Master of Business Administration Semester II MB0045 – Financial Management - 4 Credits (Book ID: B1134

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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.

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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 company’s cost of capital is 20% Compute the incremental cash flows of replacement decisions.

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 2010 millions) 2009 Sales less returns 1200 1000 Gross Profit 300 520 Selling Expenses 100 120 Administration 40 45 Deprecation 60 75 Operating Profit 100 280 Non operating 20 40 income EBIT (Earnings 120 320 before interest & Tax Interest 15 18 Profit before tax 105 302 Tax 30 100 Profit after tax 75 202 Dividend 38 100 Retained earnings 37 102

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