MB0045 -FINANCIAL MANAGEMENT

1. Explain the liquidity decisions and its important elements. Write

complete information on dividend decisions.
Explanation of liquidity decisions with its important elements
Explanation of dividend decisions

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The liquidity decision is concerned with the management of the current
assets, which is a pre-requisite to long-term success of any business firm.
This is also called as working capital decision. The main objective of the
current assets management is the trade-off between profitability and
liquidity, and there is a conflict between these two concepts. If a firm does
book.

2
Explain about thdcxe doubling period and present value. Solve the below
given problem:
Under the ABC Banks Cash Multiplier Scheme, deposits can be made for
periods ranging from 3 months to 5 years and for every quarter, interest is
added to the principal. The applicable rate of interest is 9% for deposits
less than 23 months and 10% for periods more than 24 months. What will
be the amount of Rs. 1000 after 2 years?
Explanation of doubling period
Solving the problem

Explanation of present value

A very common question arising in the minds of an investor is how long will
it take for the amount invested to double for a given rate of interest. There
are 2 ways of answering this question:
1. One way is to answer it by a rule known as rule of 72. This rule states
that the period within which the amount doubles is obtained by dividing

3
Write short notes on:
a) Operating Leverage
b) Financial leverage
c) Combined leverage
Explanation of operating leverage
Explanation of financial leverage
Explanation of combined leverage
Operating leverage is associated with the asset purchase activities, while
financial leverage is associated with the financial activities. However,
combined leverage is the combination of operating leverage and the
financial leverage.
4
Explain the factors affecting Capital Structure. Solve the below given
problem:
Given below are two firms, A and B, which are identical in all aspects
except the degree of leverage employed by them. What is the average
cost of capital of both firms?
Explanation of factors affecting capital structure

Solution for the problem

Interpretation

Capital structure: The permanent, long-term financing of a company

represented by a mix of long-term debt, preference shares, and net-worth.

5
Explain all the sources of risk in capital budgeting with examples.
Solve the below given problem:
An investment will have an initial outlay of Rs 100,000. It is expected to
generate cash inflows. Cash

6
Explain the objectives of Cash Management. Write about the Baumol
model with their assumptions.
Explanation of objectives of cash management
Explanation of Baumol model with assumptions
Cash management is concerned with the following requirements:
Management of cash flows in and out of the firm.
Cash management within the firm.
Management of cash balances held by the firm deficit financing or
investing surplus cash.
Cash, be it in hand or at the bank, is the most liquid of all current assets. By
virtue of being the most liquid asset, cash is extremely suitable for business
purposes. The basic reason behind the need for cash is the same as well.
The need of cash has often been compared to that of blood or oxygen in a