Assignment
Financial
Management (MNGT 520)
Instructions
for PREPAIRING THE ASSIGNMENT
1.
Last
date of submitting the assignment is 10th November, 2015. In case of
late submission, ONE mark will be deducted for each day
after the due date.
2.
You
can prepare the assignment using lecture notes, online sources or suggested
text book at the end of the assignment.
3.
You
are asked not to give your assignment to other students because copying or
transcribing may affect your marks adversely.
4.
A
good presentation of diagrams, figures and examples can enhance the quality of
your assignment.
5.
The
materials of this assignment may be used in Final Exam.
6.
There
is no limit for pages. I need reasonable answers of all the questions.
Questions:
Question
1. Critically evaluate various
approaches to the financial management. (Points
2)
Question
2. What are the differences between
fund flow and cash flow? (Points 2)
Question
3. (a) Critically examine the
advantages and disadvantages of equity shares. (Points 2)
(b) Evaluate the overall
view of debentures. (Points 2)
Question 4. (a) What is optimum capital structure? (Points 1)
(b) Compute the market value of the firm, value of shares
and the average cost of capital from the following information. (Points 1)
Net operating
income Rs. 2, 00,000
Total investment
Rs. 5, 00,000
Equity capitalization
Rate:
(a) If the firm uses no debt 10%
(b) If the firm
uses Rs. 25,000 debentures 11%
(c) If the firm
uses Rs. 4, 00,000 debentures 13%
Assume that Rs. 5, 00,000 debentures can be
raised at 6% rate of interest whereas
Rs. 4, 00,000
debentures can be raised at 7% rate of interest.
Question
5. A company has on its books the
following amounts and specific costs of each type of capital. (Points 2)
|
Type |
Book |
Market |
Specific |
|
Debt |
4,00,000 |
3,80,000 |
5 |
|
Preference |
1,00,00 |
1,10,00 |
6 |
|
Equity |
6,00,00 |
9,00,000 |
15 |
|
Retained |
2,00,00 |
3,00,000 |
13 |
|
13,00,000 |
16,90,00 |
Determine the weighted average cost of capital using:
(a) Book value weights, and
(b) Market value weights.
Question 6. Distinguish the operating leverage from
financial leverage. (Points 2)
Question
7. Explain the factors affecting the
dividend policy. (Points 2)
Question
8. (a) A project costs Rs. 20, 00,000
and yields annually a profit of Rs. 3, 00,000 after depreciation @ 12½% but
before tax at 50%. Calculate the
pay-back period. (Points 1)
Profit after
depreciation 3,
00,000
Tax 50% 1, 50,000
1, 50,000
Add depreciation:
20, 00,000 12.5 % 2, 50,000
(b)
From the following information, calculate
the net present value of the two projects and suggest which of the two projects
should be accepted a discount rate of the two. (Points 1)
|
|
Project |
Project |
|
Initial Investment |
Rs. 20,000 |
Rs. 30,000 |
|
Estimated Life |
5 years |
5 years |
|
Scrap Value |
Rs. 1,000 |
Rs. 2,000 |
The
profits before depreciation and after taxation (cash flows) are as follows:
|
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Rs. |
Rs. |
Rs. |
Rs. |
Rs. |
|
|
Project X |
5000 |
10,000 |
10,000 |
3000 |
2000 |
|
Project Y |
20000 |
10,000 |
5000 |
3000 |
2000 |
Note: The following
are the present value factors @ 10% p.a.
|
Year |
1 |
2 |
3 |
4 |
5 |
6 |
|
Factor |
0.909 |
0.826 |
0.751 |
0.683 |
0.621 |
0.564 |
Question
9. (a) An annuity is defined as a series of payments of a fixed amount
for a specific number of periods. Thus, $100 a year for 10 years is an annuity,
but $100 in Year 1, $200 in Year 2, and $400 in Years 3 through 10 does not
constitute an annuity. However, the entire series does contain an annuity. Is
this statement true or false? And Why? (Points
1)
(b)
Your parents
will retire in 18 years. They currently have $250,000, and they think they will
need $1 million at retirement. What annual interest rate must they earn to
reach their goal, assuming they don’t save any additional funds? (Points 1)
BOOKS:
1
Brigham.FEugene&EhrhardtC.Michael, (2014).Financialmanagementtheory andpractice 14e,SouthWesternCENGAGElearning,ISBN13:978-1-111-
97221–9
2
Financial Management by C. Paramasivan and T. Subramanian,
Publisher: New Age International Publisher, India,
3
Financial Management:
Theory and Practice, By MICHAEL C. EHRHARDT and EUGENE F. BRIGHAM, 13th
edition, SOUTH-WESTERN CENGAGAE LEARNING.
