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Exam Paper for Financial Management in BBA (With
Answers)
PAPER # 1
**Financial Management Exam**
**BBA Program**
**Duration: 2 hours**
**Instructions:**
1
...

2
...
Select the most appropriate answer by circling
the corresponding letter
...
Part B contains 5 Short Answer Questions
...

4
...

5
...

**Part A: Multiple Choice Questions (20 points)**
1
...
The time value of money concept is based on the idea that:
a) Money today is worth more than money in the future
b) Money in the future is worth more than money today
c) Money has a constant value over time
d) Money's value depends on inflation rates
3
...
A company's ability to meet its short-term obligations is assessed using
the:
a) Current ratio
b) Debt ratio
c) Quick ratio
d) Debt-to-equity ratio
5
...
Define the concept of 'Risk' in financial management
...

**Answer:**
Risk in financial management refers to the uncertainty and variability
associated with financial decisions and outcomes
...

- Risk Measurement: Quantify risk using tools like standard deviation, beta,
and Value at Risk (VaR)
...

7
...
Provide advantages and disadvantages of each
...


4

- Advantages: Interest on debt is tax-deductible, fixed interest payments
provide predictability, and no dilution of ownership
...

Equity Financing:
- Involves selling ownership shares (equity) to investors in exchange for
capital
...

- Disadvantages: Dilution of ownership and control, sharing profits with
equity holders, and no tax benefits
...
Explain the concept of Working Capital
...
g
...
g
...
Effective working capital management is crucial
for a company's financial health because it ensures the company can meet
its short-term obligations and operational needs
...


5

- Reducing financing costs: Adequate working capital can reduce the need
for costly short-term borrowing
...

- Minimizing risk: It helps mitigate liquidity risk and the potential for
financial distress
...
What is Capital Budgeting, and why is it essential for financial decisionmaking in a business?
**Answer:**
Capital Budgeting is the process of evaluating and selecting long-term
investment projects or capital expenditures
...

- It helps in identifying projects that will generate positive cash flows and
create value for the company
...

- It considers the time value of money, risk factors, and various financial
metrics like NPV, IRR, and payback period to make informed investment
decisions
...
Describe the concept of Leverage in financial management
...
It amplifies both the potential returns
and risks for a company
...

- Higher leverage magnifies the impact of losses and can lead to financial
distress or bankruptcy if cash flows are insufficient to cover debt obligations
...
In such cases, it leads to increased
return on equity (ROE)
...

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PAPER # 2

7

BBA Financial Management Exam Paper
Time: 3 hours
Maximum Marks: 80
Instructions:
 Answer all questions
...




Write your answers in neat and clear handwriting
...
What is financial management?
2
...
What are the different types of financial decisions?
4
...
What is working capital?
6
...
What is the difference between equity and debt financing?
8
...
What is risk management?
10
...
Discuss the importance of financial management in a business
...
Explain the different types of financial ratios and their significance
...
What are the different methods of capital budgeting?
4
...

5
...

6
...
Financial management is the process of planning, organizing, directing, and
controlling financial resources to achieve organizational goals
...
The primary objectives of financial management are to maximize shareholder
wealth and to ensure the long-run viability of the business
...
The different types of financial decisions are:
o

Investment decisions: These decisions relate to the allocation of capital to
different assets
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o

Dividend decisions: These decisions relate to the distribution of profits to
shareholders
...
Financial planning is the process of forecasting future financial needs and
developing strategies to meet those needs
...
Working capital is the current assets of a business that are used to finance its
day-to-day operations
...
Capital budgeting is the process of evaluating and selecting long-term
investments
...
Equity financing is the raising of funds through the sale of shares in the business
...

8
...

9
...

10
...

Section B
1
...
It also helps to
protect the business from financial risks
...
Financial ratios are used to assess the financial performance of a business
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9

3
...
The different factors that influence dividend policy are:
o

Earnings

o

Cash flow

o

Investment opportunities

o

Capital structure

o

Shareholder expectations

5
...
The different investment strategies that a business can follow are:

10

o

Growth strategy

o

Income strategy

o

Value strategy

PAPER # 3

Prepare a sample Exam Paper for Financial Management in BBA (With
Answers)
Q1
...
(10 marks)
A1
...

- Wealth maximization: This means maximizing the market value of the
firm's shares by creating value for the shareholders through efficient
allocation of resources and optimal capital structure
...

Q2
...
(10 marks)
A2
...

- Debt financing has a tax benefit as interest payments are deductible from
taxable income
...

- Disadvantages of debt financing:
- Debt financing increases the financial risk of the firm as it has to pay fixed
interest and principal payments regardless of its profitability or cash flow
situation
...

- Debt financing may limit the firm's ability to raise additional funds in the
future as it may affect its credit rating or debt capacity
...

- Equity financing is more appropriate when the firm has uncertain and
volatile cash flows, high existing debt levels, low tax rates, and high growth
opportunities
...
What is the difference between operating leverage and financial
leverage? How do they affect the risk and return of a firm? (10 marks)
A3
...
It measures the sensitivity of
the firm's earnings before interest and taxes (EBIT) to changes in its sales
revenue
...
A high operating leverage means that the firm has a high
proportion of fixed costs to variable costs, which implies that a small change
in sales will result in a large change in EBIT
...
It measures the sensitivity of
the firm's earnings per share (EPS) to changes in its EBIT
...
A high financial leverage means that
the firm has a high proportion of debt to equity, which implies that a small
change in EBIT will result in a large change in EPS
...
A high operating leverage increases
the business risk as it magnifies the effect of sales fluctuations on EBIT
...

