SRI BALAJI UNIVERSITY, PUNE (SBUP)

MBA – FIRST SEMESTER ASSIGNMENT

BATCH: 2023– 2025
FINANCIAL MANAGEMENT

Date:23rd Oct 2023 Marks : 25

Instructions to the Students:
 Kindly answer all questions/case studies in the question paper.
 All Questions/case studies carry Equal Marks.
 The Assignment should be in the written format (pen & paper), the students are
expected to write the answer on a ruled A4 size paper
 The cover page of the assignment must be in the format listed below.

 Roll no-
 Name of the institute-
 Batch-
 Specialization-
 Semester-
 Subject Name -
 Submitted by-
 Submitted on date-
 Total no of pages written-

1. A company is to start a new project which is having cost of Rs. 50,000/- and life
of 5 years. Salvage value is nil, tax rate for the company is 55% and it follows S.L.M.
method of depreciation. The cash flows before tax (CFBT) are as follows:

Year CFBT (Rs.)

1 10,000
2 11,000
3 20,000
4 30,000
5 35,000

Compute the following

 Payback period
 Average rate of return
 Internal rate of return
(03 Marks)
2. Write short notes on :
(a) Factors determining need for working capital
(b) Costs and benefits of receivables
(c) Internal Rate of return
(03 Marks)

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3. A Ltd. Plans to sell 30,000 units next year. The expected cost structure is as follows:

Particulars Rs.(per unit)

Raw Material 100
Manufacturing expenses 20
Selling, Administration & Financial expenses 30
Selling price 200

The duration at the various stages of the operating cycle is expected to be as follows:
Particulars Duration
Raw Material stage 2 months
Work in process stage 1 month
Finished stage 1.5 month
Debtors stage 1 month

Assuming the monthly sales of 2500 units, estimate the gross working capital
requirement if the desired cash balance is 5% of the working capital & WIP is 25%
complete with respect to manufacturing expenses. (03 Marks)

4. Excel Ltd. has assets of Rs. 1,60,000 which have been financed with Rs. 52,000 of debt
and Rs. 90,000 of equity and a general reserve of Rs. 18,000. The firm’s total profits after interest
and taxes for the year ended 31st March 2006 were Rs. 13,500. It pays 8% interest on borrowed
funds and is in the 50% tax bracket. It has 900 equity shares of Rs. 100 each selling at a market
price of Rs. 120 per share. What is the Weighted Average Cost of Capital? (02 Marks)

5. A company is considering the revision of its credit policy with a view to increasing its sales and
profits. Currently, all its sales are on credit and the customers are given one month’s time to settle the dues.
It has a contribution of 40% of sales and a fixed cost of Rs.10 Lakhs. It can raise additional funds at a cost
of 20% per annum. The marketing director has given the following options with draft estimates for
consideration:

Particulars Current position Option I Option II

Sales (Rs.in Lakhs) 200 210 220
Credit period ( in months) 1 1.5 2
Bad debts (% of Sales) 2% 2.5% 3%
Cost of credit administration 1.2 1.3 1.5
(Rs. in Lakhs)
(03 Marks)

6. A firm is currently earning Rs 100,000 and its share is selling at a market price of Rs 80.
The firm has 10,000 shares outstanding and has no debt. The earnings of the firm are expected
to remain stable, and it has a payout ratio of 100 per cent. What is the cost of equity?
(02 Marks)

7. John borrows 10,000 for 10 years at an annual effective interest rate of 10%. He can
repay this loan using the amortization method with payments of 1,627.45 at the end of each year.
Instead, John repays the 10,000 using a sinking fund that pays an annual effective interest rate
of 14%. The deposits to the sinking fund are equal to 1,627.45 minus the interest on the loan
and are made at the end of each year for 10 years. Calculate the balance in the sinking fund
immediately after repayment of the loan. (02 Marks)

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8. A company requires Rs 10,00,000 to finance its operations. Financing options are: a.)
Equity 1,00,000 shares @ Rs 10 per share= Rs 10,00,000 OR b.) Equity 50,000 shares @ Rs 10
per share = Rs 5,00,000 and debt @ 6% per annum = Rs 5,00,000 Which option should the firm
go with if it's EBIT is Rs. 2,50,000 and tax is to be paid @ 10%? (02 Marks)

9. Ravi & Co. earns Rs. 6 per share having capitalisation rate of 10 per cent and has a return
on investment at the rate of 20 per cent. According to Walter’s model, what should be the price
per share at 30 percent dividend payout ratio? Is this the optimum payout ratio as per Walter
model ? (02 Marks)

10. Calculate (a) the operating leverage, (b) financial leverage and (c) combined leverage
from the following data under situations I and II and financial plans, A and B.

Installed capacity, 4,000 units

Actual production and sales, 75 per cent of the capacity

Selling price, Rs 30 per unit

Variable cost, Rs 15 per unit

Fixed cost:

Under situation I, Rs 15,000

Under situation II, 20,000

Capital structure:

Particulars
Financial plans

A B
Equity Rs. 10,000 Rs. 15,000
Debt. (0.20 interest) 10,000 5,000
20,000 20,000
(03 Marks)

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