Anna University MBA Important Question Bank (Most Important Questions)
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
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BA5009 – CORPORATE FINANCE
Regulation - 2017
Academic Year 2019 - 2020
Prepared by
Dr. Radha Ganesh Kumar – Asst. Professor (Sel.Gr)
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Mr.C. Dilip – Asst. Professor (O.G)
SUBJECT: BA5009 – CORPORATE FINANCE
SEM / YEAR: III Semester / II Year
UNIT – I-INDUSTRIAL FINANCE
SYLLABUS: Indian Capital Market – Basic problem of Industrial Finance in India. Equity – Debenture financing - Guidelines from SEBI, advantages and disadvantages and cost of various sources of Finance Finance from international sources, financing of exports – role of EXIM bank and commercial banks - Finance for rehabilitation of sick units.
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PART- A
| S.NO | QUESTIONS | BT LEVEL | COMPETENCE |
|---|---|---|---|
| 1 | Define Cost of Capital. | Level 1 | Remembering |
| 2 | What is Capital Market | Level 2 | Understanding |
| 3 | Identify the use of debt capital. | Level 3 | Applying |
| 4 | Classify the various types of debentures. | Level 4 | Analysing |
| 5 | Discuss the meaning of Debentures. | Level 5 | Evaluating |
| 6 | Interpret the functions of EXIM bank. | Level 6 | Creating |
| 7 | Define Corporate Finance and Industrial Finance. | Level 1 | Remembering |
| 8 | Differentiate Capital market and money market. | Level 2 | Understanding |
| 9 | How would you have calculated cost of debt when issued at par and redeemed at premium? | Level 3 | Applying |
| 10 | What is book building approach to public issues? | Level 4 | Analysing |
| 11 | How would you bring out the causes of sickness? | Level 5 | Evaluating |
| 12 | Interpret the symptoms of sickness. | Level 6 | Creating |
| 13 | What is meant by debenture financing? | Level 1 | Remembering |
| 14 | Can you explain about EXIM bank? | Level 2 | Understanding |
| 15 | How would you focus on the functions of commercial banks? | Level 3 | Applying |
| 16 | Classify the problems of Industrial Finance. | Level 4 | Analysing |
| 17 | Define Equity. | Level 1 | Remembering |
| 18 | Classify the different operating groups of EXIM bank. | Level 2 | Understanding |
| 19 | What are the distinctive features of financing for rehabilitation of Sick units? | Level 1 | Remembering |
| 20 | What is a sick unit? | Level 1 | Remembering |
PART- B
| S.N | QUESTIONS | BT LEVEL | COMPETENCE |
|---|---|---|---|
| 1 | (i) Define the structure of Indian Capital market. (4Marks) (ii) What is the role of Capital market in the economic development of a Country? (9Marks) | Level 1 | Remembering |
| 2 | Explain the role of SEBI. | Level 2 | Understanding |
| 3 | Identify the role of capital market in the economic development of a country. | Level 3 | Applying |
| 4 | Elaborate & Illustrate about the cost of various forms of capital. (i) Can you explain the role of commercial bank for export financing? (6Marks) --- Content provided by FirstRanker.com --- (ii) Can you bring out your understanding on EXIM bank financing for exports in India? (7Marks) | Level 4 | Analysing |
| 5 | (i) "Equity method of financing is more suited in the present scenario”- Explain.(7 Marks) (ii) What are the features of Equity shares? Discuss its advantages & disadvantages.(6 Marks) | Level 5 | Evaluating |
| 6 | Explain the basic problems of Industrial finance in India. How can those be addressed? | Level 6 | Creating |
| 7 | Explain the various sources of long-term finance. | Level 1 | Remembering |
| 8 | What are the guidelines of SEBI with respect to debenture issue? | Level 2 | Understanding |
| 9 | Examine the various sources of International finance. | Level 3 | Applying |
| 10 | List the causes of Industrial sickness in India. Explain the role of debentures as a source of long-term finance. | Level 4 | Analysing |
| 11 | (i) Examine the procedure for rehabilitation of Sick Unit. (7Marks) (ii) Elaborate the financing for rehabilitation of Sick Unit. (6Marks) | Level 1 | Remembering |
| 12 | (i) What are the present features and functions of Indian Capital Market? (9 Marks) (ii) What is the relationship between Primary market and Secondary Market? (4Marks) | Level 2 | Understanding |
| 13 | (i) Examine the procedure for rehabilitation of Sick Unit. (7Mark --- Content provided by FirstRanker.com --- (ii) Elaborate the financing for rehabilitation of Sick Unit. (6Marks) | Level 4 | Analysing |
