Winter / November 2011

Master of Business Administration Semester II MB0045 Financial Management - 4 Credits (Book ID: B1134) Assignment Set- 1 (60 Marks)
Note: Each Question carries 10 marks. Answer all the questions. Q1. Explain the steps involved in Financial Planning Q2. A company is considering a capital project with the following information: The cost of the project is Rs.200 million, which consists of Rs. 150 million in plant a machinery and Rs.50 million on net working capital. The entire outlay will be incurred in the beginning. The life of the project is expected to be 5 years. At the end of 5 years, the fixed assets will fetch a net salvage value of Rs. 48 million ad the net working capital will be liquidated at par. The project will increase revenues of the firm by Rs. 250 million per year. The increase in costs will be Rs.100 million per year. The depreciation rate applicable will be 25% as per written down value method. The tax rate is 30%. If the cost of capital is 10% what is the net present value of the project. Q3. Discuss the relevance and factors that influence the determination of stock level. Q4. There was a replacement of its existing machine by a new machine. The new machine will cost Rs 2,00,000 and have a life of five years. The new machine will yield annual cash revenue of Rs 2,50,000 and incur annual cash expenses of Rs 1,30,000. The estimated salvage of the new machine at the end of its economic life is Rs 8,000. The existing machine has a book value of Rs 40,000 and can be sold for Rs 20,000. The existing machine, if used for the next five years is expected to generate annual cash revenue of Rs 2,00,000 and to involve annual cash expenses of Rs 1,40,000. If sold after five years, the salvage value of the existing machine will be negligible. The company pays tax at 40%. It writes off depreciation at 30% on the written down value. The companys cost of capital is 20% Compute the incremental cash flows of replacement decisions.

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Hint : unit 8 solved problem Q5. Explicit cost and Implicit cost are the two dimensions of cost. What role does cost play in financial decisions Q6. The following details have been extracted from the books of Ashraya Ltd Income Statement (Rs. In millions) 2009 Sales less returns Gross Profit Selling Expenses Administration Deprecation Operating Profit Non operating income EBIT (Earnings before interest & Tax Interest Profit before tax Tax Profit after tax Dividend Retained earnings 1200 300 100 40 60 100 20 120 15 105 30 75 38 37 2010 1000 520 120 45 75 280 40 320 18 302 100 202 100 102

Hint: unit 2 worked example

Winter / November 2011

Master of Business Administration Semester II MB0045 Financial Management - 4 Credits (Book ID: B1134) Assignment Set- 2 (60 Marks)
Note: Each Question carries 10 marks. Answer all the questions. Q1. Examine the importance of capital budgeting Q2 Considering the following information, what is the price of the share as per Gordons Model? Net sales Rs. 120 lakhs Net profit margin Outstanding preference shares No. of equity shares Cost of equity shares Retention ratio ROI Hint: Apply the Gordon formula Q3. Internal capital rationing is uses by firms for exercising financial control How does a firm achieve this ? Q4. A company has two mutually exclusive projects under consideration viz project A & project B. Each project requires an initial cash outlay of Rs. 3,00,000 and has an effective life of 10 years. The companys cost of capital is 12%. The following fore cast of cash flows are made by the management. 12.5% Rs. 50 lakhs @ 12% dividend 250000 12% 40% 16%

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Economic Environment Pessimistic Expected Optimistic

Project A

Project B

Annual cash Annual cash in flows inflows 65,000 75,000 90,000 25,000 75,000 1,00,000

What is the NPV of the project? Which project should the management consider? Given PVIFA = 5.650 Unit 9 worked example Q5. Explain various types of bonds.

Q6. Given the following information, what will be the price per share using the Walter model.
Earnings per share Rs. 40 Rate of return on investments 18% Rate of return required by shareholders 12% Payout ratio being 40%, 50%, or 60%.