Case Study Chapter 9 Financial Management

Please refer to Chapter 9 Financial Management Case Study Questions with answers provided below. We have provided Case Study Questions for Class 12 Business Studies for all chapters as per CBSE, NCERT and KVS examination guidelines. These case based questions are expected to come in your exams this year. Please practise these case study based Class 12 Business Studies Questions and answers to get more marks in examinations.

Case Study Questions Chapter 9 Financial Management

Read the source given below and answer the following questions :
Financial management is concerned with efficient acquisition and allocation of funds. In other words, financial management is concerned with flow of funds and involves decisions related to procurement of funds, investment of funds in long term and short term assets and distribution of earnings to owners. In simple words we can say Financial Management refers to “Efficient acquisition of finance, efficient utilisation of finance and efficient distribution and disposal of surplus for smooth working of company.”

Questions :

Question. Efficient disposal of surplus, indicates which financial decisions ?
(a) Financial decision
(b) Investment decision
(c) Dividend decision
(d) None of the above

Question. Every organisation considers Financial management department as
(a) Life blood of an organisation
(b) Not very important department
(c) Controlling department
(d) None of the above

Question. ‘Efficient acquisition’ of finance is related to which financial decision ?
(a) Financial decision
(b) Investment decision
(c) Dividend decision
(d) None of the above

Question. “Efficient utilisation of finance”, indicates which financial decision ?
(a) Financial decision
(b) Investment decision
(c) Dividend decision
(d) None of the above

Read the source given below and answer the following questions :
After completing the course of Hotel Management, Rahul plans to start his own Hotel, he plans to hire a team of experts to give his guests a unique and unforgettable experience. Keeping in mind their budgets. Before starting the business he visited his home town to take blessings of his father. His father told him that success of business depends on how well finance is invested in assets and operations and how timely and economically finances are arranged from outside or from with in the business. He guided him that he should always spend time in identifying different available sources of finance and comparing them in terms of their costs and associated risks. The returns from investment should always exceed the cost of investment.

Questions :

Question. State the decision of financial management which assures the returns from investment should always exceed the cost of investment.
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) None of the above

Question. Which decision helped him in identifying different available sources of finance and comparing them in terms of cost and risk.
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) None of the above

Question. Identify the concept discussed above which has direct bearing on the financial health of a business.
(a) Financial Management
(b) Financial Planning
(c) Business objective
(d) None of the above

Question. State the key objective of concept identified in above para.
(a) Profit maximisation
(b) Wealth maximisation
(c) Sales maximisation
(d) None of the above

Read the source given below and answer the following questions :
‘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.

Questions :

Question. Company is able to generate enough profit, so it should give how much dividend to share holders ?
(a) More
(b) Less
(c) Moderate
(d) None of the above

Question. “They have many shareholders, who prefer to receive a regular income from their investment.” This indicates the company should pay :
(a) less dividend
(b) more dividend
(c) moderate dividend
(d) none of the above

Question. IDBI restricted the company regarding payment of dividend. This is related to which factor of dividend decision?
(a) Legal Restrictions
(b) Stock market reaction
(c) Access to capital market
(d) Contractual constraint

Question. The above para is indicating which decision ?
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) None of the above

Read the source given below and answer the following questions :
Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.

Questions :

Question. In the above case Mr. Ghosh suggested to raised more fund from debt. Higher debtequity ratio results in:
(a) Lower financial risk
(b) Higher degree of operating risk
(c) Higher degree of financial risk
(d) Higher Earning of profit.

Question. Employ more of cheaper debt may enhance the EPS. Such practice is called:
(a) Equity Trading
(b) Financial Leverage
(c) Investment Decision
(d) Trading on Equity

Question. “Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)” The proportion of debt in the overall capital is called___________.
(a) Working Capital
(b) Financial Leverage
(c) Total Assets
(d) None of these

Question. Identify the concept of Financial Management as advised by Mr. Ghosh in the above situation.
(a) Capital Budgeting
(b) Capital Structure
(c) Dividend Decision
(d) Working Capital Decision

Read the source given below and answer the following questions :
Sunrises Ltd. dealing in ready made garments, is planning to expand its business operations in order to cater to international market. For this purpose the company needs additional Rs. 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was Rs. 8,00,000 and total capital investment was Rs. 1,00,00,000. Instead of issuing 10% Debenture the Company can issue Equity Shares for raising the fund. The financial manager of the company would normally opt for a source which is the cheapest.

Questions :

Question. A decision for raising fund of Rs. 80,00,000 either from 10% Debenture or Equity Shares is a:
(a) Financing decision
(b) Dividend decision
(c) Investment decision
(d) None of the above

Question. What is the other name of long term decision ?
(a) Capital Budgeting
(b) Gross working capital
(c) Financial management
(d) Working Capital

Question. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?
(a) Cash Flow Position of the Company
(b) Cost
(c) Amount of Earnings
(d) Taxation Policy

Question. A decision for replacing machines with modern machinery of higher production capacity is a:
(a) Financing decision
(b) Working capital decision
(c) Investment decision
(d) None of the above

Read the source given below and answer the following questions :
‘Monisha Consumer Goods’ is a leading consumer goods chain with a network of 46 stores primarily across Mumbai, Delhi and Pune. It was started by Monisha Gupta in 1987. It has a large market share in Mumbai, Delhi and Pune. Looking for an opportunity to expand, it has decided to open a new branch in Kerala. It has decide on what new resources it will invest in so that it is able to earn the highest possible return for investors. Once the company believes that it will be able to generate higher revenues and profits, it also has to decide on how this project will get funded. The finance manager, Atul was told to have an optimal capital structure by striking a balance between various sources of getting the project funded so as to increase shareholders’ wealth. Atul, after assessing the cash flow position of the company, evaluated the cost of different sources of finance and compared the risk associated with each source as well as the cost of raising funds.

Question. State the two financial decisions discussed in the above situation.

Read the source given below and answer the following questions :
Sudha is an enterprising business woman who has been running a poultry farm for the past ten years. She has saved ` 4,00,000 from her business. She shared with her family her desire to utilise this money to expand her business. Her family members gave her different suggestions like buying new machinery to replace the existing one, acquiring altogether new equipments with latest technology, opening a new branch of the poultry farm in another city and so on. Since these decisions are crucial for her business, involve a huge amount of money and are irreversible except at a huge cost, Sudha wants to analyse all aspects of the decisions, before taking any final decision.

Question. Identify and explain the financial decision to be taken by Sudha.

Question. Also, explain the briefly the factors that will affect this decision

Read the source given below and answer the following questions :
Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing of Mobile-phones with  some unique features. Rizul Bhattacharya felt that the mobile-phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore he convinced his son to start a furniture business. 

Question. Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya to choose furniture business over mobile-phones.

Read the source given below and answer the following questions :
‘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. 

Question. Quoting the lines from the above discussion identify and explain any four such factors.