# November 2010 Drive Masters of Business

Administration- MBA Semester 2 MB0045 ± Financial Management - 4 Credits
(Book ID: B1134) Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions. 1. A company has issued a bond with face value of Rs.1000 , with 10% pa coupon rate payable annually and a tenure of 10 years to maturity. At the end of 10 years, the bond will be redeemed at a premium of 10% to face value . a) At what price would you buy the bond if the prevailing interest rate is 12% pa on investments of similar risk? b) What is the YTM of the bond if the prevailing price is same as calculated in a) above. c) What is the current yield of the bond at the given price?

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Email me I will reply and talk to me d) If the coupon rate is paid semi-annually, at what price would you buy the bond at the 12% pa prevailing interest rate?

2. Given the following details for a company: Net operating income 200,000 Overall cost of capital 20% Value of the firm 1000,000 Cost of debt 15% Interest 75,000 Market value of debt 500,000 Market value of equity 500,000 a) Given the assumptions of the net operating income approach, what will be the cost of equity, if the market value of debt is 200,000. b) Given the assumptions of the net income approach, what will be the overall cost of capital with Market value of debt of 200,000. 3. Given the following projects , rank them on the basis of NPV, MIRR and Payback period if the cost of capital is 10% pa. Project A Project B Project C Year Cash flow Year Cash flow Year Cash flow

0 -10000 0 -10000 0 -10000 1 5000 1 5000 1 5000 2 7000 2 8000 2 8500 3 8000 3 6500 3 9000 4 15000 4 11000 4 12000 November 2010 Drive

4. Given the following information, calculate Degree of operating leverage, Degree of Financial leverage, Degree of total leverage. Quantity sold 100,000 units Variable cost per unit 200 Selling price 800 Fixed cost 10,000 Number of equity shares 50,000 Debt 1000,000 @ 15%pa Preference shares 10,000 of Rs.100 each @ 10% Tax rate 30% 5. Explain the following concepts : a) Operating cycle b) Total inventory cost c) Price earnings ratio d) Financial risk

6. Explain the Net operating income approach to capital structure theories. November 2010 Drive

Masters of Business Administration- MBA Semester 2 MB0045 ± Financial Management - 4 Credits
(Book ID: B1134) Assignment Set- 2 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions.

1. Given the following information, prepare a cash budget: Month Jan Feb March April May June Sales 100000 120000 150000 160000 175000 200000 Purchases 40000 45000 35000 30000 25000 20000 Wages 10000 15000 18000 20000 22000 24000 Production overheads 6000 6500 7000 7700 8000 8500 Selling overheads 6000 6500 6600 6800 6200 6300