MBA-I Sem.

II
Subject: Financial Management (202)
Assignment Submission: 5th Nov 2016

Q1. Discuss in detail what are the goals of Financial Management?

Q2. Describe the functions of Finance Manager.
Q3. What is fund Flow statement? State its advantages & disadvantages.
Q4. Assume that a firm has owners equity of Rs. 100000. The ratios of the firm are:
Short term debt to total debt = 0.4
Total Debt to Owners equity = 0.6
Fixed Assets to owners equity = 0.6
Total assets turnover ratio = 2 times
Inventory Turnover ratio = 8 times
Compute the following Balance sheet:

Q5. Following details are made available to you:

Particulars
Project Cost
Cash Inflows :
Year1
Year2
Year3
Year4
Year5
Total

Project X(Rs.)
700

Project Y(Rs.)
700

100
200
300
450
600
1650

500
400
200
100
100
1300

Assume no residual values at the end of the fifth year. The firms cost of capital is 10%. Required in
respect of each of the two projects.
1) Payback period
2) Net present Value, using 10% as discounting factor
3) Internal rate of return 4) Profitability Index
Q6. Following are the details of three projects A, B and C.
Particulars
A
B
C
Cost
50,000
70,000
70,000
Life
1 0 years
12 years
14 years
Estimated Scrap (Rs.)
5,000
10,000
7,000
Annual Profit
5,500
Less Taxation (Rs.)
5,000
6,000
Select the best one using: a) Payback period
b) Surplus life over payback period
c) Surplus cash flow as the decision
criteria.

Q7. A Performa Cost Sheet of a Company is given below:

Particulars Cost per unit Rs.
a) Raw Material 52
b) Direct Labor 26
c) Overheads 32
Total Cost 110
Profit 20
Selling Price 130
Additional Information:
(1) Average Raw Material in stock is one month.
(2) Average Material in process half a month.
(3) Average finished goods for a month.
(4) Credit allowed by suppliers one month.
(5) Credit allowed to debtors two months.
(6) Time lag in payment of wages one and half weeks, overheads one month.
(7) 1/4th of the sales are on cash basis.
(8) Expected Cash Balance Rs. 1,20,000.
Prepare a Statement showing Working Capital requirements to finance of activity of 45,000 units at
Output.
Q8. ABC Ltd sells its products on a gross profit of 20 % on sales. Prepare an estimate of working capital
requirements from the following information of the trading concern.
Sales at 3 months credit
40,00,000
Raw materials
12,00,000
Wages paid- average time lag15 days
9,60,000
Manufacturing expenses paid one month in arrears
12,00,000
Administrative expenses paid one month in arrears
4,80,000
Sales Promotion expenses payable half year in advance
2,00,000
The company enjoys 1 month credit from suppliers of raw materials & maintains a 2 months stock of raw
materials & 1.5 months stock of finished goods. The cash balance is maintained at Rs. 1,00,000 as a
precautionary measure. Consider 10% contingencies in your estimate.
Q9. Explain Modigliani and Miller theory (MM approach).
Q10. A limited company is considering different methods to finance its investment proposal. It is
estimated that initially Rs. 40,00,000 will be needed. Two alternative methods are available for raising of
funds:
i.
To raise Rs. 20,00,000 be sale of equity shares of Rs. 100 each and balance at 18% term loan.
ii.
To raise the entire amount by sale of equity share of Rs. 100 each
The existing capital structure consists of:
a) 50000 equity shares of Rs. 100 each and
b) 17% term loan of Rs. 20,00,000
The expected EBIT is Rs. 15,00,000. Advice the company on the basis of EPS in each alternative.
Q11. Mr. True Development wishes to develop a kiosk model for banking sector. The estimated cost of
development will be Rs. 4250000/-. salvage value at the end of the project will be 25%. The Expected
Cash Flow are as follows.
Year
1
2

Cash Flows
8,25,650
9,25,000

Depreciation
1,25,650
1,75,000

3
10,50,000
2,25,000
4
11,35,000
3,34,500
5
15,00,000
4,50,000
Evaluate project using NPV Method, assuming Tax Rate @ 30% and Discounting Rate of 10%.
Q12. Sweet Sugar Ltd. wishes to build new factory whose initial cost will be Rs. 4500000/-. Following
are the cash flow after depreciation but before tax.
Year 1: Rs. 1500000, Year 2: Rs. 1845000 , Year 3:- 2050000, Year 4:- 2275000, Year 5:- 1000000.
Depreciation is calculated on WDV Method @ 15%. Tax Rate @30% and cess @3%.
Evaluate project through NPV and PI Model.
Q13. Following are the summarized balance sheet of ABC Ltd. as on 31st December 2014 & 15. You are
required to prepare a fund flow statement for the year ended 31st December 2015
Liabilities
Share Capital
General
Reserve
Profit
and
Loss Account
Bank
Loan
(Long Term)
Creditors
Provision for
Tax

2014 (Rs.)
1,00,000
25,000

2015 (Rs.)
1,25,000
30,000

Assets
Goodwill
Building

2014 (Rs.)
1,00,000

2015 (Rs.)
2,500
95,000

15,250

15,300

Plant

75,000

84,500

35,000

27,600

Stock

50,000

37,000

75,000
15,000

40,000
17,500

Debtors
Bank

40,000
-

32,100
4,000

Cash

250
2,65,250

300
2,55,400

2,65,250
Additional information:

2,55,400

Dividend of Rs. 11,500 was paid.

Depreciation written off on plant Rs. 7000 and on building Rs. 5000

Q14. Krishna Gold Ltd. is a leading manufacturing industry. Following activity ratios are calculated by
the finance manager of the company. You are required to analyze the ratios and interpret the asset
management efficiency position of the company.
Particulars
Debtors Turnover Ratio
Creditors Turnover Ratio
Inventory Turnover Ratio
Working Capital Turnover
Ratio
Fixed Asset Turnover Ratio

2014 (Rs.)
12 times
7 time
9 times
3 times

2015 (Rs.)
8 times
7 timess
11 times
4 times

2.5 times

1.5 times

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