2011-SMU- MB0045 –MBA 2nd (Financial Management)

 

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Master of B usines s A dministration -MBA Se mes ter 2

 MB0045 – Financial Management - 4 Credits

(Book ID: B1134)

Ass ignment Set- 1 ( 60 Marks)No te: Each questio n carries 1 0 marks. Ans wer all the questio ns.

Q.1 What are the 4 finance decisions taken by a finance manager.Ans. Refer 1.4 Finance Functions, Page No 7, 1.4.1 Page No 8-9Q.2 What are the factors that affect the financial plan of a company?Ans. Refer 2.3 Factors affecting Financial plan Page No 31 & 32Q.3 Show the relationship between required rate of return and coupon rate on the value of a bond.Ans. Refer 4.2 Valuation of bonds Page No 65Q.4 Discuss the implication of financial leverage for a firm.Ans. Refer to 6.3 Financial leverage Page No 113 and 114.Q.5 The cash flows associated with a project are given below:Year Cashflow 0 (100,000)1 250002 400003 500004 400005 30000a) Calculate the payback period.b) Benefit cost ratio for 10% cost of capitalSolutiona).:- TableCashFlowandCumulativeCashFlows From the cumulative cash flows column. A recover the initial cash out tag of Rs. 1000,00 at theend of the third year. Therefore payback period of project is 2 years.Therefore payback period

Years

7.25000035000250000650001000002

⇒+⇒−+⇒

Solution:

b). Benefit cost ratio for 10% cost of capital.Year Cashflow CumulativeCashflows1 2500025000 2 4000065000 3 50000115000 4 40000155000 5 30000185000

 

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2Year CashFlow 10%PvFactor PvofCash flowCumulative1250000.909 22725 227252400000.826 33040 557653500000.751 37550 933154400000.683 27320 1206355300000.621 18630 139265 244.3244.3 273206685327320933151000003

⇒+⇒+⇒−+⇒

 Q6. Acompany’searnings an ddividends aregrowing attherateof18% pa.Thegrowthrate i s expected to continue for 4 years. After 4 years, from year 5 onwards, the growth rate will be 6%forever. If the dividend per share last year was Rs. 2 and the investors required rate of return is10% pa, what is the intrinsic price per share or the worth of one share.Ans. n= 4Years, growth= 6% ,Ke= 10%required rateofreturn, D

0

= 18The Present value of this flow of dividends will be

( )( )( )()( )( )

42.235 07.0 / 48.16 07.0 / 26.15 08.015.0 / 05.0125.15 1 / PP

45541n

=== −++= −+=−=−=

+

gKegn D gKe DgKe D

n

 The intrinsic price is 235.42

MB0045 – Financial Management - 4 Credits

(Book ID: B1134)Ass ignment Set- 2 ( 60 Marks)No te: Each questio n carries 1 0 Marks. Answ er all the questions .

Q.1 Discuss the objective of profit maximization v/s wealth maximization.Ans. (Refer 1.3.3 Wealth Maximization Vs Profit Maximization Page No 6-7)Q.2 Explain the Net operating approach to capital structure.Ans. Refer to 7.4 Page No 132-133, 135-136.Q.3 What do you understand by operating cycle.Ans. Refer to 11.6, Page No 238-239

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