| 14 | (i) What are the present features and functions of Indian Capital Market? (9 Marks) (ii) What is the relationship between Primary market and Secondary Market? (4Marks) | Level 1 | Remembering |
PART - C
| S.NO | QUESTIONS |
|---|---|
| 1 | SEBI's role as a regulator of Indian capital markets was once again, when the BSE index crashed by 176 points. This was the result of the large position taken by a stockbroker - Ketan Parikh (KP) in ten stocks, popularly known as K10. The companies in which KP held high equity stakes included Amitabh Bachchan Corporation Limited, Mukta Arts, Tips, PritishNandy Communications, HFCL, Global Telesystems, Zee Telefilms, Crest Communications and PentaMedia Graphics. Analysts felt that the major reason for SEBI's failure to protect investors against scams was lack of skilled human capital. For instance, they quoted the example of the KP scam in which KP had taken huge positions in ten stocks. In spite of SEBI possessing this information, it could not gauge KP's vested interests in acquiring these huge positions and his illegitimate plans. In a poll conducted during the period, over 90% of the respondents believed that the regulatory environment was not sufficient to protect the rights of retail investors in India. Restoring the confidence of retail investors in the market will be an important task of SEBI. |
| 2 | How is debenture financing different from Bank loans, Equity shares and bonds? |
| 3 | The Sick Industrial Companies Act (SICA) had been in deal with the public interest to deal with the problems of industrial sickness with regard to the crucial sectors where public money is locked up. It contains special provisions for timely detection of sick and potentially sick industrial companies, speedy determination and enforcement of preventive, remedial and other measures with respect to such companies. The Government of India provided various concessions and incentives to the Sick sector for their sustained growth. Assisting new Sick units on soft terms by lending s, reservation of certain Industries for the SSI sector, incentives related to land/shed financing, machinery and raw- materials, provision of facilities within the Industrial Estates, and Excise duty exemption and price preferences. (i) Elucidate on the sickness prevailing in our country.(10 Marks) |
| 4 | (ii) Critically examine the measures taken by SICA for Sick Units revival. (5 Marks) Identify and examine the role of EXIM bank of India in foreign investment. |
UNIT - II – SHORT TERM-WORKING CAPITAL FINANCE
SYLLABUS: Estimating working capital requirements – Approach adopted by Commercial banks, Commercial paper- Public deposits and inter corporate investments
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PART- A
| S.NO | QUESTIONS | BT LEVEL | COMPETENCE |
|---|---|---|---|
| 1 | What is working capital. | Level 1 | Remembering |
| 2 | Compare Gross and Net working capital. | Level 2 | Understanding |
| 3 | Identify the factors bearing importance on working capital needs. | Level 3 | Applying |
| 4 | What are the sources of working capital? | Level 4 | Analysing |
| 5 | Discuss the phases of working capital cycle. | Level 5 | Evaluating |
| 6 | Interpret with simple illustration, the computation of MPBF? | Level 6 | Creating |
| 7 | What is Commercial paper? | Level 1 | Remembering |
| 8 | Differentiate public & inter corporate deposits. | Level 2 | Understanding |
| 9 | Brief out on Inter corporate Investments. | Level 3 | Applying |
| 10 | What is Certificate of Deposits? | Level 4 | Analysing |
| 11 | What is commercial paper | Level 5 | Evaluating |
| 12 | Interpret the various methods of calculating working capital. | Level 6 | Creating |
| 13 | How would you bring out the various approaches of maintaining working capital? | Level 1 | Remembering |
| 14 | Why trade credit is called spontaneous financing? | Level 2 | Understanding |
| 15 | Write a note on public deposits. | Level 3 | Applying |
| 16 | Classify permanent and temporary working capital. | Level 4 | Analysing |
| 17 | Define Factoring. | Level 1 | Remembering |
| 18 | Compare public deposit with fixed deposit. | Level 2 | Understanding |
| 19 | How is cash credit different from loan financing? | Level 1 | Remembering |
| 20 | What are Commercial bank ? | Level 1 | Remembering |
PART- B
