MB0045 - FINANCIAL MANAGEMENT

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DRIVE-FALL 2014

PROGRAM-MBA/ MBADS/ MBAFLEX/ MBAHCSN3/ PGDBAN2

SEMESTER-II

SUBJECT CODE & NAME-

MB0045 - FINANCIAL MANAGEMENT

BK ID-B1628

CREDITS-4

MARKS-60

Q1. 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)5, 5

Answer.

Liquidity decisions with its important elements

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

Q2. Explain about the doubling period and present value. Solve the below given problem:

Under the ABC Bank’s 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) 2, 3, 5

Answer.

Doubling period

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:

Q3. Write short notes on:

a) Operating Leverage

b) Financial leverage

c) Combined leverage

Answer.

a) Operating Leverage

Operating leverage arises due to the presence of fixed operating expenses in the firm’s income flows. It has a close relationship to business risk. Operating leverage affects business risk factors, which can be viewed as the uncertainty inherent in estimates of future operating income.

Q4. 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) 6,3,1

Answer.

Factors affecting Capital Structure

The major factor affecting the capital structure is leverage. There are also a few other factors affecting them. All the factors are explained briefly here.

Q5. 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 inflow for four years.

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

Answer.

Sources of risk in capital budgeting

Capital budgeting involves four types of risks in a project: stand-alone risk, portfolio risk, market risk and corporate risk.

Q6. 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)5,5

Answer.

Objectives of cash management

The major objectives of cash management in a firm are:

·         Meeting payments schedule

·         Minimising funds held in the form of cash balances

Dear students get fully solved  SMU MBA Fall 2014 assignments

Send your semester & Specialization name to our mail id :

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Call us at : 08263069601

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