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Financial Management

Syllabus for midterm Prasanna Chandra CH -1, 6, 7, 8, 9 + Topics covered by Alpa Desai I M Pandey CH 1, 2, 3, 4, 6 + Topics covered by Alpa Desai Important questions (Only from topics covered by Jyoti Ghanchi) 1. All the solved problems from both the books 2. All the unsolved problems Given as assignments 3. A real estate firm has rented out one of their apartment for 5 years at an annual rent of Rs. 6,00,000 with the stipulation that rent will increase by 5% in every year. If the firms required rate of return is 14%, what is the present value of the expected rent? 4. XYZ Bank pays 16% interest and compounds interest quarterly. If one puts Rs.10000 initially into a saving account, how much will it have grown in 8.5 years? 5. The earnings of a company have been growing at 15% over the past several years and are expected to increase at this rate for the next seven years and thereafter, at 9% in perpetuity. It is currently earning Rs. 4 per share and paying Rs. 2 per dividend. What shall be the present value of the share with a discount rate of 12% for the first seven years and 10% thereafter? 6. Anurag Limited borrows Rs.2,000,000 at an interest rate of 12 percent. The loan is to be repaid in 5 equal annual instalments payable at the end of each of the next 5 years. Prepare the loan amortisation schedule. 7. The market value of a Rs.100 par value bond, carrying a coupon rate of 8.5 percent and maturing after 8 years, is Rs.95. What is the yield to maturity on this bond? 8. Critically evaluate the goals of maximization of profit and maximization of returns on equity. 9. Financial Management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. In view of the above statement, discuss in detail the major finance functions and the role played by the finance manager. 10. An investor has invested his savings in a company from whom dividends are expected to grow @20% for 15 years and thereafter @7% forever. Find out the value of the equity share given that the current dividend per share is Re. 1 and the required rate of return of the investor is 9%.

11. The importance of finance function as a management activity has increased in modern time Explain. 12. Maximisation of profit is regarded as the main objective of investment decision, but it is not as exclusive as maximising shareholders wealth. Comment. 13. Why does money have time value? Explain compounding and discounting terms in time value of money. 14. Asha Limited issued 12 percent callable bonds with a par value of Rs.300. The bond currently selling for Rs.285. Maturity period is 8 years. Due to reduction in interest rates company called back bonds after 4 years and paid Rs.315. Determine YTC. 15. Explain in detail of various objections to the financial goal of Profit Maximization 16. Which alternative would you choose : (a) an annuity of Rs.5000 at the end of each year for 30 years : b) an annuity of Rs.6,600 at the end of each year for 20 years : c) Lump sum payment of Rs.1,00,000 at the end of 10 years .d) Rs.50,000 , in cash right now ? In each case , the time value of money is 10 per cent 17. If you deposit Rs.3,000 today at 8 percent rate of interest in how many years (roughly) will this amount grow to Rs.1,92,000 ? Work this problem using the rule of 72do not use tables 18. You plan to go abroad for higher studies after working for the next five years and understand that an amount of Rs.2,000,000 will be needed for this purpose at that time. You have decided to accumulate this amount by investing a fixed amount at the end of each year in a safe scheme offering a rate of interest at 10 percent. What amount should you invest every year to achieve the target amount? 19. A finance company advertises that it will pay a lump sum of Rs.100,000 at the end of 5 years to investors who deposit annually Rs.12,000. What interest rate is implicit in this offer? 20. A large sized chemical company has been expected to grow at 14 per cent per year for the next 4 years and then to grow indefinitely at the same rate as that of the national economy, that is, 5 per cent. The required rate of return on the equity shares is 12 per cent. Assume that the company paid a dividend of Rs 2 per share last year. Determine the market price of the shares today