ADARSH INSTITUTE OF MANAGEMENT AND INFORMATION TECHNOLOGY II SEM MBA Bangalore

University – FINANCIAL MANAGEMENT [Type text]

Module -1: Assignment – I

1. Define and briefly write a note on the scope of Financial Management.

2. What role should a financial manager play in today’s modern enterprise? or Does the modern financial
manager’s role differ from a large diversified firm and the small and medium sized firm.
3. What do the critics of the goal of maximizing shareholder wealth say? Also Highlight some points which
justify Maximization of Shareholder’s Wealth.
4. “The Profit maximization is not an operationally feasible criterion”. Do you agree? Justify.
5. Highlight the emerging roles of an Indian Financial Manager.
6. Why is there a separation of ownership and management in large companies? What are agency costs and how
are the mitigated?
Mini-Project
Download the annual report of your chosen company from the company’s website, BSE or NSE and you
are required to provide a brief write up on the company covering the following points – History,
Products, market share, turnover capacity, Share-holding pattern, major competitors, Investments, and
comment on its Objectives with reference to financial objectives. Write-up should be b/w 3-5 pages (not
to exceed 10 pages). Conclusion or write-up is a must before submission.
Tentative Date_____________
Time Value of Money

Compounding of Interest over ’n’ years: A=P ( 1+r )n

1. Find out compounded interest on Rs 6,000 for 3 years at 9% compounded annually [T]

2. What sum of money will amount to Rs 5,000 in 6 yrs time at 8% per annum [T]

r mx n
Multiple Compounding Periods: A=P 1+
m ( ) ; r – interest rate, n – number of years for which

compounding is done, m – number of times (frequency) per year compounding is made.

3. Find the present value of Rs 2,000 due in 6yrs if money is worth compounded semi-annually [T]

4. Find the compound interest on Rs 2,500 for 15 months at 8% compounded quarterly [T]

Effective Rate of Interest (EIR) in case of multi-period Compounding

r m
( )
EIR= 1+
m
where m – number of times(frequency) per year compounding is made

5. A company offers 12% rate of interest on deposits. What is the effective rate of interest it is compounding is
done i) half-yearly ii) quarterly iii) monthly SG

6. A borrower offers 16% nominal rate of interest with quarterly compounding. What is the effective rate of
interest? PC

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 ADARSH INSTITUTE OF MANAGEMENT AND INFORMATION TECHNOLOGY II SEM MBA Bangalore
University – FINANCIAL MANAGEMENT [Type text]
Doubling Period (Rule of Thumb)

72 69
Rule of 72: Rule of 69: 0.35 +
interest rate interest rate

7. If you deposit Rs.2,000 today at 6 percent rate of interest in how many years (roughly) will this amount grow
to Rs.32,000 ? Work this problem using the rule of 72–do not use tables. IM
8. If you deposit Rs.2,000 today at 6 percent rate of interest in how many years (roughly) will this amount grow
to Rs.32,000 ? Work this problem using the rule of 72–do not use tables IM
9. A finance company offers to give Rs.20,000 after 14 years in return for Rs.5,000 deposited today. Using the
rule of 69, figure out the approximate interest rate offered. IM
10. Someone offers to give Rs.80,000 to you after 18 years in return for Rs.10,000 deposited today. Using the
rule of 69, figure out the approximate interest rate offered. IM
Future Value of a Single Amount (Annually)

FVn = PV (1+r)n; (1+r)n is called future value factor

FVn = PV x FVIF (r%, n yrs)

11. Calculate the value 10 years hence of a deposit of Rs.20,000 made today if the interest rate is (a) 4 percent,
(b) 6 percent, (c) 8 percent, and (d) 9 percent. IM
12. If you have invest Rs 5,000 today at a compound interest of 9%, what will be the future value after 15 years.

13. If you deposited Rs 55,650 in a bank, which was paying a 15% rate of interest on a ten-year time deposit
grow at the end of ten years?

Future Value of an Annuity (Series of Cash Flows)

FVAn = A(1+r)n-1 + A(1+r)n-2 + …..+ A = A [(1+r)n– 1]/ r ;

[(1+r)n – 1]/ r is called future value interest factor for an annuity (FVIFA)

FVAn = A x FVIFA (r%, n yrs)

14. Mr X is depositing Rs 2,000 in a recurring bank deposit which pays 9% pa compounded interest. How much
amount Mr X will get at the end of 5th year

Present Value of a single Amount (Annually)

FVn 1
PV = ; is the discounting factor or
(1+r )n (1+r )n

PV = FV x PVIF (r%, n yrs)

15. You can save Rs.5,000 a year for 3 years, and Rs.7,000 a year for 7 years thereafter. What will these savings
cumulate to at the end of 10 years, if the rate of interest is 8 percent? IM

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 ADARSH INSTITUTE OF MANAGEMENT AND INFORMATION TECHNOLOGY II SEM MBA Bangalore
University – FINANCIAL MANAGEMENT [Type text]
16. Krishna saves Rs.24,000 a year for 5 years, and Rs.30,000 a year for 15 years thereafter. If the rate of
interest is 9 percent compounded annually, what will be the value of his savings at the end of 20 years?

