MB 004/MB5F 201
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Q1. What are the goals of financial management? Ans: Goals of Financial Management
Financial management means maximisation of economic welfare of its shareholders.Maximisation of economic welfare means maximisation of wealth of its shareholders.
Shareholder’s wealth maximisation is reflected in the market value of the firm’s shares.
Experts believe that, the goal of financial management is attained when it maximises themarket value of shares. There are two versions of the goals of financial management of the firm
Profit Maximisation and Wealth Maximisation.
Q2. Calculate the PV of an annuity of Rs. 500 received annually for four yearswhen discounting factor is 10%. Ans:
Table depicts the calculated present value of annuity:
Q3. Suraj Metals are expected to declare a dividend of Rs. 5 per share and thegrowth rate in dividends is expected to grow @ 10% p.a. The price of one share iscurrently at Rs. 110 in the market. What is the cost of equity capital to thecompany?Q4. What are the assumptions of MM approach? Ans:
The Miller an
d Modigliani (MM) hypothesis seeks to explain that a firm’s dividend
policy is irrelevant and has no effect on the share prices of the firm. This modeladvocates that it is the investment policy through which the firm can increase its sharevalue and hence, this should be given more importance.
Q5. An investment will have an initial outlay of Rs 100,000. It is expected togenerate cash inflows. Table 1.2 highlights the cash inflow for four years.Table 1.2: Cash inflow
1 400002 500003 150004 30000