Course: Corporate Finance

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NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Corporate Finance

Internal Assignment Applicable for December 2016 Examination

Assignment Marks: 30

Instructions:

·       All Questions carry equal marks.

·       All Questions are compulsory

·       All answers to be explained in not more than 1000 words for question 1 and 2 and for question 3 in not more than 500 words for each subsection. Use relevant examples, illustrations as far as possible.

·       All answers to be written individually. Discussion and group work is not advisable.

·       Students are free to refer to any books/reference material/website/internet for attempting their assignments, but are not allowed to copy the matter as it is from the source of reference.

·       Students should write the assignment in their own words. Copying of assignments from other students is not allowed.

Question. 1. “Leverage being defined as the relationship between two financial variables”. Why the study of leverages is an important concept in finance? (10 marks)

Answer: Leverage being defined as the relationship between two financial variables, it plays most important role in finance. There are so many reasons why we can say that the leverage study is one of the most important concepts of finances and you need to be very careful about it while you do any financial task in your company. Making financial decision requires certain amount of skills and liability but when you take the assistance of leverage then it becomes much more efficient and easy to handle.

Question. 2. You being the finance manager of AB Ltd. The management is interested in CVP analysis which helps in forecasting profits, in analyzing the changes in profit happens because of changes in sales volume and cost. Discuss such CVP techniques you will use to satisfy the management. (10 marks)

Answer: Finance always requires analysis and reporting. Also, this is the procedure that necessarily requires professionalism and accuracy. When you are at the position of finance manager, you will need to follow certain responsibilities and you will need to fulfil the expectations of your company by your work. AB Ltd needs you to run a CVP analysis because this analysis procedure will offer you clear and most accurate forecast information on profits of the company. There are certain changes that take place as the result of CVP analysis but these changes will be on the figures of sales volume and cost of your company.

Question. 3. a) Given the following as cash flow from a project, calculate the NPV. The required rate of return is 9 %

year	Cash flow
0	-150000
1	25000
2	35000
3	45000
4	45000
5	55000

Whether the company should accept the project or not ? (5 Marks)

Answer: Net Present

b) Given the following financial statement data, calculate the net operating cycle.

Credit sales	250000
Cost of goods sold	200000
Accounts receivable	25000
Inventory closing balance	23000
Inventory opening balance	20000
Accounts payable	17000

Answer:

Days Sales Outstanding (DSO): 35.0

Days Payable Outstanding (DPO): 33.8

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