Present Value of an Annuity (Series of Cash Flows)

n
1

PVA n=
A
1
+
A
(1+r ) (1+r )2
+ …+
A
(1+ r )
n−1
+
A
(1+ r )
n
=A [ { ( ) }]
1−
1+ r
r

n
1

[ { ( )}
1−
1+ r
r ] is called PVIFA(r%, n yrs)

PVA n=PVIFA (r % , n yrs)

17. Mr Y is depositing Rs 8,000 annually for 4 years in a post office savings bank account at an interest of 5%
p.a. Find the Present value of annuity

18. A firm can invest Rs 10,000 in a project with a life of three years. The projected cash inflow are as follows:
Year 1 2 3
Cash Inflows (Rs) 4,000 5,000 4,000
The cost of capital is 10%. Should the investment made. T

19. Given the time value money at 10%. You are required to find out the present value of future cash inflows
that will be received over next four years.

Year 1 2 3 4
Cash Inflows (Rs) 1,000 2,000 3,000 4,000

20. 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? IM
21. How much should Vijay save each year, if he wishes to purchase a flat expected to cost Rs.80 lacs after 8
years, if the investment option available to him offers a rate of interest at 9 percent? Assume that the investment
is to be made in equal amounts at the end of each year. IM

Assignment - II
22. 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? IM
23. Someone promises to give you Rs.5,000,000 after 6 years in exchange for Rs.2,000,000 today. What interest
rate is implicit in this offer? IM
24. At the time of his retirement, Rahul is given a choice between two alternatives: (a) an annual pension of
Rs120,000 as long as he lives, and (b) a lump sum amount of Rs.1,000,000. If Rahul expects to live for 20 years
and the interest rate is expected to be 10 percent throughout , which option appears more attractive IM
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 ADARSH INSTITUTE OF MANAGEMENT AND INFORMATION TECHNOLOGY II SEM MBA Bangalore
University – FINANCIAL MANAGEMENT [Type text]
25. A leading bank has chosen you as the winner of its quiz competition and asked you to choose from one of
the following alternatives for the prize: (a) Rs. 60,000 in cash immediately or (b) an annual payment of Rs.
10,000 for the next 10 years. If the interest rate you can look forward to for a safe investment is 9 percent,
which option would you choose? IM
26. What is the present value of an income stream which provides Rs.30,000 at the end of year one, Rs.50,000
at the end of year three , and Rs.100,000 during each of the years 4 through 10, if the discount rate is 9% IM
27. What is the present value of an income stream which provides Rs.25,000 at the end of year one, Rs.30,000
at the end of years two and three , and Rs.40,000 during each of the years 4 through 8 if the discount rate is 15
percent ? IM
28. What is the present value of an income stream which provides Rs.1,000 a year for the first three years and
Rs.5,000 a year forever thereafter, if the discount rate is 12 percent? IM
29. What is the present value of an income stream which provides Rs.20,000 a year for the first 10 years and
Rs.30,000 a year forever thereafter, if the discount rate is 14 percent ? IM
30. Mr. Ganapathi will retire from service in five years .How much should he deposit now to earn an annual
income of Rs.240, 000 forever beginning from the end of 6 years from now? The deposit earns 12 percent per
year. IM
31. Suppose someone offers you the following financial contract. If you deposit Rs.100, 000 with him he
promises to pay Rs.50,000 annually for 3 years. What interest rate would you earn on this deposit?
32. If you invest Rs.600,000 with a company they offer to pay you Rs.100,000 annually for 10 years. What
interest rate would you earn on this investment?
33. What is the present value of the following cash flow End of year Stream X Stream Y Stream Z
streams? The discount rate is 18 percent. 1 500 750 600
34. You want to take world tour which costs Rs 1,000,000 2 550 700 600
the cost is expected to remain unchanged in nominal
terms. You are willing to save annually Rs 80,000 to fulfill 3 600 650 600
your desire. How long will you have to wait if your 4 650 600 600
savings earn a return of 14% per annum? PC 5 700 550 600
35. Mr X plans to send his son for higher studies abroad 6 750 500 600
after 10 years. He expects the cost of these studies to be Rs
1,00,000. How much should he have to save annually to have a sum of Rs 1,00,000 at the end of 10 yrs, if the
interest rate is 12%. PC
36. At the time of his retirement, Mr Jingo is given a choice between two alternatives: a) an annual pension of
Rs 10,000 as long as he lives and b) a lump sum amount of Rs 50,000. If Mr Jingo expects to live for 15 years
and the interest rate is 15%, which option appears attractive?
37.

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