NAME : ANIKET SHARMA

ROLL NO. : 2314107357

PROGRAM : MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER: 2nd
COURSE NAME : FINANCIAL MANAGMENT
CODE : DMBA202
 ASSIGNMENT SET – 1
Ans 1 a) : Financial management is a crucial aspect of business operations, encompassing a
range of functions aimed at maximizing shareholder wealth and ensuring the efficient use of
financial resources. Some key functions are:
1. Finance Planning: Developing A detailed financial strategy that clearly defines the
company’s objectives, for both the future and the long term., including budgeting,
forecasting, and resource allocation.
2. Capital Budgeting: Choosing investment opportunities that align with the company’s
goals while ensuring that funds are used efficiently for projects that generate positive
returns..
3. Risk Management: Identifying, assessing, and mitigating financial risks, including
market volatility, credit risks, and operational uncertainties, to safeguard the
organization's financial health.
4. Cash Management: Efficiently managing cash flows to meet operational needs,
optimizing liquidity, and minimizing the cost of holding excess cash or facing
shortages.
5. Financial Reporting and Analysis: Generating accurate and timely financial
statements and reports for internal and external stakeholders, facilitating informed
decision-making.
6. Cost Control: Monitoring and managing costs to enhance profitability, improve cost
efficiency, and maintain a competitive edge in the market.
7. Working Capital Management: Efficiently handling the existing resources and
financial obligations of the company to meet short term responsibilities while
minimizing the expenses associated with maintaining funds.
8. Capital Structure Management: Finding the balance, between debt and equity, for
funding operations and investments considering both the cost of capital and financial
risk
 9. Dividend Policy: Deciding on the distribution of profits to shareholders in the form of
dividends, considering the company's growth prospects and financial objectives.
10. Financial Governance and Compliance: Adhering to legal and regulatory
requirements, implementing internal controls, and ensuring ethical financial practices
to maintain transparency and accountability.
In summary, financial management plays a pivotal role in guiding strategic decisions,
allocating resources efficiently, managing risks, and maintaining the financial well-being of
an organization. These functions collectively contribute to the overall success and
sustainability of the business.

Ans 1 b) : To calculate the amount that Mr. Shivam Goyal will possess at the conclusion of
the year considering regular yearly deposits and compounded interest we can utilize the
formula, for future value of an annuity. This formula enables us to determine the value by
taking into account these factors

FV=P×(((1+r)^n−1)/n)
Where:
• FV is the future value of the annuity.
• P is the periodic payment (annual deposit).
• r is the interest rate per period.
• n is the total number of periods.
In this case:
• P=2000 (annual deposit),
• r=0.05 (5% interest rate per year),
• n=5 (five years).
Now, plug these values into the formula:
FV=2000×(((1+0.05)5 −1)/0.005)
Calculating this expression will give you the future value of the annuity, which represents the
amount of money Mr. Shivam Goyal will have at the end of the fifth year.
FV=2000×((1.05)5−1)
FV≈2000×(1.27628125−1)/0.005
FV≈2000×(0.27628125)/0.005
FV≈2000×5.525625
FV≈11051.25
Therefore, Mr. Shivam Goyal will have approximately Rs. 11,051.25 in the last end of the
fifth year.

