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IMPORTANT QUESTIONS IN FINANCIAL MANAGEMENT MASTER OF BUSINESS ADMINISTRATION

UNIVERSITY OF MADRAS Prepared by: N Rakesh, Chennai

Scope, Objectives, Decisions

State the objectives in conventional and modern approaches in financial management

“The objective of a finance manager is to maximize the wealth of the owners of the organization”. Prove

How is the wealth maximization approach superior to the profit maximization approach.

What do you mean by agency costs. What are the functions of a finance manager in the current situation. What do you understand by the basic financial decisions? How do they involve

risk-return trade off? What are the major types of financial decisions that a business firm makes? Explain the finance functions.

Financial Analysis & Financial Planning

What are the types of financial analysis? Briefly explain What guidelines would you follow in financial statement analysis What are the objectives of financial statements Distinguish between operating and non-operating revenues Briefly explain the steps in financial planning Briefly explain the tools of financial forecasting What are the utilities of financial forecasting What are the functions of balance sheet What is meant by current assets? Give examples

Ratio Analysis

What are liquidity ratios. What is debt-service coverage ratio? How is it calculated State the limitations of ratio analysis.

Break-even analysis

What assumptions underlie Breakeven Analysis What is Operating leverage? State the formula for calculating the degree of

operating leverage. State the impact of operating leverage on profits.

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What do you understand by Breakeven point. What are the uses of breakeven point

How would you compute the breakeven point. What are the limitations of cost volume profit analysis.

Capital Budgeting

What do you understand by mutually exclusive projects What do you understand by profitability index (PI)? Which is a superior ranking

criterion profitability index or net present value? Why? How would you calculate accounting rate of return? What are its limitations Why do individuals show a time preference for money? State the reasons. Distinguish between profit and cash flows Explain the merits and demerits of time adjusted methods of evaluating

investment proposals Under what circumstances do the Net Present Value (NPV) and the Internal Rate

of Return (IRR) methods differ? What method would you prefer and why? Explain the mechanics, merits and demerits of different capital budgeting

techniques. Working Capital Management

Discuss the concept of working capital cycle. Why is it important. What are the principal motives for holding cash What is Lock box system? What is concentration banking system? Write short note on Baumol Model for cash management Efficient cash management will aim at maximizing the availability of cash

inflows by decentralizing collections and decelerating cash outflows by centralizing disbursements. Discuss.

Discuss in detail the various short term and long term cash forecasting techniques What are the five C’s of credit analysis? How do they relate to the process of

evaluating credit risk. What are the important decision variables which influence the level of

receivables? Briefly explain. Define the economic order quantity. How is it computed. How is the reorder point determined What are the risk and costs of holding inventories? Briefly explain. Briefly explain the various tools and techniques used for inventory management

Working Capital Financing

Discuss the important forms of working capital advance given by banks Describe the important features of the Chore committee recommendations. Describe the important features of the Marathe committee recommendations.

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Explain the major recommendations of Tandon committee. What are term loans? What are their features.

Cost of Capital and Capital Structure

What is the effect of leverage on the cost of capital under the Net Operating Income (NOI) Approach

‘According to Net Income approach the overall cost of capital would decrease as the value of the firm increases’- Explain.

Illustrate the difference between valuation of a bond and of a preference share with an example

How would the cost of debt be calculated. Explain the concept of financial Leverage What is financial leverage? State the formula for the calculation of degree of

financial leverage. Explain the various methods of computing cost of equity capital What is capital structure? Explain the features of an appropriate capital structure. Briefly explain the factors determining the capital structure of a firm Define cost of capital. Explain its significance in financial decision making. How is the weighted average cost of capital calculated? Explain the importance of EBIT-EPS Analysis. How is it useful to a finance

manager. Dividend Theories and dividend policy

Is there any similarity between the Walter’s Model and the Gordon’s Model Compare bonus issue and stock split

Sources of Finance

Discuss the salient features of debentures as a source of finance Distinguish between preference shares and debentures. Briefly explain the advantages of raising funds by issuing preference shares How debentures are classified based on convertibility? Briefly explain each one. Explain the pros and cons of equity financing.

Budgetary Control

What is Budgetary control? Explain its objectives. Explain the purpose of preparing cash budget. Present with an illustration the

receipts and payments method of preparing cash budget. Distinguish between zero base budgeting and traditional budgeting. What are the functions of a cash budget. Explain the limitations of budgetary control.

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Financial Information System

Write a note on Financial information System (FIS). Explain the various kinds of financial information to be provided to the finance

manager.