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ADL-13-Ver2+

ADL-13-Ver2+

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Published by Sanjeev Kumar

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Published by: Sanjeev Kumar on Nov 24, 2010
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05/07/2013

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Financial Management - ADL-13-Ver2
Assignment - A
Question 1a: Should the titles of c ontroller and treasurer be adopted under Indiancontext? Would you like to modify their functions in v iew of the companypractice in India? Justify your opinion?Answer:
Controller & Treasurer are independent & they have their own Perspectives &Drivers as detailed below:
Note: Visit for complete and best solution:DistPub.comQuestion 1b: firm purchases a machinery for Rs. 8,00,000 by making a down paymentof Rs.1,50,000 and remainder in equal installments of Rs. 1,50,000 for six years.What is the rate of interest to the firm?Question 2a: Explain the mechanism of calculating the present v alue of cash flows.What is annuity due? How can you calculate the present and future v alues of an annuity due? IllustrateQuestion 2b: “The increase in the risk-premium of all stocks, irrespective of their betais the same when risk av ersion increases” Comment with practical examplesQuestion 3a: How leverage is linked with capital structure? Take example of a MNCand analyse.Question 3b: The following figures relate to two companies (10)
P LTD.Q LTD.(In Rs. Lakhs)Sales5001,000Variable costs200300------------Contribution Fixed costs300700Fixed Cost150400------------150400Interest50100Profit before tax100200
You are required to:(i) Calculate the operating, financial and combined leverages for the two companies;and Comment on the relative risk position of themQuestion 4a: Define various concepts of cost of capital. Explain the procedure of calculating weighted average cost of capital.
 
Question 4b: The following items hav e been extracted from the liabilities side of thebalance sheet of XYZ Company as on 31 December 2005.Paid up capital:4, 00,000 equity shares of Rs each 40,00,000Loans:16% non-convertible debentures 20,00,00012% institutional loans 60,00,000Other information about the company as relevant is given below:
31
st
decDividendEarningaverage market price2005Per shareper shareper share7.210.5065
You are required to calculate the weighted average cost of capital, using book values asweights and earnings/price ratio as the basis of cost of equity. Assumel 9.2% tax rateQuestion 5a: A company has issued debentures of Rs. 50 Lakhs to be repaid after 7years. How much should the company invest in a sinking fund earning 12% inorder to be able to repay debentures? Show the procedure of loan amortizationand capital recovery through an example.Question 5b: A bank has offered to you an annuity of Rs. 1,800 for 10 years if you investRs. 12,000 today. What is the rate of return you would earn?
Assignment - B
Question 1: The proforma of cost-sheet of HLL provides the f ollowing data:
Cost (perunit):Rs.Raw materials52.0Direct labour19.5Overheads39.0Total cost (per unit):110.5Profit19.5Selling price130.0
The following is the additional information available:Average raw material in stock: one month; Average materials in process: half month;Credit allowed by suppliers: one month; Credit allowed to debtors: two months; Timelag in payment of wages: one and half weeks; Overheads: one month. One-fourth of sales are on cash basis. Cash balance expected to be Rs. 12,000.You are required to prepare a statement showing the working capital needed o financea level of activity of 70,000 units of output. You may assume that production is carriedon evenly throughout the year and wages and overheads accrue similarly.Question 2a: Through quantitative analysis prove that PI is a better technique thanNPV in Capital Budgeting.
 
Question 2b: A company is considering the following investment projects:
ProjectsCash Flows (Rs.)CoC1C2C3A10,000+ 10,000------B10,000+ 7,500+ 7,500---C10,000+ 2,000+ 4,000+ 12,000D10,000+ 10,000+ 3,000+ 3,000
I. according to each of the following methods: (1.) Payback, (2.) ARR, (3.) IRR, (4.) NPVassuming discount rates of 10 and 30 percent.II. Assuming the project is independent, which one should be accepted? If theprojects are mutually exclusive, which project is the best?Question 3a: “Firm should follow a policy of very high dividend pay-out"Takingexample of two organization comment on this statement"Question 3b: An investor gains nothing from bonus share “Critically analyse thestatement through some real life situation of recent past.
Case Study
Brown Metals Ltd.
Brown Metals Ltd. is considering the replacement of its existing machine which isobsolete and unable to meet the rapidly rising demand for its product. The company isfaced with two alternatives:a) to buy machine A which is similar to the existing machine orb) To go in for machine B which is more expensiv e and has much greater capacity.The cash flows at the present level of operations under the two alternatives are asfollows:
Cash flow (Rs in lakhs) at the end of year Yrs.012345MachineA-25-5201414MachineB-401014161715
The Company's cost of capital is 10%. The Finance Manager tries to evaluate themachines by calculating the follow-ings for both the machines:1. Net Present Value2. Profitability Index3. Pay Back Period4. Discounted Payback Period.At the end of his calculations, howev er, the finance manager is unable to make up hismind as to which machine to recommend.

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