Ans 2 : Planning a company's financial needs is a crucial aspect of overall business strategy.
It involves assessing the financial requirements and resources to ensure the organization's
stability, growth, and success. Several factors need to be considered while planning a
company's financial needs:
1. Business Goals and Objectives:
• Understanding the short and long-term goals of the company helps in aligning
financial planning with the overall strategic vision.
2. Budgeting:
• Creating a comprehensive budget helps in estimating future expenses and
income, allowing for effective financial management.
3. Market Conditions:
• Assessing the economic environment, industry trends, and market conditions
helps anticipate potential financial challenges and opportunities.
4. Cash Flow Analysis:
• Regularly analyzing cash flow helps in identifying potential liquidity issues
and ensures the availability of funds for day-to-day operations.
5. Risk Management:
• Identifying and mitigating financial risks is crucial. This involves considering
factors like interest rate fluctuations, currency risks, and market volatility.
6. Regulatory Compliance:
• Adhering to legal and regulatory requirements is essential to avoid financial
penalties and maintain the company's reputation.
7. Cost Management:
 • Controlling and managing costs efficiently helps in optimizing resources and
improving the company's financial health.
8. Investment Planning:
• Deciding on investments, whether in technology, infrastructure, or talent, is
essential for long-term growth.
9. Debt Management:
• Careful management of debt, including understanding interest rates and
repayment terms, is crucial to avoid financial strain.
10. Financial Reporting:
• Implementing accurate and timely financial reporting ensures that decision-
makers have the necessary information to make informed choices.
Advantages of Financial Planning:
1. Stability and Security:
• Financial planning provides a stable foundation, reducing uncertainties and
enhancing the company's overall security.
2. Strategic Decision-Making:
• It enables informed decision-making by aligning financial resources with
strategic goals.
3. Resource Optimization:
• Efficient allocation and management of resources lead to cost savings and
improved profitability.
4. Investor Confidence:
• Well-defined financial plans can instill confidence in investors, stakeholders,
and creditors.
5. Risk Mitigation:
• Identifying and addressing financial risks in advance helps mitigate potential
negative impacts on the business.
Disadvantages of Financial Planning:
1. Rigidity:
 • Overly detailed or rigid financial plans may struggle to adapt to unexpected
changes in the business environment.
2. Cost and Time Intensive:
• Developing and implementing a comprehensive financial plan can be
resource-intensive in terms of time and money.
3. Uncertain Assumptions:
• Financial planning relies on assumptions about future conditions, and if these
assumptions are incorrect, it can lead to suboptimal outcomes.
4. External Factors:
• External factors such as economic downturns or unforeseen events can disrupt
even the most well-thought-out financial plans.
5. Overemphasis on Short-Term Goals:
• Focusing too much on short-term financial goals may compromise long-term
sustainability and growth.
In conclusion, effective financial planning requires a balance between flexibility and
structure. It should be aligned with the company's strategic objectives, adaptable to changing
circumstances, and capable of addressing both short-term and long-term financial needs.
Ans 3 :

A Ltd B Ltd
Sales 1600000 2000000
Variable
40% of sale = 640000 25% of sale = 500000
cost
contribution 960000 1500000
fixed cost 500000 1000000
EBIT 460000 500000
intrest 160000 200000
PBT 300000 300000

For Company A :
Degree of operating leverage = Contribution / EBIT
= 960000 / 460000
=2.087

Degree of Financial leverage = EBIT / PBT

= 460000 / 300000
= 1.53

Degree of combined leverage = Contribution / PBT

= 960000 / 300000 = 3.2
For Company B :
Degree of operating leverage = Contribution / EBIT
= 1500000 / 500000
=3.00

Degree of Financial leverage = EBIT / PBT

= 500000 / 300000
 = 1.67

Degree of combined leverage = Contribution / PBT

= 1500000 / 300000
=5

Interpretion of Operative Leverage

• A higher operating leverage indicates that a larger proportion of the total costs is
fixed, making the company more sensitive to changes in sales. B Ltd. has a higher
operating leverage compared to A Ltd.

Interpretion of Financial Leverage

• Both companies have a level of leverage. Financial leverage refers to the extent to
which debt is utilized in the capital structure.

Interpretion of Combined Leverage

• Combined leverage shows the combined effect of operating and financial leverage. B
Ltd. has a higher combined leverage, indicating that it is more sensitive to changes in
both sales and interest costs compared to A Ltd.

ASSIGNMENT SET – 2

Ans 4 a) The payback period refers to the duration required for an investment to generate
cash flows to recoup its cost. This is determined by dividing the investment by the cash
inflow.
In this case:
Initial investment = ₹70,000
Annual cash inflows = ₹30,000, ₹20,000, ₹18,000, ₹18,000, ₹15,000
Let's calculate the cumulative cash inflows each year until the initial investment is recovered:
Year 1: ₹30,000
Year 2: ₹30,000 + ₹20,000 = ₹50,000
Year 3: ₹50,000 + ₹18,000 = ₹68,000
Year 4: ₹68,000 + ₹18,000 = ₹86,000
Year 5: ₹86,000 + ₹15,000 = ₹101,000
The payback period refers to the duration required for the cash inflows to match or surpass
the investment. In this scenario the payback period occurs in Year 3..
Therefore, the payback period for the project is approximately 2.33 years (between Year 2
and Year 3).
Ans 4 : b) The Net Present Value (NPV) of the project :

Discount
Amount in
Years rate acc. PV
₹ To 9 %

0 6,00,000 1 600000
1 1,20,000 0.917 110040
2 1,20,000 0.842 101040
3 1,80,000 0.772 138960
4 1,80,000 0.708 127440
5 2,20,000 0.65 143000
Total 620480

