1. Difference Between Operating & Financial Leverage?
Ans.
OPERATING LEVERAGE
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FINANCIAL LEVERAGE
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It Measures Effect Of Fixed Operating Costs.
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It Measures Effect Of Interest Expenses.
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It Relates To Sales And EBIT.
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It Relates To EBIT & EPS.
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It Is Ascertained By Company's Cost Structure.
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It Is Ascertained By Company's Capital Structure.
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It Is Preferrebly Low.
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And It Is High.
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It Is A Business Risk.
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It Is A Financial Risk.
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2. Explain The Implication Of Fixed Cost Bearing Securities On Coast Of Capital Of An Entity.
3. State The Factors Determining Capital Structure?
Ans.
1. Financial Leverage
2. Growth And Stability Of Sales
3. Cost Of Capital
4. Risk
5. Cash Flow Ability To Service Debt
6. Nature And Size Of A Firm
7. Control
8. Flexibility
9. Requirements Of Investors
10. Capital Market Conditions
11. Assets Structure
12. Purpose Of Financing
13. Period Of Finance And Others.
4. Difference Between Test Methods Followed In Capital Budgeting?
5. State The Meaning Of Net Present Value?
Ans. Net Present Value (NPV) Is The Difference Between The Present Value Of Cash Inflows And The Present Value Of Cash Outflows. NPV Is Used In Capital Budgeting To Analyze The Profitability Of A Projected Investment Or Project.
6. What Are The Objectives Of Financial Management?
Ans. A) Profit Maximisation
B) Wealth Maximisation
7. Discuss Different Types Of Financial Decisions And Examine Their Interrelationship?
Ans. Following Are The Types Of Financial Decisions Investment Decision Financing Decision Decision:
I. Investment Decisions Involved With Decision Of Allocation Of Funds Are Beneficial In Future For The Firm
II. Financial Decision Involves The Decision Of Optimisation Of Capital Structure To Meet The Firms Investment Needs
III. Dividend Decisions Involves The Decision Of Optimisation Of Dividend Policies That Maxiimize The Market Value Of The Share Of The Firm.
“Investment Financing And Dividend Decisions Are Interrelated Because The Underlying Objectives Of All These Decision Is The Same I.E., Maximization Of Shareholders Wealth. All These Decisions Influence One Another And Are Interdependent”
8. State The Objectives Of Finance Function?
Ans. Following Are The Objectives:
a) Acquiring Sufficient Funds: The Main Aim Of Finance Function Is Acquisition Of Finance.
b) Proper Utilisation Of Funds: The Effective Utilisation Of Funds Is Important Besides Rising Funds.
c) Increasing Profitability: Profitability Of A Concern Is Increased Through Planning And Control Of Funds
d) Maximising Value Of Firm
9. Discuss The Financial Goals And Compare Between Profit Maximization Vs Wealth Maximization?
Ans.
a) The Process Through Which The Company Is Capable Of Increasing Earning Capacity Known As Profit Maximization. On The Other Hand, The Ability Of The Company In Increasing The Value Of Its Stock In The Market Is Known As Wealth Maximization.
b) Profit Maximization Is A Short Term Objective Of The Firm While The Long-Term Objective Is Wealth Maximization.
c) Profit Maximization Ignores Risk And Uncertainty. Unlike Wealth Maximization, Which Considers Both.
d) Profit Maximization Avoids Time Value Of Money, But Wealth Maximization Recognises It.
e) Profit Maximization Is Necessary For The Survival And Growth Of The Enterprise. Conversely, Wealth Maximization Accelerates The Growth Rate Of The Enterprise And Aims At Attaining The Maximum Market Share Of The Economy.
10. Difference Between Gross Working Capital And Net Working Capital?
Ans.
Gross Working Capital
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Net Working Capital
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Gross Working Capital Represents The Total Value Of Current Assets.
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Represents The Excess Of Current Assets Over Current Liabilities
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11. Discuss Determinants Of Working Capital?
Ans. Nature of business, Length of period of manufacture, Volume of business, The proportion of the cost of raw materials to total cost, Use of Manual Labour or Mechanisation, Need to keep large stocks of raw materials of finished goods, Turnover of working capital
12. Critically Examine The Modigliani And Miller Episodes On Dividend?