- Financial leverage affects the financial risk of a firm, which is the risk
associated with its financing activities
...
A high
financial leverage also increases the potential return as it amplifies the
effect of EBIT growth on EPS
...
The higher the combined leverage (operating leverage
multiplied by financial leverage), the higher the risk and return of a firm
...
The primary objective of financial management is to:
o

Maximize shareholder wealth
...


o

Increase sales
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2
...
The cost of capital is the rate of return that a firm must earn on its investments in
order to break even
...
The capital structure of a firm refers to the mix of debt and equity financing that it
uses
...
The current ratio is a measure of a firm's liquidity
...
The quick ratio is a more conservative measure of liquidity than the current ratio
...
The price-earnings ratio is a measure of the market value of a firm's stock
relative to its earnings per share
...
The dividend payout ratio is the percentage of a firm's earnings that it pays out to
its shareholders in dividends
...
The profitability index is a capital budgeting technique that compares the present
value of a project's cash inflows to its present value of cash outflows
...
The internal rate of return (IRR) is the discount rate that makes the net present
value (NPV) of a project equal to zero
...
Define financial management and explain its scope
...
Describe the different types of financial decisions that firms make
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Explain the different types of capital budgeting techniques
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Discuss the different factors that affect a firm's dividend policy
...
Explain the different working capital management techniques
...
Discuss the various factors that affect a firm's cost of capital
...
Explain the different steps involved in capital budgeting
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Analyze the following financial statements of Company A and comment on its
financial performance:
Balance Sheet
Assets
Current assets:
Cash and cash equivalents $10,000 Accounts receivable $20,000 Inventories $30,000
Total current assets $60,000
Non-current assets:
Property, plant, and equipment $100,000
Total assets $160,000
Liabilities and Equity
Current liabilities:
Accounts payable $15,000 Short-term debt $10,000
Total current liabilities $25,000
Non-current liabilities:
Long-term debt $30,000
Total liabilities $55,000

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Equity:
Common stock $75,000 Retained earnings $30,000
Total equity $105,000
Total liabilities and equity $160,000
Income Statement
Revenue $200,000
Expenses
Cost of goods sold $120,000 Selling and administrative expenses $40,000 Interest
expense $5,000 Income tax expense $15,000
Total expenses $180,000
Net income $20,000
Answers
Part A
1
...

2
...

3
...
True
5
...
True
7
...
True
9
...
True
Part B

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1
...
Its scope includes all aspects of a
firm's financial management, such as capital budgeting, dividend policy, working
capital management, and risk management
...
The different types of financial decisions that firms make can be broadly
classified into three categories:
o

Investment decisions: These decisions relate to the allocation of a firm's
financial resources to different assets,

PAPER # 5
Section A (Short Answer Questions)
Answer all questions
...
What is financial management? (2 marks)
2
...
(2 marks)
3
...
What is financial planning? (2 marks)
5
...
What is the difference between equity and debt? (2 marks)
7
...
What is dividend policy? (2 marks)
9
...
What is financial markets? (2 marks)
Answers:
1
...

2
...

3
...
Financial planning is the process of forecasting future financial needs and
developing strategies to meet those needs
...
Working capital is the difference between current assets and current liabilities
...
Equity is the ownership interest in a company
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7
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8
...

9
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10
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Section B (Long Answer Questions)
Answer any two questions
...
Discuss the different factors that affect financial planning
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Explain the different methods of capital budgeting
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Discuss the different types of risks faced by businesses and how to manage
them
...
Factors that affect financial planning:
Internal factors: These are factors that are within the control of the business,
such as the business's goals, strategies, and resources
...

12
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

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



Net present value (NPV): This method calculates the present value of all future
cash flows from the project, discounted at a required rate of return
...

Internal rate of return (IRR): This method calculates the discount rate that makes
the NPV equal to zero
...

13
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 Operating risk: This is the risk of losses due to operational failures, such as
production problems, IT failures, or fraud
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Ways to manage risk:
 Risk avoidance: This involves avoiding activities that could lead to losses
...







Risk transfer: This involves transferring the risk to another party, such as an
insurance company
...

Conclusion
This exam paper covers a range of topics in financial management, including financial
planning, capital budgeting, and risk management
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KEYWORDS

1
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BBA Financial Management
3
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BBA Exam Paper
5
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Financial Management Answers
7
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BBA Finance
9
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Finance Quiz
11
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Financial Management Practice Test
13
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Financial Management Concepts
15
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Financial Management Solutions
17
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BBA Finance and Accounting
19
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Financial Management Formulas
21
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Financial Management Sample Questions
23
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Financial Management Principles
25
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Financial Management Models
27
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Financial Analysis
29
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Capital Budgeting
31
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Time Value of Money
33
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Cash Flow Analysis
35
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Investment Decisions
37
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Financial Planning
39
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Financial Management Tutorial

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