DCM 6103 FINANCIAL MANAGEMENT JULY-AUG 2025

Description

SESSION	JULY-AUG 2025
PROGRAM	MASTER OF COMMERCE (M COM)
SEMESTER	I
COURSE CODE & NAME	DCM6103  FINANCIAL MANAGEMENT

 

 

Set – 1

 

Q1. Describe financial management. Also, illustrate various functions of financial management.  2 + 8

Ans 1.

Financial Management: Meaning and Functions

Financial management refers to the efficient planning, organizing, directing, and controlling of financial resources of an organization in order to achieve its overall objectives. It is primarily concerned with the procurement and effective utilization of funds to maximize the wealth of shareholders while ensuring financial stability and growth of the business. In modern business organizations, financial management plays a central role because every managerial decision has financial implications. Sound financial management ensures optimal

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Q2. A company is planning to start a new project of ₹ 2000 crores. For this purpose, the company has planned to raise ₹1600 crores of equity share capital and ₹400 crores of 10% debentures. If the company is paying constant dividend of ₹27 per share and current market price of equity share is ₹180 per share, estimate weighted average cost of capital of company, assuming corporate tax rate of 40%.

Ans 2.

Calculation of Weighted Average Cost of Capital (WACC)

Given

• Total Project Cost = ₹2,000 crores
• Equity Share Capital = ₹1,600 crores
• Debentures = ₹400 crores (10%)
• Dividend per share = ₹27
• Market price per share = ₹180
• Corporate tax rate = 40%

Step 1: Cost of Equity (Ke)

 

Q3. A firm’s sales, variable costs and fixed cost amount to ₹ 75,00,000, ₹ 42,00,000 and ₹ 6,00,000 respectively. It has borrowed ₹ 45,00,000 at 9% and its equity capital totals ₹ 55,00,000.

Estimate operating, financial and combined leverages of the firm based on abovementioned information. Also, show working notes.   (3*3) + 1

Ans 3.

Operating, Financial and Combined Leverage

Given

• Sales = ₹75,00,000
• Variable Cost = ₹42,00,000
• Fixed Cost = ₹6,00,000
• Debt = ₹45,00,000
• Interest Rate = 9%

Step 1: Contribution

 

Step 2: EBIT

 

 

 

Set – 2

 

Q4. Describe determinants of capital structure in detail.

Ans 4.

Determinants of Capital Structure

Capital structure refers to the mix of long-term sources of finance used by a firm, primarily equity and debt. Determining an optimal capital structure is a critical financial decision, as it directly affects a firm’s cost of capital, risk profile, and market value. Several internal and external factors influence a company’s capital structure decisions.

1. Cost of Capital

One of the most important determinants is the cost of capital. Debt is generally cheaper than

 

Q5. The following are two mutually exclusive projects:

Projects	Cash Flows (in ₹)
A	– 25,000	18,000	25,000	12,000
B	– 28,000	14,000	19,000	28,000

 

Assuming 10% opportunity cost of capital, estimate net present value and payback period for project A and B. Which project should be recommended under each of these techniques?

The present value factor (PVF) @ 10% is as follows:

Year	1	2	3
10%	0.909	0.826	0.751

 

4+4+2

Ans 5.

NPV and Payback Period of Projects A and B

Given

Project	C₀	C₁	C₂	C₃
A	-25,000	18,000	25,000	12,000
B	-28,000	14,000	19,000	28,000

PV Factors @ 10%

Year 1 = 0.909 | Year 2 = 0.826 | Year 3 = 0.751

Project A

 

Q6.  Describe in detail the Miller and Modigliani model of dividend policy.

Ans 6.

Miller and Modigliani (MM) Model of Dividend Policy

The Miller and Modigliani (MM) model of dividend policy, proposed by Merton Miller and Franco Modigliani in 1961, is one of the most influential theories in corporate finance. The model asserts that dividend policy is irrelevant to the value of a firm under certain idealized conditions. According to MM, the value of a firm depends solely on its earning power and investment decisions, not on how earnings are distributed between dividends and retained