Financial Management

Previous Years' CBSE Board Questions

9.1 Financial Management : Concept, Role and Objective

(2020 C)

VSA (1 mark)

State the objective of 'Financial Management'.

(2020 C, Al 2014)

1. What is meant by 'financial management'?

(Delhi 2017) R

1. Is Management concerned only with doing the right task, completing activities and achieving goals without taking into consideration the cost benefit? Give reason in support of your answer. (Al 2016)

SAL (3 marks)

1. Give the meaning of Financial Management. State its main objective. (NCERT, Delhi 2019)

1. Somnath Ltd. is engaged in the business of export of garments. In the past, the performance of the company had been upto the expectations. In line with the latest technology, the company decided to upgrade its machinery. For this, the Finance Manager, Dalmia estimated the amount of funds required and the timings. This will help the company in linking the investment and the financing decisions on a continuous basis. Dalmia therefore, began with the preparation of a sales forecast for the next four years. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources of the business. For the remaining funds, he is trying to find out alternative sources from outside.

Identify the financial concept discussed in the above para. Also state the objectives to be achieved by the use of financial concept, so identified.

(Delhi 2017) [EV

9.2 Financial Decisions: Investment, Financing and Dividend- Meaning and Factors Affecting

MCQ

1. 'Temptations' is a food joint in Imperial Mall in Bengaluru. It is becoming popular among students and working people due to healthy, on-the-go dishes on its menu like 'Paneer Wrap', 'Chickpeas Salad', 'Grilled Sandwiches', etc. It has now decided to open two new branches in other parts of Bengaluru.

Which financial decision has been discussed in the above case?

1. Long-term investment decision
2. Short-term investment decision
3. Dividend decision
4. Financing decision

VSA (1 mark)

Koby Ltd. is an 87-year-old reputed consumer

goods company. It is known for offering good quality

electronic products at reasonable prices. It has

branches all over India. It has a large shareholder

base. The shareholders desire that some dividend

is paid every year on their investments. Company's

management understands that it is important to

keep the shareholders happy and satisfied. As a

matter of policy, they declare a certain amount

of dividend every year out of profits rather than

reinvesting the whole as retained earnings.

Identify the factor affecting dividend decision being

highlighted in the above situation. (Foreign 2019)

The size of assets, the profitability and competitiveness

are affected by one of the financial decisions. Name

and state the decision.

(Delhi 2016) U

1. Besides the investment decision the finance function is concerned with two other broad decision. Name these decisions. (Delhi 2015 C)
2. Besides financing decision the finance, function is concerned with two other broad decisions. Name these decisions. (Delhi 2015 C)

Besides the dividend decision, the finance function

is concerned with two other broad decisions. Name

these decisions. (Al 2015 C)

12. What is meant by 'Financial Risk'? (Al 2014) R

SAI (3 marks)

1. State any three factors affecting the dividend decision. (2023, Term-II, 2021-22)
2. Give the meaning of 'Investment' and 'Financing' decisions of financial management. (Al 2014)
3. Give the meaning of 'Investment decision' and 'Dividend decision'. (Al 2014 C)

Explain the factors that affect capital budgeting

decision. (Delhi 2014 C)

SAII (4 marks)

17. What is meant by 'Investment Decision'? State how

'Long term Investment Decision' and 'Short term

Investment Decision' affect the business. (2023)

1. Explain any two factors that affect the dividend decision of a company. (2021 C, 2020 C)
2. Explain any two factors that affect the Financing decision of a company. (2021 C)

LA (5 marks)

1. NB Ltd. is India's largest manufacturer of cement. Its operations are spread throughout the country with 17 modern cement factories. It has a workforce of 9,000 persons.

Since its inception, the company has been a trendsetter for the cement industry. The company is planning to grow in long-run and wants to double its capacity in next 3 years.

For this, Finance Manager has to decide about the quantum of finance to be raised from various long- term sources. For this, he needs to identify various available sources of funds and the proportion of funds from each source.

1. Identify the financial decision to be taken by the Financial Manager.
2. State any four factors which would affect the decision identified in (i) above. (Term-II, 2021-22)
3. Anant Ltd. is a company dealing in ready-made garments from last many years. Recently, the profit of the company have started increasing. The finance manager decided to retain the profit instead of distributing it among shareholders.
4. Identify and state the financial decision taken by finance manager in the above case.
5. state any three factors affecting the decision identified in (i) above. (Term-II, 2021-22)

Ravi has joined as a finance manager in MTA Ltd. He had to arrange funds of rupees one crore for the company. The Chief Executive Officer of the company wants to arrange the funds by a public issue whereas the finance manager wants to have a mix of debt and equity as this will determine the overall cost of capital and the financial risk of the enterprise.

1. Identify and give the meaning of the financial decision suggested by the finance manager in the above case.
2. State any three factors affecting the decision identified in (i) above. (Term-II, 2021-22) Ap

1. 'A.M. Motors Ltd.' is a leading company in car manufacturing. Due to the changing environment and initiatives taken by the Government of India, the company wants to enter into manufacturing of e-cars also. For this project the company requires ₹2,000 crore. But before purchasing the machines and other assets, the finance manager has to assess the degree of risk involved in the project as this type of decision affects the earning capacity of the business over the long run. Besides this, there are various other

factors which may affect this decision of the finance

manager. (i)

1. (i) above. (Term-II, 2021-22 C)

24. Sun Industries Ltd. is a leading company in India

which manufactures steel. Its plants are located in

Jamshedpur and Bokaro, Currently it produces about

three million tonnes of saleable steel. As the demand

for steel is growing, it is planning to expand the

capacity of the existing steel plants. It is estimated

that it will require < 1,800 crore of fixed capital and

< 200 crore of working capital. To raise the funds, the

company is considering whether it should issue equity

shares or 7% debentures of < 2,000 crore. Presently

the capital structure is comprising of equity only. The

Finance Manager of the company suggested that

since the stock markets are undergoing a bearish

phase, it should issue debentures.

1. Is it justified to raise funds by issuing debentures? Give reason in support of your answer.
2. Explain the impact of issue of debentures on the risk faced by the company.
3. Explain the impact of 'cost of debt' and 'cost of equity' on the capital structure of the company.

(2020 C)

ET (6 marks)

25. 'Sarah Ltd.' is a company manufacturing cotton

yarn. It has been consistently earning good profits

for many years. This year too, it has been able to

generate enough profits. There is availability of

enough cash in the company and good prospects for

growth in future. It is a well managed organisation

and believes in quality, equal employment

opportunities and good remuneration practices.

It has many shareholders who prefer to receive a

regular income from their investments.

It has taken a loan of ₹40 lakhs from IDBI and is

bound by certain restrictions on the payment of

dividend according to the terms of loan agreement.

The above discussion about the company leads

to various factors which decide how much of the

profits should be retained and how much has to be

distributed by the company.

Quoting the lines from the above discussion, identify

and explain any four such factors. (Delhi 2015)

'Abhishek Ltd.' is manufacturing cotton clothes. It

has been consistently earning good profits for many

years. This year too, it has been able to generate

enough profits. There is availability of enough cash

in the company and good prospects for growth

in future. It is a well managed organisation and