| S.N | QUESTIONS | BT LEVEL | COMPETENCE |
|---|---|---|---|
| 1 | (i) Define the various concepts of Working Capital.(4Marks) (ii) What are the different methods of working capital financing?(9Marks) | Level 1 | Remembering |
| 2 | (i) Explain the main forms of working capital advance by banks?(7 Marks) (ii) What kind of security is been required by banks for working capital Finance. (6 Marks) | Level 2 | Understanding |
| 3 | (i) How would you explain the various methods of forecasting working capital requirements?(9Marks) --- Content provided by FirstRanker.com --- (ii) What is the need for assessing working capital requirement?(4Marks) | Level 3 | Applying |
| 4 | How would you categorize the various factors influencing on the demand for working capital in a manufacturing concern? | Level 4 | Analysing |
| 5 | "Working Capital must be adequate but at the same time not excessive"- Comment. | Level 5 | Evaluating |
| S.NO | QUESTIONS | BT LEVEL | COMPETENCE |
|---|---|---|---|
| 6 | Discuss how assessed working capital is assessed? Discuss the need Assessing work capital requirement. | Level 6 | Creating |
| 7 | (i) Define the features and categories of inter corporate investment. (4 Marks) (ii) Explain provisions under companies act 1956 relating to intercorporate investment.(9Marks) | Level 1 | Remembering |
| 8 | (i) What do you understand by Current asset financing?(6Marks) (ii) What is hedging approach of Current asset financing?(7Marks) | Level 2 | Understanding |
| 9 | Can you explain about the advantages and limitations of Commercial paper? | Level 3 | Applying |
| 10 | Discuss the features of Commercial paper. | Level 4 | Analysing |
| 11 | How public deposits are used as a source of finance? | Level 1 | Remembering |
| 12 | Write Short notes on: (i) Public deposits (6 Marks) (ii) Inter corporate investments(7Marks) | Level 2 | Understanding |
| 13 | Explain the various approaches of estimating working capital management | Level 4 | Analysing |
| 14 | What are the advantages and disadvantages of public deposits? | Level 1 | Remembering |
PART - C
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| S.NO | QUESTIONS |
|---|---|
| 1 | From the following information prepare a statement showing working capital requirement Sales for the year 12000 units Cost per unit Raw materials Rs.10 Labour Rs.6 --- Content provided by FirstRanker.com --- Overhead Rs.4Total Rs.20 Additional information: Raw materials are in stock on for one month. Materials are in process for 2 months --- Content provided by FirstRanker.com --- Finished goods are in stock for 3 monthsCredit allowed to customer one month Credit allowed by suppliers two months It may be assumed that production and overhead accrue throughout the year. |
| 2 | What is the importance of working capital for a manufacturing firm? what shall be the repercussions if a firm as a) paucity of working capital b) excess working capital . |
| 3 | Examine regulations under sec 186 of Companies Act 2013 for Inter corporate investments in India. |
| 4 | From the following information of VSGR Company Ltd., estimate working capital needed to finance a level of activity of 1,10,000 units of production after adding a 10 per cent safety contingency. Cost per unit --- Content provided by FirstRanker.com --- Raw materials Rs.78Direct Labour Rs.29 |
| Overheads(excluding depreciation) | Rs.58 |
| Total cost | Rs.165 |
| Profit | Rs.24 |
| Selling price | Rs.189 |
Additional information:
Average raw materials in stock : one month
Average materials-in-process(50%completionstage):1/2month
Average finished goods in stock: one month
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Credit allowed by suppliers:1 month
Credit allowed to customers : 2 months
Time lag in payment of wages : 1 1/2 weeks
Overhead expenses : one month
One fourth of the sales are on cash basis. Cash balance is expected to be Rs. 2, 15,000. You may assume that production is carried on evenly throughout the year and wages and overhead expenses accrue similarly.
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UNIT-III- ADVANCED FINANCIAL MANAGEMENT
SYLLABUS: Appraisal of Risky Investments, certainty equivalent of cash flows and risk adjusted discount rate, risk analysis in the context of DCF methods using Probability information, nature of cash flows, Sensitivity analysis; Simulation and investment decision, Decision tree approach in investment decisions.
