) Capital Structure 20
Which of the following term is used to represent the proportionate relationship between debt and equity ? (A) Cost of Capital (B) Capital Budgeting (C) Assets Structure (D) Capital Structure 21
The discounting rate which equals the present value of future cash inflows with investment of a project is a) Pay Back Period b) Average Rate of Return c) Internal Rate of Return d) Profitability Index 22
The discounting rate which equals the present value of future cash inflows with investment of a project is a) Pay Back Period b) Average Rate of Return c) Internal Rate of Return d) Profitability Index 23
An increase or decrease in the amount of debt in the capital structure has no effect on the total market value of the firm as per a) Net Income Approach b) Net Operating Income Approach c) Traditional Approach. d) MM Approach 24
An increase or decrease in the amount of debt in the capital structure has no effect on the total market value of the firm as per a) Net Income Approach b) Net Operating Income Approach c) Traditional Approach. d) MM Approach 25
S Ltds equity share have price Rs. 50 in the market. The expected dividend per share is Rs. 6 which is expected to grow by 8%. The cost of equity is a) 20% b) 22% c) 16% d) 19% 26
S Ltds equity share have price Rs. 50 in the market. The expected dividend per share is Rs. 6 which is expected to grow by 8%. The cost of equity is a) 21% b) 20% c) 16% d) 19% 27
The method of project evaluation that does not consider the full serviceable life of an asset is ............ . (A)payback period method (B) average rate of return method (C) net present value method (D) internal rate of return method 28
The method of project evaluation that does not consider the full serviceable life of an asset is ............ . (A)payback period method (B) average rate of return method (C) net present value method (D) internal rate of return method 29
1 Use of debt increases the EPS 2. Use of debt in capital structure reduce the cost of capita; a) Both are correct b) 1 is correct but 2 is incorrect c) 1 is false but 2 is correct d) Both are false 30
1 Use of debt increases the EPS 2. Use of debt in capital structure reduce the cost of capita; a) Both are correct b) 1 is correct but 2 is incorrect c) 1 is false but 2 is correct d) Both are false 31
Irrelevance Approach of dividend Policy is given By a) Modigliani and Miller b)Walter c)Gordon d)Durand 32
Irrelevance Approach of dividend Policy is given By a) Modigliani and Miller b)Walter c)Gordon d)Durand 33
The company can issue maximum___ bonus shares for every share held by the shareholder a) 03 b) 02 c) 05 d) 01 34
The company can issue maximum___ bonus shares for every share held by the shareholder a) 03 b) 02 c) 05 d) 01 35

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NET-SET Unit Financial Management

  • 2. 2 Unit VII: Financial Management Capital Structure, Financial & Operating Leverage Cost of Capital, Capital Budgeting Working Capital Management Dividend Policy
  • 3. Capital Structure Factors Determining Capital Structure. Principles of Capital Structure Theories of Capital Structure. Net Income Approach Theory- Durand Net operating Income theory- Durand. Traditional Approach Theory MM Approach 3
  • 4. Cost of Capital Types of cost component and composite cost. Average and Marginal cost Explicit and Implicit cost Importance of Cost. Cost of Capital: Cost of Debt Cost of Equity Cost of Preference Shares Cost of Retained Earnings 4
  • 5. Leverage Operating Leverage Contribution/ EBIT Financial Leverage (Trading on Equity) EBIT/ PBT Combined Leverage Contribution/ PBT 5
  • 6. Working Capital Management Gross Working Capital Net Working Capital Factors Determining Capital Sources of Working Capital Approaches of Working Capital Daheja Committee Tandon Committee Chore Committee Marathe Committee Nayak and Var Committee 6
  • 7. Capital Budgeting Process of Capital Budgeting. Time Value of Money. Methods of Capital Budgeting Traditional Discounted Cash Flow Method Pay Back Net Present Value method ARR method Discounted Pay Back Profitability Index Method Internal Rate of Return 7
  • 8. Dividend Policy Factors affecting Dividend Policy Forms of Dividend. Cash Dividend Stock Dividend (Bonus Shares) Guidelines on Issue of Bonus Shares Types of Dividend Policy. 8
  • 9. Practice Questions for Exam Financial Management 9
  • 10. I.R.R. is the rate at which present value of inflow is _________ present value of outflows. A.Greater Than B.Less Than C.Equal to. D.Unequal to. 10
  • 11. I.R.R. is the rate at which present value of inflow is _________ present value of outflows. A.Greater Than B.Less Than C.Equal to. D.Unequal to. 11
  • 12. Classification of reports based on frequency is ___________ reports. A. Special and Regular B. Production and Finance C. Descriptive and Tabular. D. Tabular and Graphical. 12
  • 13. Read the following statements (i) Working Capital is the amount of funds necessary to cover the cost of operating the enterprise. (ii) Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another. (A) (i) and (ii) both are correct. (B) (i) and (ii) both are false. (C) (i) is correct, but (ii) is false. (D) (i) is false, but (ii) is correct. 13
