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MB0045 – FINANCIAL MANAGEMENT – Fall 2014

 

DRIVE FALL 2014
PROGRAM MBA/ MBADS/ MBAFLEX/ MBAHCSN3/ PGDBAN2
SEMESTER II
SUBJECT CODE &

NAME

MB0045

FINANCIAL MANAGEMENT

BK ID B1628
CREDITS 4
MARKS 60

 

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

 

Q.No

Questions

Marks Total

 

Marks

1

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

10

2

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

 

 

10

3

Write short notes on:

 

a)  Operating Leverage b)  Financial leverage c)  Combined leverage

  Explanation of operating leverage

 

Explanation of financial leverage

 

Explanation of combined leverage

4

 

4

 

2

10

 

 

Year Cash inflow

1

40000

2

50000

3

15000

4

30000

 

4

 

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?

 

 

Details of Firms A and B

    Firm A Firm B  
Net operating income EBIT Rs. 1, 00, 000 Rs. 1, 00, 000
Interest on debentures I

Nil

Rs. 25, 000
Equity earnings E Rs. 1, 00, 000 Rs. 75, 000
Cost of equity Ke

15%

15%

Cost of debentures Kd

10%

10%

Market value of equity S = E/Ke Rs. 6, 66, 667 Rs. 5,00, 000
Market value of debt B

Nil

Rs. 2, 50, 000
Total value of firm V Rs. 6, 66, 667 Rs. 7, 50, 000
  Explanation of factors affecting capital structure

 

Solution for the problem

 

Interpretation

6

 

3

 

1

10

5

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

  Explanation of risk in capital budgeting with examples

 

Solution for the problem with interpretation

5

 

5

10

 

 

 

 

6

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

10

 

 

 

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