Business Finance

B. Com Semester V
Important Questions

UNIT I
1. Financial Management is an integral part of general management process in most
companies. Examine the statement.
2. What makes risk important in selection of projects? Explain briefly the various
methods of evaluation of risky projects. Can you think a Capital Budgeting Project
that would have a perfectly certain return?
3. Define Financial Management and discuss its objectives. Also discuss the function of
finance and its significance in an organization.
4. Why capital budgeting is required? Explain Importance of Capital Budgeting.
Compare and contrast NPV with IRR. Which method would you prefer and why?
5. Explain the approaches of finance. Discuss the Scope and Importance of Business
Finance.
6. What is the Pay Back Period Method of project evaluation? How is it calculated?
7. “Maximization of Profit is regarded as the proper objectives of investments but it is
not as exclusive maximizing shareholder’s wealth”.
8. Compare and Contrast between profit maximization and wealth maximization
objectives of financial management.
9. Discuss the role and responsibilities of modern finance manager in an establishment.
Discuss some of the crucial financial problems that a decision maker faces today.
10. What do you mean by Investment Decisions? What are its characteristics? Discuss
various techniques of investment decisions.
11. “Finance has changed from a field that was concerned primarily with the procurement
of funds to one that includes the management of assets, the allocation of capital and
valuation of firm”. – Give your views on this statement.

UNIT II
1. What do you mean by Cost of Capital? How will you determine the cost of capital
from different sources.
2. Define cost of capital. Explain its significance. What are the components of Cost of
Capital?
3. What do you mean by Retained Earning? How is the cost of new equity issues
determined?
4. “Retained earnings is not a cost-free source of capital” Explain. Discuss its
importance as a source of capital. How is the cost of retained earnings determined?
5. “The distinction between explicit and implicit costs is important from the point of
view of the computation of the cost of capital. “Comment.
6. What is meant by weighted average cost of capital? Examine the rationale behind the
use of weighted average cost of capital. Explain this method with suitable examples.
7. How do you determine the cost of preference share capital and equity share capital?
8. Define the term capitalisation. How would estimate the capital requirements of a
newly setup concern?
9. What do you mean by overcapitalisation? Discuss its causes and effects. Also explain
the methods of correcting overcapitalisation.
10. Explain the meaning and causes of undercapitaisation. What steps should be taken for
its correction?
11. Explain the theories of capitalization. Which theory is better.

UNIT III
1. Critically discuss the Walter’s Theory of Dividend? Explain the importance of
Walter’s Model. Explain the shortcoming of this theory also.
OR
With suitable illustration, explain the formula proposed by Walter for determining the
dividend policy of a firm. Also state the assumptions and arguments proposed by him.
2. What is the need for Working Capital Management? Describes the steps involved in
estimating the working capital requirement of a firm.
3. What is meant by Leverage? How would you calculate Financial Leverage and
Operating Leverage? Explain the significance of Financial Leverage and Operating
Leverage analysis for financial structure planning?
4. What is the need for maintain optimum working capital? Discuss the consequences of
inadequate or excess working capital? Briefly describe the sources of working capital
finance in India.
5. List and explain the determinants of working capital. Explain the operating cycle
method of working capital.
6. What is Dividend Policy? Throw light on the factors affecting Dividend Policy of a
company. Also discuss the various determinants of Dividend Policy.
7. Describe the Short Term and Long-Term source of working capital of a firm.
8. Explain the concept of working capital. Why it is needed? What are the factors
affecting to working capital requirement of a firm?
9. What are the advantages of adequate working capital? What shall be the repercussions
if a firm has (i) redundant or excess working capital and (ii) inadequate working
capital?
10. Explain various method for determination of working capital.
11. What is “Financial Leverage”? How does it magnify the revenue available for equity
shareholders/ Discuss the relationship between finance leverage and debt financing?
12. Explain the MM theory of Dividend distribution. Mention its assumptions. What is
the major criticism to this theory of relevance?
13. What are the assumptions which underlien Gordon’s Model of Dividend effect? Does
dividend policy affect the value of firm under Gordon’s Model?

UNIT IV
1. Briefly explain and illustrate the concept of ‘Time value of money’. State its
relevance in different areas of Financial Management.
2. Explain the concept of compounding and present value. How are the two concepts
different?
3. What is annuity? Differentiate between ordinary annuity and annuity due. How can
you calculate the present and future values of an annuity due?
4. What factors do you consider while valuing bonds? Explain the valuation of
redeemable and perpetual bonds with the help of an example.
5. Explain the intrinsic value of a Bond. How is it determined? What is it significance?
6. What is meant by Capital Market? Explain the characteristics, importance and
functions of capital market.
7. What is meant by Primary Market Secondary Market? Explain the relationship
between primary and secondary market. Also distinguish between the primary and
secondary market.
8. What is SEBI? Explain the role and functions of stock exchange.
9. What is National Stock Exchange? What are its objectives? Explain the trending
procedure in NSE.
10. What is Bombay Stock Exchange? Explain the trending and surveillance system in
BSE.
11. What do you understand by Money Market? Discuss the defects of Indian Money
market and give suggestions for its improvement.
12. What is interest rate risk? How are value of bonds affected when the market rate of
interest change. Illustrate your answer.

Short Notes:
a) Working Capital Management and its significance
b) Trade Credtit
c) Net Operating Cycle
d) Functions of Primary Market
e) Stable Dividend Policy
f) Dividend Payout Ratio
g) IRR