IGNOU MCO-07 December 2017 Previous Year Question Paper

Q1.(a) Explain the meaning of financial management and differentiate between Investment decisions and Financing decisions. 10, 10

(b) In what ways is the wealth maximisation criteria superior to profit maximisation criteria ? Discuss.

Q2.(a) Explain the concept of 'risk' and 'return'. 8, 12

(b) What is capital asset pricing model ? Explain its assumptions and implications ?

Q3.(a) Why do we use cash flow analysis instead of profit analysis in a capital budgeting decision ? What are the general principles of cash flow estimation ? 10, 10

(b) A company decides to make an investment in a new project. Which costs Z 1,00,000. The working life of the project is expected to be 5 years after which it is expected to be sold for a scrap value of Z 10,000. The company's incremental Profit after Tax is expected to be Z 6,000, ! 7,000, Z 8,000, Z 7,500 and Z 6,500 for the next five years. Assuming depreciation on a straight line basis and tax rate 40% find out Accounting Rate of Return.

Q4.(a) What is the meaning of Cost of Capital ? 12, 8 What is its significance in financial decisions of a firm ? Explain different types of costs.

(b) 'XYZ' Ltd. issues Z 100 face value preference shares with a dividend of 12% repayable after 10 years. The net amount realised per share is Z 92. Calculate the cost of preference share.

Q5.What are the different sources of long term finance ? Explain any two of them. 10,

Q6.(a) What are the factors that affect choice of debt in capital structure ? 10, 10

(b) What is project finance ? Discuss any two types of project financing arrangements.

Q7.(a) Explain in brief different types of leverages. 6

(b) Company 'A' has sales of Z 15,00,000 ; 14 variable cost of Z 4,50,000 ; fixed cost of Z 3,00,000 and pays interest of Z 1,00,000. Company 'B' has sales of Z 20,00,000 ; variable cost of Z 6,00,000 ; fixed cost of Z 3,00,000 and pays interest of Z 1,25,000. From the above information calculate the financial leverage of both the companies. Which company is more riskier and why ?.

Q8.(a) Explain the different types of marketable securities a firm will choose to invest surplus cash. 10, 10

(b) Discuss the ABC analysis of inventory control.

Q9.Write short notes on any two of the following : 10, 10

(a) Factoring

(b) Net present value method

(c) Working Capital Cycle

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