PART- A
| S.NO | QUESTIONS | BT LEVEL | COMPETENCE |
|---|---|---|---|
| 1 | What is risk analysis ? | Level 1 | Remembering |
| 2 | Compare RAD & CE. | Level 2 | Understanding |
| 3 | Identify the different mathematical models used in risk analysis of Capital budgeting. | Level 3 | Applying |
| 4 | What is Sensitivity analysis in Investment decision? | Level 4 | Analysing |
| 5 | Discuss the certainty equivalent method of Investment decision. | Level 5 | Evaluating |
| 6 | Can you interpret the assumptions underlying sensitivity analysis? | Level 6 | Creating |
| 7 | Define Cash flow statement. | Level 1 | Remembering |
| 8 | Mention any two methods of investment analysis. | Level 2 | Understanding |
| 9 | What is sensitivity analysis? | Level 3 | Applying |
| 10 | What is decision tree approach? | Level 4 | Analysing |
| 11 | Discuss the different steps in decision tree approach. | Level 5 | Evaluating |
| 12 | Interpret the various types of risk. | Level 6 | Creating |
| 13 | Define Probability distribution approach. | Level 1 | Remembering |
| S.NO | QUESTIONS | BT LEVEL | COMPETENCE |
|---|---|---|---|
| 14 | Compare the different forms of techniques. | Level 2 | Understanding |
| 15 | How would you show your understanding on the factors favorable for making investment decision in the economy? | Level 3 | Applying |
| 16 | Analyse the meaning of uneven cash flow. | Level 4 | Analysing |
| 17 | Define Simulation analysis. | Level 1 | Remembering |
| 18 | What are the advantages & disadvantages of decision tree approach? | Level 2 | Understanding |
| 19 | Define RAD with example | Level 1 | Remembering |
| 20 | Define CE with example. | Level 1 | Remembering |
PART- B
| S.N | QUESTIONS | BT LEVEL | COMPETENCE | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | (i) Define the concept of Risk in Investment Decisions.(8Marks) --- Content provided by FirstRanker.com --- (ii) Explain the nature of risk, interest rate risk and market risk. (5Marks) | Level 1 | Remembering | |||||||||||||||||||||||||
| 2 | (i) What is probability approach for risky investments? Illustrate. (7Marks) (ii) How is it utilized in analyzing risk of investment projects? (6 Marks) | Level 2 | Understanding | |||||||||||||||||||||||||
| 3 | What are the various methods of appraising investment proposals under risks and uncertainties? | Level 3 | Applying | |||||||||||||||||||||||||
| 4 | (i) "Cash flow of a firm is categorized into three as per AS-3”. Name the three and give four examples under each category.(7 Marks) (ii) Explain the nature and determinants of cash flows. (6 Marks) | Level 4 | Analysing | |||||||||||||||||||||||||
| 5 | Elaborate the decision tree approach in investment approach with example. | Level 5 | Evaluating | |||||||||||||||||||||||||
| 6 | Interpret Simulation method of investment analysis with an example. | Level 6 | Creating | |||||||||||||||||||||||||
| 7 | From the following information state which project is preferred? Two alternative projects are available(project X and project Y) each costing Rs.10,00,000
| Level 1 | Remembering | |||||||||||||||||||||||||
| 8 | The company has a target return on capital (riskless discount rate) of 10%. The management considers risk premium rate at 2 percent and 8 percent respectively, project X and project Y. From the following information, ascertain which project should be selected on the basis of standard deviation. --- Content provided by FirstRanker.com ---
| Level 2 | Understanding | |||||||||||||||||||||||||
| 9 | (i) How would you understand the advantages & disadvantages of various DCF techniques?(5 Marks) (ii) A Company is considering projects X and Y with the following information:
| Level 3 | Applying | |||||||||||||||||||||||||
| 10 | Which project will you recommend? Will your answer change if you use coefficient of variation as a measure of risk instead of standard deviation? Which is more appropriate? Explain.(8 Marks) (i) Discuss RAD & CE approach. (4Marks) (ii) The Globe Manufacturing Company Ltd. is considering an investment in one of the two mutually exclusive proposals- projects X and Y, which require a cash outlays of Rs.340000 and Rs.330000 respectively. The CE approach is used in incorporating risk in capital budgeting decisions. The current yield on government bond is 8% and this will be used as the risk less rate. The expected net cash flows and their CE's are as follows: --- Content provided by FirstRanker.com ---
| Level 4 | Analysing | |||||||||||||||||||||||||
| 11 | Which project should be accepted? (9 Marks) Define the various risks associated with the investment of funds. | Level 1 | Remembering | |||||||||||||||||||||||||
| 12 | (i) What is the sensitivity approach for dealing with project risk? (7 Marks) (ii) What is the most common method used to evaluate projects using sensitivity analysis?(6 Marks) | Level 2 | Understanding | |||||||||||||||||||||||||
| 13 | M/S Zenith Enterprises is considering a project with the following cash flows:
| Level 4 | Analysing |
The Cost of Capital of firm is 8%. Measure the sensitivity of the project to changes in the levels of plant value, costs and savings(considering each factor at a time) such that the net present value of the project becomes zero. What factor is the most sensitive to affect the acceptability of the project?
| 14 | Mr.Selva is considering two mutually exclusive projects “X” and “Y”. You are required to advise him about the acceptability of the projects from the following in formation. Project X Cost of the Investment 1,00,000 Project Y 1,00,000 Forecast cash inflows per annum for 5 years |