KSLU Solved Question Papers
Financial Management
Previous Year Question Paper with Solution
B.B.A. LL.B. (Five Years) · Sem 4
2024 Mar Examination
munotes.in
Mumbai
B.B.A. LL.B. (Five Years) Sem 4 Financial Management 2024 Mar Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2024 Mar examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2024 Mar examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2024 Mar examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 80 · 20 questions answered
Instructions printed on the paper
- N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer should be written in English completely. (5) Use simple calculator only.
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1
Unit I
(a)What is financial management ? Explain the objectives of financial management.[10]
Answer
For full marks, cover: what financial management is, with a definition; the two basic objectives, profit maximisation and wealth maximisation, each with its meaning, arguments for and criticism; a worked example showing why timing and risk matter; why wealth maximisation is preferred; the other (operational) objectives; and a conclusion.
What is financial management?
Financial management is that part of management which deals with the funds of a business. It covers estimating how much money the firm needs and raising it from the best sources. It also covers putting the money to profitable use and controlling it so that it earns a good return.
Every business decision has a money side. Buying a machine, selling on credit, paying a dividend or taking a loan all affect the funds of the firm. Financial management makes these decisions with one clear goal in mind. That goal is its objective.
Objective 1: profit maximisation
Meaning. Under this objective, the firm takes those decisions that raise its profit and rejects those that lower it.
Arguments in its favour.
- Profit is the test of economic efficiency. A firm that earns profit uses its resources well.
- Profit is needed for survival and growth.
- Profit rewards the owners for the risk they take.
- Under perfect competition, the pursuit of profit leads to the best use of resources in society.
Criticism.
- It is vague. "Profit" may mean profit before or after tax, total profit or the rate of profit, short-term or long-term profit. The aim gives no clear rule.
- It ignores the timing of returns. A rupee earned now is worth more than a rupee earned in three years. Profit maximisation treats them as equal.
- It ignores risk. Two projects with the same expected profit may differ greatly in risk. Profit maximisation does not tell them apart.
- It ignores the wider interests of workers, customers and society, and may encourage short-term gains at their cost.
A worked example
Project X earns Rs 1,00,000 at the end of year 1. Project Y earns Rs 1,10,000 at the end of year 3. The firm's required return is 10 per cent.
| Project | Earning (Rs) | PV factor at 10% | Present value (Rs) |
|---|---|---|---|
| X (year 1) | 1,00,000 | 0.909 | 90,900 |
| Y (year 3) | 1,10,000 | 0.751 | 82,610 |
On profit alone, Y looks better by Rs 10,000. In present value, X is worth Rs 90,900 against Rs 82,610 for Y. X is the better choice. Profit maximisation would pick the wrong project, because it ignores timing.
Objective 2: wealth maximisation
Meaning. Under this objective, the firm takes decisions that raise the net present value of the business, and so the market value of the shareholders' holdings. A decision is good if the present value of its benefits exceeds the present value of its costs.
Why it is preferred.
- It is clear. It is based on cash flows, which can be measured, not on accounting profit.
- It allows for timing. Future cash flows are discounted, so earlier returns count for more.
- It allows for risk. Riskier cash flows are discounted at a higher rate.
- It serves the owners' real interest. Shareholders gain through dividends and through the market price of their shares. Wealth maximisation looks at both.
- It is consistent with the interests of others. A firm can raise its value over the long run only if it treats its customers, workers and lenders fairly.
How the finance decisions serve this objective. In the investment decision, the firm accepts only projects with a positive net present value. In the financing decision, it seeks the mix of debt and equity with the lowest cost of capital, which raises the value of the firm. In the dividend decision, it pays out profit only when shareholders can earn more with it than the firm can. Each decision is judged by its effect on the value of the shares.
Criticism. The market price of shares may be affected by factors outside the firm's control. Managers may also pursue their own goals rather than the owners'. Even so, wealth maximisation is accepted as the main objective of financial management.
Other (operational) objectives
- Proper estimate of funds: to know how much money is needed and when.
- Raising funds at the lowest cost: to choose the right mix of sources.
- Proper use of funds: to invest only in projects that earn more than their cost.
- Liquidity and solvency: to keep enough cash to pay debts on time.
- A fair return to shareholders: through a sound dividend policy.
- Survival and growth: to build reserves and keep the business going.
- Social responsibility: to meet the expectations of employees, customers and society.
Conclusion. Financial management is the planning, raising, use and control of a firm's funds. Profit maximisation was its traditional objective, but it is vague and ignores timing and risk. Wealth maximisation, which raises the net present value of the firm and the market value of its shares, is the accepted objective today. Liquidity, low cost of funds and social responsibility are its supporting aims.
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