Finance Management - the Modern Approach Is an Improvement over the Traditional Approach of Financial Management.Do You Agree

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Finance Management

1. ”The modern approach is an improvement over the traditional approach of

financial management.”Do you agree?

2. A company has Rs.200000 as EBIT .It has Rs.1000000,10% debentures .The

equity capitalization rate (Ke)of the company is 12.5%.Find out the value of the

firm under Net Income Approach. Also prove the NI approach.

3. A company earns Rs.5 per share ;it is capitalized at a rate of 10% and has a

rate of return on investments of 16%. According to Walter’s model what should

be the price per share at 50% dividend pay out ratio? Is this the optimum pay

out ratio according to Walter?

4. ”The principal focus of finance is on decisions and actions which affect the

value of the firm.”How can financial management help to maximize it?

5. Sales Rs.2000000, Variable cost Rs.600000, Fixed costs Rs.100000, Interest

Rs.5000

i) Using the concept of operating leverage, by what percentage will EBIT

increase,if there is a 10% increase in sales?

ii) Using the concept of financial leverage, by what percentage will EBT

increase,if there is a 6% increase

in EBIT?

iii) Using the concept of combined leverage, by what percentage will EBT

increase,if there is a 6% increase in sales? earnings before interest and taxes

(EBIT)

6. ”It is the capital expenditure decision that spells the difference between the

business success and business failure.”Do you agree with this statement?

Substantiate your views with reasons.

7. X Ltd.,wishes to issue 1000 7% debentures of Rs.100 each for which the

expenses of issue would be Rs.5 per debenture .Find out the cost of debenture

capital.

1. ”Financial analysis requires an explicit consideration of the time value of

money.”Elaborate.