ASSIGNMENT

ASSIGNMENT

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 Critically analyze the four broad areas of strategic financing decision.

Four broad areas of strategic financing decision 10

10

2 What is FVIFA ? Is it different from Sinking fund factor ?

A finance company offers to pay Rs. 44,650 after five years to investors who deposit

annually Rs. 6,000 for five years. Calculate the rate of interest implicit in this offer.

What is FVIFA ? Differentiate FVIFA and Sinking Fund factor

Solve the case

5

5

10

DRIVE SUMMER 2015

PROGRAM MBA/ MBADS/ MBAFLEX/ MBAHCSN3/ PGDBAN2

SEMESTER II

SUBJECT CODE &

NAME

MB0045

FINANCIAL MANAGEMENT

BK ID B1628

CREDITS 4

MARKS 60

3 A firm owns a machine furnishes the following information :

Rs.

Book value of the machine 1,10,000

Current market value 80,000

Expected salvage value after the end of five years of

remaining useful life

NIL

Annual cash operating costs 36,000

The firms cost of capital 15 %

Corporate tax rate 35 %

The firm follows straight line method of depreciation (permitted by the Income-tax

authorities).

The management of the company is now considering selling of the machine. If it does

so, the total operating costs to perform the work, now done by the machine, will

increase by Rs. 40,000 p.a.

Advise the management.

Solve the case. 10 10

4 How will you compute the cost of equity capital using CAPM ?

The Xavier Corporation, a dynamic growth firm which pays no dividends, anticipates a

long-run level of future earnings of Rs. 7 per share. The current market price of

Xaviers share is Rs. 55.45. Floatation costs for the sale of new equity shares would

average about 10 % of the price of the shares. What is the cost of new equity capital to

Xavier Corporation ?

How will you compute the cost of equity capital using CAPM ?

Solve the case

5

5

10

5 Jharkhand Mining ltd. has to select one of the two alternative projects whose

particulars are furnished below :

Project E Project F

Rajrappa,

Hazaribagh

Tatisilwai,

Ranchi

Rs. Rs.

Initial Outlay 11,87,200 10,06,700

Net Cash Inflow :

End of year 1 10,00,000 1,00,000

2 2,00,000 1,00,000

3 1,00,000 2,00,000

4 1,00,000 10,00,000

The company can arrange necessary funds @ 8 %. Compute the NPV and IRR of each

project and comment on the results.

Is there any contradiction in the results ? If so, state the reason for such

contradictions. How would you propose to resolve the contradictions ?

Solve the case 10 10

6

Premier Steel Ltd. has a present annual sales turnover of Rs. 40,00,000. The unit sale

price is Rs. 20. The variable costs are Rs. 12 per unit and fixed costs amount to Rs.

5,00,000 per annum. The present credit period of 1 month is proposed to be extended to

either 2 or 3 months whichever is profitable. The following additional information is

available :

Credit period 1 month 2 months 3 months

Increase in sales by -- 10 % 30 %

Bad debts on sales 1 % 2 % 5 %

Fixed costs will increase by Rs. 75,000 when sales increase by 30 %. The company

requires a pre-tax return on investment of 20 %.

Evaluate the profitability of the proposals and recommend the best credit period for the

company.

Solve the case 10 10