Set-1

Assignment

Financial Management
1. Explicit cost and implicit cost are the two dimensions of cost. What
role does cost play in financial decisions.
Answer:
2. Assume you are newly appointed as Finance Executive in a
Manufacturing firm. What guidelines you need to follow in financial
planning?
Answer:
3. Due to over capitalization the company may collapse which would
certainly affect its employees, society, consumers and its
shareholders. What remedies you would suggest? Give suitable
example.
Answer:
4. 4.A) Mr. Avinash aged 40 years, needs 50000 after 5 years. If the
interest rate is 10% how much should he save now to get Rs.50000
at the end of 5 years
Answer:
5. 4.B) A Senior citizen intents to deposit Rs.1000 annually in ICICI
bank for 3 years. The prevailing interest rate is 10%. What is the
maturity value of the deposit?
Answer:
6. Sushma Industries wishes to issue bonds with Rs.100 as par value,
5 years to maturity, coupon rate 11% and YTM of 11%.
a. What is the value of the bond?
b. If the YTM is 10% what would be the value of the bond?
c. If the YTM is 13% what is the value of the bond
Answer:
 Set 2

1. Is Equity Capital Free of cost? Substantiate your statement.

Answer:
2. a. What is the rate of return for a company if the β is 1.25, risk free
rate of return is 8% and the market rate of return is 14%. Use CAPM
model. (3 Marks)
b. Sundaram Transports has the following capital structure.

Equity capital Rs.10 par value 250 lakhs

12% preference share capital Rs.100 100 lakhs
each
Retained earnings 150 lakhs
12% Debentures (Rs.100 each) 350 lakhs
14% Term loan from SBI 150 lakhs
Total 1000 lakhs
The market price per equity is Rs 54. The company is expected to
declare a dividend per share of Rs.2 per share and there will be a
growth of 10% in the dividends for the next 5 years. The preference
shares are redeemable at a premium of Rs.5 per share after 8 years.
The current market price of preference share is Rs.92. Debenture
redemption will take place after 7 years at a discount of 2% and the
current market price is Rs.91 per debenture. The corporate tax rate is
40%. Calculate WACC.
Answer:
3. The effective cost of debt is less than the actual interest payment
made by the firm. Do you agree with this statement? If yes/no
substantiate your views.
Answer:
4. Why capital budgeting decision very crucial for finance managers?
Answer:
5. A road project require an initial investment of Rs.10,00,000. It is
expected to generate the following cash flow in the form of toll tax
recovery.
Year Cash Inflows
 1 4,50,000
2 4,25,000
3 3,00,000
4 3,50,000

What is the IRR of the project?

Answer:
6. What is sensitivity analysis? Mention the steps involved in it.
Answer: