Case Studies on Business Studies Class 12 Chapter 9 Financial Management
FINANCIAL MANAGEMENT
Besides the dividend the finance function is concerned with two other broad decisions. Name these decisions. (CBSE 2015 C)
Name the financial decision which will help a businessman in opening a new branch of its business.
Name and state the aspect of financial management that enables to foresee the fund requirements both in terms of the quantum and the timing. (CBSE 2016)
A financial manager of a company has been asked to take a decision to raise money for long term capital needs of the business from certain sources. Name the financial decision involved.
Telco International Ltd. earned a net profit of Rs.500crores. Swati the finance manager of Tata International Ltd. wants to decide how to appropriate these profits. Identify the decision that Swati will have to take and also discuss any five factors which help her in taking this decision.
Ramnath Ltd is dealing in import of organic food items in bulk. The company sells the items in smaller quantities in attractive packages. Performance of the company has been upto the expectations in the past. Keeping up with the latest packaging technology, the company decided to upgrade its machinery. For this, the Finance Manager of the company, Mr Vikrant Dhull, 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.
Therefore, Mr Vikrant Dhull 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. For the remaining funds he is trying to find out alternative sources. Identify the financial concept discussed in the above paragraph. Also state any two points of importance of the financial concept, so identified. (CBSE 2017)
Neha, after acquiring a degree in Hotel Management and Business Administration took over her family food processing company of manufacturing pickles, jams and squashes. The business was established by her grandmother and was doing reasonably well. However, the fixed operating costs of the business were high and cash flow position was weak. She wanted to undertake modernization of the existing business to introduce the latest manufacturing processes and diversify into the market of chocolates and candies. She approached a finance consultant, who told her that approximately Rs 20 lakhs would be required for undertaking the modernization and expansion programme. He also informed that the stock market was going through a bullish phase.
Keeping in mind the above considerations, name the source of finance Neha should not choose for financing the modernization and expansion of her business. Give one reason in support of your answer.
Explain any two other factors which Neha should keep in mind while taking this decision.
How does cash flow position of a company affects dividend decision?
‘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 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 Rs 50 lakhs from ICICI Bank 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 lines from the above discussion, identify and explain any four such factors.
(CBSE 2015)
Mr. Nikhil is appointed as a finance manager in a company. The CEO of the company has given him a task to present a balanced capital structure for the company in the board meeting. He is confused. Suggest him what factors to be kept in mind before selecting a balanced capital structure.
The Return on Investment (ROI) of a company ranges between 10-12% for the past three years. To finance its future fixed capital needs, it has following options for borrowing debt:
Option A : Rate of interest 9%
Option B : Rate of interest 13%
Which source of debt , option A or B is better? Give reason for your answer. Also state the concept being used in taking your decision.
(CBSE 2018)
As a part of its capital structure, ‘Venus Ltd.’ had Rs 50 lakhs as equity share capital and a loan of Rs 20 lakhs from Neon Bank. On earning a good profit, ‘Venus Ltd’ decided to give dividend to the equity shareholders but were surprised when the Neon Bank imposed restrictions of the payment of dividend.
Identify the factor affecting dividend decision that allows Neon Bank to impose restrictions on the payment of dividend.
Identify the factor affecting dividend decision that allows Neon Bank to impose restrictions on the payment of dividend by ‘Venus Ltd.’
(CBSE 2019)
A steel manufacturing company is diversifying and starting a thermal power plant. State with reason the effect of diversification on the fixed capital requirements of the company. (CBSE 2015 C)
Manish is engaged in the business of garment manufacturing. Identify the working capital requirements of Manish giving reasons in support of your answer. Further, Manish wants to expand and diversify his garment business. Identify the factors that will affect his fixed capital requirements.
Infosys is a software company. State whether this company needs more or less working capital. And also give a reason.
Amit is running an ‘Advertising agency’ and earning a lot by providing this service to big industries. State whether the working capital requirement of the firm will be ‘less’ or ‘more .Give reason in support of your answer.
Varun cement Ltd., a leading cement manufacturer, is experiencing a buoyant demand for its products as the rate of economic growth is 7% to 8%. It is planning to install a new plant to encash the increased demand. The machines required in this plant are not available on lease. The technology of the machines is also prone to quick obsolescence. The company is giving liberal credit terms to its customers. However, suppliers of raw material are not willing to give a credit period of more than three days. On the basis of above information, identify and explain briefly the capital needs of the company.
In the paint industry, various raw materials are mixed in different proportions with petroleum for manufacturing different kinds of paints. One specific raw material is not readily and regularly available to the paint manufacturing companies. Bonler Paints Company is also facing this problem and because of this there is a time lag between placing the order and the actual receipt of the material. But, once it receives the raw materials, it takes less time in converting it into finished goods. Identify the factor affecting the working capital requirements of this industry.
(CBSE 2018)
Steelone Enterprises is manufacturing high quality steel utensils. The demand for steel utensils is rising as people are getting aware that plastic is not good for health. This has led to increase in production of steel utensils. To encourage sales, Steelone Enterprises declared a liberal credit policy which allows three months credit to its wholesale buyers.
In the light of the above, identify the two factors affecting working capital requirements of Steelone Enterprises. State with reason, whether the factors as identified above, will result in high or low working capital requirement.
(CBSE 2019)
Kay Ltd. is a company manufacturing textiles. It has a share capital of Rs 60 lakhs. in the previous year its earning per share was Rs 0.50. For diversification, the company requires additional capital of Rs 40 lakhs. The company raised funds by issuing 10% debentures for the same. During the year, the company earned profit of Rs 8 lakhs on capital employed. It paid tax @ 40%.
State whether the shareholders gained or lost, in respect of earning per share on diversification. Show your calculations clearly.
Also, state any three factors that favour the issue of debentures by the company as a part of its capital structure.
(CBSE 2016)
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