ASSIGNMENT

MB0029

(3 Credits)

SET 1

MARKS 60

Financial Management

1a. Explain why wealth maximization is superior over profit maximization. (5 Marks)
b. Briefly explain the steps involved in financial plan (5 Marks)
2a. Explain the two theories of capitalization (5 Marks)
b .A customer wants to deposit Rs.10,000 in ICICI bank for 5 years. The prevailing interest
rate is 9.50% what will be the value of the deposit on maturity (5 Marks)
3a. Reliant Ltd has to redeem 12% Rs. 30 million debenture 5 years hence. How much
should it deposit annually in sinking fund account so that it can accumulate Rs. 30
million at the end of 5 years. (5 Marks)
b. Road Transport Corporation issued deep discount bands in 1996 which has a face
value of Rs. 2,00,000 maturing after 25 years. The bond was issued at Rs. 5300. What
is the effective interest rate earned by the investor from this bond? (5 Marks)
4. A bond has a par value of Rs. 1000 bearing a coupon rate of 10% maturing in 10 years.
If the YTM is 12% what is the market value of the bond? If the YTM is increase to 14%,
what is the market value of the bond? Compare and give the inference. (10 Marks)

5a. ABC Ltd, produced and sold Rs.1,00,000 of a product at the rate of Rs.100. For production
of Rs.1,00,000 units, it has spent a variable cost of Rs.6,00,000 at the rate of Rs.6 per unit
and the fixed cost if Rs. 2,50,000. The firm has paid interest Rs. 50,000 at the rate of 5
percent and Rs.1,00,000 debts. Calculate operating leverage. (5 Marks)

b. Explain the importance of capital budgeting (5 Marks)

CASE STUDY (10 MARKS)

6. Financial Planning: Assume you are working for an investment banker. A client aged 30 has
approached you on investment planning. His present salary is Rs.6,00,000 per year and his
current savings is Rs.1,50,000. (a) How much does this current saving grow to in 3 years if
the interest rate is12% compounded annually. (b) Assume he plans to save Rs.60000 at the
end of every year for 5 years, what would be the amount at the end of 5 years if the interest
being 10% compounded annually.
 ASSIGNMENT
___

MB0029

(3 Credits)

SET 2

MARKS 60

Financial Management

1. Compare and contrast NPV with IRR (10 Marks)

2. Zodiac Ltd is considering purchase of investment worth Rs. 40 lakhs. (10 Marks)
The estimated life and the new cash flow fir 3 years are as under.
Machines
A B C
Estimated life 3 Years 3 Years 3years
Cash inflows(in lakhs)
1 Year 27 06 12
2 Year 18 21 80
3 Year 55 33 30
Which machine should be selected on the basis of payback period? Calculate discounted
payback period if the cost of capital is 12%
3.The cash flow stream of Nanotech Ltd, is as follows: (5 Marks)
years 0 1 2 3 4 5 6
Cash flows -120 -100 40 60 80 100 130
(in million)
The cost of capital is 13%. Find MIRR.
3. Elaborate different sources of risk in a project (10 Marks)
4. The expected cash flow of Tejaswini Ltd, are an follow. (5 Marks)
Year Cash flow
0 (50000)
1 9000
2 8000
 3 7000
4 12000
5 21000

The certainty equivalent factor balance as per the following equation α t=1-05.05t. Calculate the
NPV of the project if the risk free rate of return is 9%.

5. From the following information prepare cash budgets for VSI Co. Ltd.: (10 Marks)
Particulars Jan Feb March April
Opening cash balance 20,000
Collection from customer 1,30,000 1,60,000 1,65,000 2,30,000
Payments :
Raw materials purchase 25,000 45,000 40,000 63200
Salary and Wages 1,00,000 1,05,000 1,00,000 1,14,200
Other expenses 15,000 10,000 15,000 12,000
Income Tax 6,000 ---- ---- ---
Machinery 20,000 ---
--- ----

The firm wants to maintain a minimum cash balance of Rs.25000 for each month. Creditors
are allowed one-month credit. There is no lag in payment of salary, other expenses.
Case Study (10 Marks)
Assume you are an external financial consultant. You have been approached by a client M/s
Technotron Ltd to give a presentation on Credit Policy adopted by Information technology
companies. You are specifically asked to deal with credit standards, credit period, cash
discounts and collection programme. For the sake of simplicity take any two information
technology companies and analyze the credit policy followed by them.