BBA502 &FINANCIAL MANAGEMENT

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ASSIGNMENT

DRIVE	Fall 2015
PROGRAM	BBA
SEMESTER	V
SUBJECT CODE & NAME	BBA502 &FINANCIAL MANAGEMENT
BK ID	B1850
CREDIT	4
MARKS	60

Note –Please provide keywords, short answer, specific terms, specific examples and marksbreak - up (wherever necessary)

Note –Answer all questions. Kindly note that answers for 10 marks questions should beapproximately of 400 words. Each question is followed by evaluation scheme.

Question.1. Explain profit maximization. Write the objectives of profit maximization.

Answer:In economics, profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue–total cost perspective relies on the fact that profit equals revenue minus cost and focuses on maximizing this difference, and the marginal revenue–marginal cost perspective is based on the fact that total profit reaches its maximum point where marginal revenue equals marginal cost.

The general rule is that firm maximizes profit by producing that quantity of output where marginal revenue equals marginal costs. The profit maximization issue can also be approached from the input side. That is, what is the profit maximizing usage of the variable input? [10] To maximize profit the firm should increase usage of the input "up to the

Question.2.Explain the concept of Time value of Money. Explain with an example thecompounding method.

Answer:A time value of money calculation is a calculation that solves for one of several variables in a financial problem.

In a typical case, the variables might be: a balance (the real or nominal value of a debt or a financial asset in terms of monetary units), a periodic rate of interest, the number of periods, and a series of cash flows. (In the case of a debt, cash flows are payments against principal and interest; in the case of a financial asset, these are contributions to or

Question.3. What do you understand by financial leverage? Explain Earning Per Share (EPS) andReturn on Equity (ROE).

Answer:Financial leverage simply means the presence of debt in the capital structure of a firm. In other words, we can also call it existence of fixed-charge bearing capital which may include preference shares along with debentures, term loans etc. The objective of introducing leverage to the capital is to achieve maximization of wealth of the shareholders.

Financial leverage deals with the profit magnification in general. It is also well known as gearing or ‘trading on equity’. The concept of financial

Question.4. Explain the Capital Investment Planning and Control phases.

Write short notes on :

a) Net Present Value (NPV)

b) Internal Rate of Return(IRR)

Explanation of capital investment planning and control phasesNet Present Value(NPV)- Calculations-Acceptance Rule-meritsand demeritsIRR-)- Calculations-Acceptance Rule-merits and demerits

Answer:At least five phases of capital expenditure planning and control can be identified:

·         Identification or origination of investment opportunities

·         Development of forecasts of benefits and costs

a) Net Present Value (NPV)

Answer:In finance, the net present value (NPV) or net present worth (NPW) is defined as the sum of the present values (PVs) of incoming and outgoing cash flows over a period of time. Incoming and outgoing cash flows can also be described as

b) Internal Rate of Return(IRR)

Answer:The internal rate of return (IRR) or economic rate of return (ERR) is a method of calculating rate of return. The term internal refers to the fact that its calculation does not incorporate environmental factors (e.g., the interest rate or inflation).

It is also called the discounted cash flow rate of return (DCFROR).In the context of savings and loans, the IRR is also called the effective interest rate.

Question.5. Explain the modes of security which a bank may require. Write the features ofordinary shares.

Answer:When a borrower is granted a loan from a bank, the bank will often want security for the loan it makes. Taking effective security over an asset means that the bank can, on the insolvency of the borrower, take possession of that asset, sell it and use the proceeds to repay the loan. This puts the bank in a stronger position than creditors who do not have security.

Question.6. Explain the three motives for holding cash. Write the facets of cash management.

Answer: Explanation of three motives for holding cash

Cash is known as most liquid and less productive assets of a firm. If cash remains idle, earns nothing but involves cost in terms of interest payable to finance it. Although cash is least productive current assets, firm should hold certain amount of cash for marketable securities. Mainly, there are three motives for holding cash.

1. Transaction Motive Of Holding Cash: Transaction motive refers to the need to hold cash to satisfy normal disbursement collection activities associated

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