# SMU MBA ASSIGNMENTS

## 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