CBSE Class 12 Business Studies HOTs Financial Management Set A

CBSE Class 12 Business Studies HOTs Financial Management Set A

Q1) When is financial leverage considered favorable?

Ans) Financial leverage is considered favorable when return on investment is higher than the cost of debt.

Q2) why does financial risk arise?

Ans) Interest on borrowed fund have to be paid regardless of whether or not you firm has made a profit. Moreover borrowed fund have to be repaid after a fixed time and it carries a charge on assets. This gives rise to financial risk.

Q3) How does production cycle effect working capital?

Ans) working capital requirement is higher with longer production cycle.

Q4) Enumerate two objectives of financial management?

Ans) (a)To ensure availability of required funds. (b) to see that the firm does not raise resources unnecessarily.

Q5)What is the primary objectives of financial management?

Ans) Wealth Maximization.

Q6) The board of Directors has asked you to design the capital structure of the company. Explain any sin factors that you would consider while doing so. [6]

Ans) For design the capital structure of the company six factors are as following:- 1) Cash Flow Position. 2) Interest coverage ration(ICR) 3) Debt Service coverage ratio(DSCR) 4) Return on investment (ROI) 5) Cost of debt 6) Tax rate.

Q7)Every manager has to take three major decisions while performing the finance function. Explain them.

Ans) A manager take three following major decisions:- 1) financing Decision. 2) Investment Decision. 3) Dividend Decision.

Q8) What do you call the capital needed for day to day operations? Explain any 5 factors affecting such capital needs.

Ans) Capital needed for day to day operations is called working capital.{explain any 5 factors affecting such capital needs]. 1) Nature of business 2) Scale of operations 3) Seasonal Factors 4) Production cycle 5) Credit allowed

Q9) The directors of a company have decided to expand their business activities by increasing the stock of raw materials and finished goods at an estimated cost of Rs. 50 lakhs, Describe the various ways open to the company to raise necessary finance for the purpose.

Ans) the company can raise necessary finance for the purpose of expansion through the following function. (a) Issue of shares (b) Issue of debentures (c) Loans from banks and financial institutions. (d) Retained earnings.

Q10) A capital budgeting decisions is capable of changing the financial fortune of a business. Do you agree? Why or why not?

Ans) hint Yes, I agree to this statement because of the following importance of capitals budgeting decisions. (a) long term growth and effects. (b) Large amt of funds involved (c) Risk involved (d) Irreversible decisions.

Q11) Are the share holders of a company likely to gain with a debt component in the capital employed ? Explain with the help of an example?

Ans) The shareholders of a company are very likely to gain with debt component in the capital employed by way of trading On equity as it increases the earning per share(EPS) of the share holders[( Explain trade on equity with one example)].

Q12) state whether the working capital requirements of business manufacturing the following items are big or small. Justify your statement. (a) Coolers (c) Sugar (b)bread (d) Locomotives (e) Furniture manufacturing against orders.

Ans) Requirements of working capital for the mentioned business will be: (a) Bread Requirements of working capital will be less because it has quick cash turnover. (b) Sugar;- working capital required for manufacturers will be more as ration of raw material cost to total cost is more. (c) Coolers:- working capital required for manufacturers of cooler will be more because it is a seasonal product. (d) Furniture:- Requirements of working capital for a manufacturer of furniture manufactured against specific order is less as it doesn’t requires large stock. (e) Motor car;- Requirements of working capital for a manufacturer of locomotives will be more because gestation period is more.

Q13) What do you mean by flotation cost?

Ans) Cost uncured for raising funds.

Q14) Name any 2 sources of long term fund?

Ans) (a) Debt. (b) Equity

Q15) What is Business Finance?

Ans) Money required for carrying out business activities is called business finance.

Q16) “ A decision to acquire a new

and modern plant to upgrade an old one”. Identify the aspect of financial decision. Ans) Investment decision (Capital Budgeting).



Click for more Business Studies Study Material

Latest NCERT & CBSE News

Read the latest news and announcements from NCERT and CBSE below. Important updates relating to your studies which will help you to keep yourself updated with latest happenings in school level education. Keep yourself updated with all latest news and also read articles from teachers which will help you to improve your studies, increase motivation level and promote faster learning

CBSE Online Training for Teachers 2020

It is clear that this pandemic has utterly disrupted an education system that many assert was already losing its relevance. Enhancing professional development digitally is a need in the times of COVID-19, where social distancing and remote interactions is the new...

Training Programme on the Alternative Academic Calendar

In view of the extraordinary situation prevailing in the world due to COVID-19 pandemic, the CBSE Board had announced the ‘Revised Academic Curriculum for classes 9- 12 for the session 2020-21’. The reduced topics will not be part of the internal assessment or for the...

Class 10 Datesheet announced

CBSE has announced the date sheet for the remaining class 10 Board Exams, see dates below

Board Cancelled Official CBSE Statement

Keeping in view the requests received from various State Governments and the changed circumstances as on date, following has been decided- 1. Examinations for classes X and XII which were scheduled from 1st July to 15th, 2020 stand cancelled. 2. Assessment of the...

Cogito and The Question Book A series on Thinking skills by CBSE

The Board has dedicated this academic session 2020-21 for ‘Competency Based Learning’. Skills connected to Critical & Creative thinking, Problem Solving, Collaboration and Communication are core to successful living in the 21st Century. To focus on the importance...

Procedure for correction in Name and Date of Birth

Procedure for correction in Name and Date of Birth in CBSE records Name Change: Applications regarding changes in name or surname of candidates will be considered provided the changes have been admitted by the Court of law and notified in the Government Gazette before...

Studies Today