MBA-I Sem.

II
Subject: Financial Management (202)
Assignment Submission: 5th Nov 2016

Q1. Discuss in detail what are the goals of Financial Management?

Q2. Describe the functions of Finance Manager.
Q3. What is fund Flow statement? State its advantages & disadvantages.
Q4. Assume that a firm has owner’s equity of Rs. 100000. The ratios of the firm are:
Short term debt to total debt = 0.4
Total Debt to Owner’s equity = 0.6
Fixed Assets to owner’s equity = 0.6
Total assets turnover ratio = 2 times
Inventory Turnover ratio = 8 times Compute
the following Balance sheet:

Q5. Following details are made available to you:

Particulars Project X(Rs.) Project Y(Rs.)

Project Cost 700 700
Cash Inflows :
Year1 100 500
Year2 200 400
Year3 300 200
Year4 450 100
Year5 600 100
Total 1650 1300

Assume no residual values at the end of the fifth year. The firms cost of capital is 10%. Required in respect
of each of the two projects.
1) Payback period 2) Net present Value, using 10% as discounting factor
3) Internal rate of return 4) Profitability Index

Q6. Following are the details of three projects A, B and C.

Particulars A B C
Cost 50,000 70,000 70,000
Life 1 0 years 12 years 14 years
Estimated Scrap (Rs.) 5,000 10,000 7,000
Annual Profit
Less Taxation (Rs.) 5,000 6,000 5,500
Select the best one using: -
a) Payback period b) Surplus life over payback period c) Surplus cash flow as the decision criteria.
Q7. A Performa Cost Sheet of a Company is given below: Particulars
Cost per unit Rs.
a) Raw Material 52 b) Direct Labor 26 c) Overheads 32
Total Cost 110
Profit 20
Selling Price 130
Additional Information:
(1) Average Raw Material in stock is one month.
(2) Average Material in process half a month.
(3) Average finished goods for a month.
(4) Credit allowed by suppliers one month.
(5) Credit allowed to debtors two months.
(6) Time lag in payment of wages one and half weeks, overheads one month.
(7) 1/4th of the sales are on cash basis.
(8) Expected Cash Balance Rs. 1,20,000.
Prepare a Statement showing Working Capital requirements to finance of activity of 45,000 units at Output.

Q8. ABC Ltd sells its products on a gross profit of 20 % on sales. Prepare an estimate of working capital
requirements from the following information of the trading concern.
Sales at 3 months credit 40,00,000
Raw materials 12,00,000
Wages paid- average time lag15 days 9,60,000
Manufacturing expenses paid one month in arrears 12,00,000
Administrative expenses paid one month in arrears 4,80,000
Sales Promotion expenses payable half year in advance 2,00,000
The company enjoys 1 month credit from suppliers of raw materials & maintains a 2 months stock of raw
materials & 1.5 months stock of finished goods. The cash balance is maintained at Rs. 1,00,000 as a
precautionary measure. Consider 10% contingencies in your estimate.

Q9. Explain Modigliani and Miller theory (MM approach).

Q10. A limited company is considering different methods to finance its investment proposal. It is estimated
that initially Rs. 40,00,000 will be needed. Two alternative methods are available for raising of funds:
i. To raise Rs. 20,00,000 be sale of equity shares of Rs. 100 each and
balance at 18% term loan.
ii. To raise the entire amount by sale of equity share of Rs. 100 each The
existing capital structure consists of:
a) 50000 equity shares of Rs. 100 each and b) 17% term loan of Rs. 20,00,000
The expected EBIT is Rs. 15,00,000. Advice the company on the basis of EPS in each alternative.

Q11. Mr. True Development wishes to develop a kiosk model for banking sector. The estimated cost of
development will be Rs. 4250000/-. salvage value at the end of the project will be 25%. The Expected Cash
Flow are as follows.
 Year Cash Flows Depreciation
1 8,25,650 1,25,650
2 9,25,000 1,75,000
3 10,50,000 2,25,000
4 11,35,000 3,34,500
5 15,00,000 4,50,000
Evaluate project using NPV Method, assuming Tax Rate @ 30% and Discounting Rate of 10%.

Q12. Sweet Sugar Ltd. wishes to build new factory whose initial cost will be Rs. 4500000/-. Following are
the cash flow after depreciation but before tax.

Year 1: Rs. 1500000, Year 2: Rs. 1845000 , Year 3:- 2050000, Year 4:- 2275000, Year 5:- 1000000.

Depreciation is calculated on WDV Method @ 15%. Tax Rate @30% and cess @3%.
Evaluate project through NPV and PI Model.

Q13. Following are the summarized balance sheet of ABC Ltd. as on 31st December 2014 & 15. You are
required to prepare a fund flow statement for the year ended 31st December 2015

Liabilities 2014 (Rs.) 2015 (Rs.) Assets 2014 (Rs.) 2015 (Rs.)
Share Capital 1,00,000 1,25,000 Goodwill - 2,500
General 25,000 30,000 Building 1,00,000 95,000
Reserve
Profit and 15,250 15,300 Plant 75,000 84,500
Loss Account
Bank Loan 35,000 27,600 Stock 50,000 37,000
(Long Term)
Creditors 75,000 40,000 Debtors 40,000 32,100
Provision 15,000 17,500 Bank - 4,000
for
Tax
Cash 250 300
2,65,250 2,55,400 2,65,250 2,55,400
Additional information:

• Dividend of Rs. 11,500 was paid.

• Depreciation written off on plant Rs. 7000 and on building Rs. 5000

Q14. Krishna Gold Ltd. is a leading manufacturing industry. Following activity ratios are calculated by
the finance manager of the company. You are required to analyze the ratios and interpret the asset
management efficiency position of the company.

Particulars 2014 (Rs.) 2015 (Rs.)

Debtors Turnover Ratio 12 times 8 times
Creditors Turnover Ratio 7 time 7 timess
Inventory Turnover Ratio 9 times 11 times
Working Capital Turnover 3 times 4 times
Ratio
Fixed Asset Turnover Ratio 2.5 times 1.5 times
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