IGNOU MCO-07 June 2021 Previous Year Question Paper

Q1.Explain the basic financial decis ions. How do they involve risk-return trade-off.

Q2.(a) Why are cash flows important in investment decisions ? Explain. 10

(b) Consider the following three investments : Projects C0 (<) C1 (<) C2 (<) The discount rate is 10% and present value of < 1 for period 1 and 2 is ·893 and ·797 respectively. Calculate the net present value for each project. Which project is to be selected and why ?

Q3.(a) What do you mean by a ppropriate capital structure ? What should be the features of an appropriate capital structure ? 3+7

(b) Discuss the Net Income Approach of Capital Structure.

Q4.(a) Why do firms pay dividends ? Explain the advantages of stable dividend policy. 10

(b) Describe the rationale for buyback of shares. Discuss its advantages for the shareholders and for the company as well.

Q5.Explain the objectives of credit policy. What is the role of credit period and credit standard in the credit policy of a firm ?

Q6.(a) What are term loans ? Discuss their features. 10

(b) Discuss the different types of systematic risk.

Q7.A company needs < 5,00,000 for a new plant. The company may issue 50,000 equity shares at < 10 per share. If the company’s earnings before interest and taxes are < 10,000, < 20,000, < 40,000, < 60,000 and < 1,00,000 for five years respectively, what is the earning per share ? Assume a corporate tax rate of 50 percent.

Q8.Explain the ‘ABC analysis’ and ‘ Just-in-Time’ techniques to manage and control inventory efficiently.

Q9.Write explanatory note s on any two of the following : 10+10

(a) Factoring

(b) Financial Leverage

(c) Project Financing Arrangement

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