Bachelor’s Degree programme

ASSIGNMENT-1

(2021-2022)

Bachelor of Business Administration

Semester:- 4th

FINANCIAL MANAGEMENT

EVEN SEMESTER SESSION 2022

Last date of submission:- 25/06/2022

1. A company has two alternative proposals. The details are as follows:
PROPOSAL 1 PROPOSAL 2
Automatic machine Ordinary Machine
Cost of the machine Rs. 2,20,000 Rs. 60,000
Estimated Life 5.5 years 8 Years
Estimated sales p.a 1,50,000 1,50,000
Costs: Material 50,000 50,000
Labour 12,000 60,000
Variable Overheads 24,000 20,000
Compute the profitability of the proposals under the return on investment
method.(ARR).

TIME VALUE OF MONEY

2. Mr. A deposited Rs 5,000 in fixed deposit at 10% interest compounded annually. How
much it shall grows at the end of 5 years?
3. PNB pays 12% and compounds interest quarterly. If Rs 1,000 is deposited initially,
how much shall it grow at the end of 5 years?
4. Mr. Mohan deposited at the end of each year Rs 5000, Rs 7500, Rs 10000, Rs 15000,
and Rs 20000 in his saving bank account for 5 years. The interest rate is 5%. What
shall be the value of his deposits at the end of fifth year?
5. You wish to accumulate Rs 8,00,000 by the end of 5 years by making equal annual
year-end deposits over the next 5 years. Assuming 8% rate of return, how much
should you deposit at the end of each year to accumulate Rs 8,00,000?
6. Given the time value of money at 10%, find out present value of future cash inflows
that will be received over next four years.
Year 1 2 3 4
Cash 1,000 2,000 3,000 4,000
Flows(Rs)

7. Discuss the concept of Return?

8. Discuss the concept of Risk and types of Risk?

9. Mehra & co. ltd, is considering purchasing a machine. Two machines, X and Y, are
available each costing Rs. 50,000and salvage is estimated at Rs 3,000 and Rs 2,000
respectively. Earnings after taxation are expected to be shown as follows;-
Year Cash flow Cash flow
Machine X Machine Y
1 Rs 15000 5000
2 20000 15000
3 25000 20000
4 15000 30000
5 10000 20000
Evaluate the two alternatives according to:
a) The Payback period method
b) Net present value method: a discount of 10% is to be used.

10. A company issues 50,000 8% Debentures of Rs. 1 each at a premium of 10%. The
cost of issue is 2%. The tax rate applicable to the company is 60%. Compute the after
tax cost of debt capital.

11. A ten year debenture of a firm of the face value of Rs. 100 each has been sold at Rs.
90 each. The interest rate is 11%. If the tax rate is 50%, calculate the after tax cost of
debt.

12. A company has issued 12% perpetual debt for Rs. 5,00,000. The company is in tax
bracket of 35%. Find after tax cost of Debt if debt is issued at (i) At Par (ii) At 10%
Discount (iii) At 10% Premium.

13. Calculate cost of debt for each of the following situations:

a) Debentures are issued at par and flotation costs are 5%.
b) Debentures are issued at Premium of 10% and flotation costs are 5% of the issue
price.
c) Debentures are issued at discount of 5% and flotation costs are 5% of the issue price.
Assume:- (i) coupon rate of interest on debenture is 10%
(ii) face value of debenture is Rs. 100,
(iii) maturity period is 10 years
(iv) tax rate is 35%.

14. Shiv Shankar & co. ltd wishes to issue 1,000, 10% Debentures of Rs 500 each for
which the company will be required to incur the following expenses:
a) Underwritting commission 2%
b) Brokerage 0.5%
c) Printing and other expenses Rs 7,500.
calculate the cost of capital (before tax as well as after tax) assuming the debt is
issued : (i) At 10% discount repayable after 10 years (ii) At 10% premium repayable
after 10 years. The tax rate is 45%.

15. A company is considering raising of funds of about Rs. 100 Lakh by one of two
alternative methods. viz. 14% institutional term loan and 13% non-convertible
debentures. The term loan option would attract no major incidental costs. The debenture
would have to be issued at a discount of 2.5% and would involve cost of issue of Rs 1
lakh. Advise the company as to the better option based on effective cost of capital in
each case. Assume tax rate 50%.