MB0045- FINANCIAL MANAGEMENT

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(Spring 2013)

Master of Business Administration- Semester 2

MB 004/MB5F 201 “FINANCIAL MANAGEMENT”

(4 credits)

(Book ID: B1628)

ASSIGNMENT- Set 1

Marks 60

Note: Each Question carries 10 marks. Answer all the questions.

Q1. What are the goals of financial management? (10 Marks) (350-400 words)

Answer : Assuming that we restrict ourselves to for-profit businesses, the goal of financial management is to make money or add value for the owners. This goal is a little vague, of course, so we examine some different ways of formulating it in order to come up with a more precise definition.

Q2. Calculate the PV of an annuity of Rs. 500 received annually for four years when discounting factor is 10%. (10 Marks) (350-400 words)

Answer : Solution  :

Q3. Suraj Metals are expected to declare a dividend of Rs. 5 per share and the growth rate in dividends is expected to grow @ 10% p.a. The price of one share is currently at Rs. 110 in the market. What is the cost of equity capital to the company?  (10 Marks) (350-400 words)

Answer :

Q4. What are the assumptions of MM approach?(10 Marks) (350-400 words)

Answer : Modigliani Millar Approach

Modigliani Millar approach,

Q5. An investment will have an initial outlay of Rs 100,000. It is expected to generate cash inflows.

Table 1.2 highlights the cash inflow for four years. (Spring 2013)

Table 1.2: Cash inflow

Year	Cash inflow
1	40000
2	50000
3	15000
4	30000

If the risk free rate and the risk premium is 10%,

a) Compute the NPV using the risk free rate

b) Compute NPV using risk-adjusted discount rate (10 Marks) (350-400 words)

Answer :

Q6. What are the features of optimum credit policy?(10 marks) (350-400 words)

Answer : Optimum Credit Policy The firm’s operating profit is maximized when total cost is minimised for a given level of revenue. Credit policy at point man in represents the maximum operating profit (since total cost is minimum). But it is not necessarily the optimum credit policy. Optimum credit policy is one

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