Net Present Value = Total present value – Initial Investment

= 620480 – 600000
= 20480
Hence , the Net Profit Value is 20480 .
Ans 5 a ) Motives for Holding Cash in an Organization
1. Transactional Motive: This involves the need to have cash available for day-to-day
operational expenses, like paying suppliers, employees, utilities, and other routine
expenses.
2. Precautionary Motive: This is about maintaining a buffer of cash for unforeseen
circumstances, such as emergencies, unexpected expenses, or economic downturns.
This helps in maintaining liquidity during tough times.
3. Speculative Motive: Organizations often keep cash reserves in order to seize
opportunities that may arise. These opportunities could include acquiring a competitor
investing in a project or taking advantage of market conditions to make significant
purchases..
4. Trade-Offs and Benefits: Maintaining cash balances involves a trade-off between the
opportunity cost of holding liquid assets (like loss of interest or investment income)
and the benefits of liquidity. Firms need to balance these to optimize their cash
holdings.
Ans 5 B) EOQ Calculation for X Ltd
Given:
• Annual demand (D) = 48,000 units
• Cost per component (C) = Rs. 20
• Ordering cost (S) = Rs. 120 per order
• Holding cost rate (H) = 10% of the unit cost per annum
Economic Order Quantity (EOQ) Formula:
EOQ = √2DS/H
Where:
• D is the annual demand,
• S is the ordering cost per order,
• H is the holding cost per unit per year.
In this case, the holding cost (H) is 10% of the cost of the component, so H = 10% of Rs. 20
= Rs. 2 per unit per year.
Let's calculate the EOQ for X Ltd.
The Economic Order Quantity (EOQ) for X Ltd. is 2,400 units. X Ltd. has determined that
the cost effective approach, for ordering and holding component beta is to order 2,400 units
each time they place an order. By doing they can minimize the cost associated with ordering
and holding this particular component.
Ans 6 : Determining the amount of working capital is a part of managing finances, for any
company. Working capital refers to the funds utilized in the business activities. Is calculated
as the disparity, between a company’s current assets and liabilities. It is crucial to estimate
working capital to guarantee that a company has liquidity to fulfil short term obligations and
maintain uninterrupted operations. Several factors should be taken into account when
estimating working capital requirements.
1. Nature of Business:
• Various industries have needs when it comes to working capital. For instance a
manufacturing company typically deals with amounts of inventory and
receivables whereas a service oriented company tends to maintain levels of
inventory.
2. Sales Forecast:
• The sales forecast is a key determinant of working capital needs. Accurate
predictions of sales volume and patterns help in estimating the levels of
receivables and inventory required to support the sales.
3. Credit Policy:
• The credit terms offered to customers affect the accounts receivable. A lenient
credit policy may lead to higher receivables, while a stricter policy may result
in quicker cash collections.
4. Supplier Credit Terms:
• The terms negotiated with suppliers impact the level of payables. Favorable
credit terms from suppliers can help in managing cash flows more efficiently.
5. Inventory Policy:
• The inventory turnover ratio and the production cycle influence the amount of
inventory a company needs to keep. Striking the right balance between
maintaining enough stock to meet demand and avoiding excess inventory is
crucial.
6. Operating Cycle:
• The operating cycle plays a role, in determining the time it takes to transform
materials into finished goods sell those goods and receive payments, from
customers. A shorter operating cycle typically necessitates working capital.
7. Seasonality and Cyclical Trends:
 • Seasonal variations and cyclical trends in business activity can impact working
capital needs. Companies must anticipate and plan for these fluctuations.
8. Economic Conditions:
• General economic conditions, inflation rates, and interest rates can impact the
cost and availability of working capital. A downturn may increase the need for
working capital due to slower cash inflows.
9. Technological Changes:
• Changes in technology can affect production processes, inventory
management, and payment systems, which may, in turn, impact working
capital requirements.
10. Government Regulations:
• Industry-specific regulations can influence the working capital needs. For
instance, certain industries may have to comply with stringent environmental
regulations that can impact costs and working capital.
11. Currency Fluctuations:
• For organizations operating internationally, currency fluctuations can impact
the cost of goods, payments to suppliers, and overall working capital
requirements.
12. Debtor Collection Period:
• The average time it takes to collect receivables influences the cash conversion
cycle. Efficient credit control and timely collection efforts are crucial.
13. Taxation Policies:
• Taxation policies can affect the cash outflows, and organizations need to plan
for tax payments in their working capital estimates.
14. Quality of Receivables:
• The creditworthiness of customers affects the likelihood of payment.
Assessing and managing the quality of receivables is vital.

15. Unforeseen Events:

 • Contingencies and unexpected events such as natural disasters or economic
crises can impact working capital needs. Having contingency plans is
important.
By considering these factors and conducting a thorough analysis, organizations can develop
more accurate and effective estimates of their working capital requirements, leading to better
financial management and improved overall business performance.