FINANCIAL MANAGEMENT BBA THIRD YEAR SIXTH SEMSESTER EXAMINATION, 2009

BBA THIRD YEAR SIXTH SEMSESTER EXAMINATION, 2009

FINANCIAL MANAGEMENT

Subject Code: 3201

Examination Code: 606

Time -3 hours

Full marks -70

[N.B:- The figures in the right margin indicate full marks. Answer any five questions from part-A and three questions from Part –B. All parts of each question must be answered consecutively.]

Part A – Short Questions

(Answer any five questions)

Marks-5x5 =25

1.      (a) What do you mean by Financial Management?

(b) Define discounted cash-flow analysis.

2.      (a) What is APT and CAMP?

(b) What are the assumptions of CAMP? Discuss.

3.      (a) What is the significance of Security Market Line?

(b) How can selection of optional portfolio be made?

4.      (a) How will you estimate the cost of equity capital?

(b) How does it differ from cost of preferred capital?

5.      (a) Explain the importance of trade credit as a source of working capital.

(b) What is the cost of trade credit? Explain.

6.      (a) What do you mean by working capital cycle?

(b) What are the importance of working capital?

7.      (a) Define receivable management.

(b) Explain the objective of credit policy.

Part B- Broad Questions

(Answer any three questions)

Marks 15x3=45

8.      (a) What is risk? How can risk of a security be calculated?

(b) Securities X and Y have the following characteristics:

Security X		Security Y
Return	Probability	Return	Probability
30%	0.10	-20%	0.05
20%	0.20	10%	0.25
10%	0.40	20%	0.30
5%	0.20	30%	0.30
-10%	0.10	40%	0.10

You are required to calculate:

(1)  The expected return and standard deviation of return for each secutity;

(2)  The expected return and standard deviation of the return for the portfolio of X and Y combined with equal weights.

9.      (a) How is the working capital affected by (i) Sales; (ii) Technology and production policy and (iii) inflation? Explain.

(b) A proforma cost sheet of XYZ Company provides the following data:

Cost (per unit)	Taka
Raw materials	52.00
Direct labour	19.50
Overheads	39.00
Total cost (per unit)	110.50
Profit	29.50
Selling price	140.00

The following is the additional information available:

 Average Raw material in stock: One month.

Average Materials in process: Half a month.

Credit allowed by suppliers: One month.

Credit allowed to debtors: Two months.

Time lag in payment of wages: One and a half weeks.

Overheads: One month, One – fourth of sales on cash basis.

Cash balance is expected to be Tk. 1, 20,000.

You are required to prepare a statement showing the working capital needed to finance a level of activity of 80,000 units of output. You may assume that production is carried on evenly throughout the year and wages and overheads accrue similarly.

10. (a) State the assumptions of Walter’s theory of dividend policy.

(b) From the following information, determine the theoretical market value of equity shares of a company as per Walter’s model:

Earnings of the company	Tk. 5,00,000
Dividend paid	Tk. 3,00,000
Number of shares outstanding	1,00,000
Price earning ratio	8
Rate of return on Investment	15%

Are you satisfied with the current policy of the firm? If not, what should be the optional dividend payout ratio in this case?

11. (a) Explain the importance of capital budgeting decision.

(b) What are the disadvantages of IRR?

(c) A company has two mutually exclusive projects. Initial cash outflow for each of the company is 12%. Expected net cash flow from cash of the projects will be as follows:

Years	Net Cash Flow
	Project A	Project B
	Taka	Taka
1	30,000	40,000
2	30,000	25,000
3	30,000	20,000
4	30,000	35,000
5	25,000	30,000

Required (for each of the projects):

(i)                 Discounted cash flow;

(ii)             Net present value;

(iii)           Internal rate of return

N.B- Present value factor at 12%

Years	1	2	3	4	5
	.893	.797	.712	.636	.567

12.  Write short notes ( any five);

(a)  Cash Management;

(b)  Marketable Securities;

(c)  IRR;

(d)  NPV;

(e)  Cody of Retained Earnings;

(f)   Capital Structure;

(g)  Short- term Financing;

(h)  Inventory Mangement;