Financial Management

Assignment -1
1. Explain the functions, roles and responsibilities of finance department and finance manager.
2. Explain the needs, determinants, importance of working capital management and indicate the
different sources of working capital financing.

Assignment -2
3. A company is currently considering modernisation of a machine originally costing Rs 50,000
(current book value zero). However, it is in a good working condition and can be sold for Rs
25,000. Two choices are available. One is to rehabilitate the existing machine at a total cost of Rs
1,80,000; and the other is to replace the existing machine with a new machine costing Rs 2,10,000
and requiring Rs 30,000 to install. The rehabilitated machine as well as the new machine would
have a six year life and no salvage value. The projected after-tax profits under the various
alternatives are:

The firm is taxed at 35 per cent. The company uses the straight line depreciation method and
the same is allowed for tax purposes. Ignore block assets concept. The cost of capital is 12 per cent.
Advise the company whether it should rehabilitate the existing machine or should replace it
with the new machine. Also, state the situation in which the company would like to continue with
the existing machine.

The following is the capital structure of Simons company Ltd. as on 31st March, current year
------------------------------------------------------------------------------------------------------Equity share: 10,000 shares (of Rs 100 each)
Rs 10,00,000
12% Preference shares (of Rs 100 each)
4,00,000
10% Debentures
6,00,000
------------------------------20,00,000
-------------------------------------------------------------------------------------------------------The market price of the companys share is Rs 110 and it is expected that a dividend of Rs 10 per share
would be declared at the end of the current year. The dividend growth rate is 6 per cent.
(i)

If the company is in the 35 per cent tax bracket, compute the weighted average cost of capital.

(ii)

Assuming that in order to finance an expansion plan, the company intends to borrow a fund of Rs
10 lakh bearing 12 per cent rate of interest, what will be the companys revised weighted average
cost of capital? This financing decision is expected to increase dividend from Rs 10 to Rs 12 per
share. However, the market price of equity share is expected to decline from Rs 110 to Rs 105
per share.