  • 14. Read the following statements (i) Working Capital is the amount of funds necessary to cover the cost of operating the enterprise. (ii) Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another. (A) (i) and (ii) both are correct. (B) (i) and (ii) both are false. (C) (i) is correct, but (ii) is false. (D) (i) is false, but (ii) is correct. 14
  • 15. Which one of the following is correct ? (i) A ratio is an arithmetical relationship of one number to another number. (ii) Liquid ratio is also known as acid test ratio. (iii) Rule of thumb for current ratio is 2 : 1. (iv) Debt equity ratio is the relationship between outsiders fund and shareholders fund. (A) All (i), (ii), (iii) and (iv) are correct. (B) Only (i), (ii) and (iii) are correct. (C) Only (ii), (iii) and (iv) are correct. (D) Only (ii) and (iii) are correct. 15
  • 16. Examine the following statements : (i) Pay Back Period method measures the true profitability of a project. (ii) Capital Rationing and Capital Budgeting mean the same thing. (iii) Internal Rate of Return and Time Adjusted Rate of Return are the same thing. (iv) Rate of Return Method takes into account the time value of money. (A) (i), (ii) and (iii) are correct. (B) (ii) and (iii) are correct. (C) Only (iii) is correct. (D) All (i), (ii), (iii) and (iv) are False. 16
  • 17. Examine the following statements : (i) Pay Back Period method measures the true profitability of a project. (ii) Capital Rationing and Capital Budgeting mean the same thing. (iii) Internal Rate of Return and Time Adjusted Rate of Return are the same thing. (iv) Rate of Return Method takes into account the time value of money. (A) (i), (ii) and (iii) are correct. (B) (ii) and (iii) are correct. (C) Only (iii) is correct. (D) All (i), (ii), (iii) and (iv) are False. 17
  • 18. The basic objective of Financial Management is: (A) Maximization of profits. (B) Profit Planning of the organization. (C) Maximization of shareholders wealth. (D) Ensuring financial discipline in the organization. 18
  • 19. The basic objective of Financial Management is: (A) Maximization of profits. (B) Profit Planning of the organization. (C) Maximization of shareholders wealth. (D) Ensuring financial discipline in the organization. 19
  • 20. Which of the following term is used to represent the proportionate relationship between debt and equity ? (A) Cost of Capital (B) Capital Budgeting (C) Assets Structure (D) Capital Structure 20
  • 21. Which of the following term is used to represent the proportionate relationship between debt and equity ? (A) Cost of Capital (B) Capital Budgeting (C) Assets Structure (D) Capital Structure 21
  • 22. The discounting rate which equals the present value of future cash inflows with investment of a project is a) Pay Back Period b) Average Rate of Return c) Internal Rate of Return d) Profitability Index 22
  • 23. The discounting rate which equals the present value of future cash inflows with investment of a project is a) Pay Back Period b) Average Rate of Return c) Internal Rate of Return d) Profitability Index 23
  • 24. An increase or decrease in the amount of debt in the capital structure has no effect on the total market value of the firm as per a) Net Income Approach b) Net Operating Income Approach c) Traditional Approach. d) MM Approach 24
  • 25. An increase or decrease in the amount of debt in the capital structure has no effect on the total market value of the firm as per a) Net Income Approach b) Net Operating Income Approach c) Traditional Approach. d) MM Approach 25
  • 26. S Ltds equity share have price Rs. 50 in the market. The expected dividend per share is Rs. 6 which is expected to grow by 8%. The cost of equity is a) 20% b) 22% c) 16% d) 19% 26
  • 27. S Ltds equity share have price Rs. 50 in the market. The expected dividend per share is Rs. 6 which is expected to grow by 8%. The cost of equity is a) 21% b) 20% c) 16% d) 19% 27
  • 28. The method of project evaluation that does not consider the full serviceable life of an asset is ............ . (A)payback period method (B) average rate of return method (C) net present value method (D) internal rate of return method 28
  • 29. The method of project evaluation that does not consider the full serviceable life of an asset is ............ . (A)payback period method (B) average rate of return method (C) net present value method (D) internal rate of return method 29
  • 30. 1 Use of debt increases the EPS 2. Use of debt in capital structure reduce the cost of capita; a) Both are correct b) 1 is correct but 2 is incorrect c) 1 is false but 2 is correct d) Both are false 30
  • 31. 1 Use of debt increases the EPS 2. Use of debt in capital structure reduce the cost of capita; a) Both are correct b) 1 is correct but 2 is incorrect c) 1 is false but 2 is correct d) Both are false 31
  • 32. Irrelevance Approach of dividend Policy is given By a) Modigliani and Miller b)Walter c)Gordon d)Durand 32
  • 33. Irrelevance Approach of dividend Policy is given By a) Modigliani and Miller b)Walter c)Gordon d)Durand 33
  • 34. The company can issue maximum___ bonus shares for every share held by the shareholder a) 03 b) 02 c) 05 d) 01 34
  • 35. The company can issue maximum___ bonus shares for every share held by the shareholder a) 03 b) 02 c) 05 d) 01 35