(MNGT 520) ASSIGNMENT FINANCIAL MANAGEMENT 2015

Assignment
Financial
Management (MNGT 520)
Instructions
for PREPAIRING THE ASSIGNMENT

Last date of
submitting the assignment is 10th November, 2015. In case of late
submission, ONE mark will be deducted for each day
after the due date. You
can prepare the assignment using lecture notes, online sources or suggested
text book at the end of the assignment.You
are asked not to give your assignment to other students because copying or
transcribing may affect your marks adversely.A
good presentation of diagrams, figures and examples can enhance the quality of
your assignment.The
materials of this assignment may be used in Final Exam.There
is no limit for pages. I need reasonable answers of all the questions.

Questions:

Question 1. Critically evaluate various approaches to
the financial management. (Points 2)
Question 2. What are the differences between fund flow
and cash flow? (Points 2)
Question 3. (a) Critically examine the advantages and
disadvantages of equity shares. (Points 2)
(b)
Evaluate the overall view of debentures. (Points
2)
Question
4. (a) What is optimum capital
structure? (Points 1)
(b) Compute the market value of the firm, value of shares
and the average cost of capital from the following information. (Points 1)
Net
operating income Rs. 2, 00,000
Total
investment Rs. 5, 00,000
Equity capitalization
Rate:
(a) If the firm uses no debt 10%
(b) If
the firm uses Rs. 25,000 debentures 11%
(c) If
the firm uses Rs. 4, 00,000 debentures 13%
Assume that Rs. 5, 00,000 debentures can be
raised at 6% rate of interest whereas
Rs. 4,
00,000 debentures can be raised at 7% rate of interest.
Question
5. A company has on its books the
following amounts and specific costs of each type of capital. (Points 2)

Type of Capital

Book Value Rs.

Market Value Rs.

Specific Costs (%)

Debt

4,00,000

3,80,000

5

Preference

1,00,00

1,10,00

6

Equity

6,00,00

9,00,000

15

Retained
Earning

2,00,00

3,00,000

13

13,00,000

16,90,00

Determine the weighted average cost of capital using:
(a) Book value weights, and
(b)
Market value weights.
Question
6. Distinguish the operating leverage
from financial leverage. (Points 2)
Question 7. Explain
the factors affecting the dividend policy. (Points 2)

Question
8. (a) A project costs Rs. 20, 00,000
and yields annually a profit of Rs. 3, 00,000 after depreciation @ 12½% but
before tax at 50%. Calculate the
pay-back period. (Points 1)
Profit
after depreciation 3,
00,000
Tax
50% 1,
50,000
1, 50,000
Add
depreciation:
20, 00,000 12.5 % 2, 50,000

(b) From the following
information, calculate the net present
value of the two projects and suggest which of the two projects should be
accepted a discount rate of the two. (Points
1)

Project
X

Project
Y

Initial Investment

Rs. 20,000

Rs. 30,000

Estimated Life

5 years

5 years

Scrap Value

Rs. 1,000

Rs. 2,000

The profits before depreciation
and after taxation (cash flows) are as follows:

Year 1

Year 2

Year 3

Year 4

Year 5

Rs.

Rs.

Rs.

Rs.

Rs.

Project
X

5000

10,000

10,000

3000

2000

Project
Y

20000

10,000

5000

3000

2000

Note:
The following are the present value factors @ 10% p.a.

Year

1

2

3

4

5

6

Factor

0.909

0.826

0.751

0.683

0.621

0.564

Question
9. (a) An annuity is defined as a series of payments of a fixed amount
for a specific number of periods. Thus, $100 a year for 10 years is an annuity,
but $100 in Year 1, $200 in Year 2, and $400 in Years 3 through 10 does not
constitute an annuity. However, the entire series does contain an annuity. Is
this statement true or false? And Why? (Points
1)
(b)Your parents will
retire in 18 years. They currently have $250,000, and they think they will need
$1 million at retirement. What annual interest rate must they earn to reach
their goal, assuming they don’t save any additional funds? (Points 1)

BOOKS:

Brigham.FEugene&EhrhardtC.Michael, (2014).Financialmanagementtheoryandpractice 14e,SouthWesternCENGAGElearning,ISBN13:978-1-111-
97221-9

Financial Management by C. Paramasivan and T. Subramanian,
Publisher: New Age International Publisher, India,.5pt;’=””>.5pt;’=”” lfo2;=”” l0=””>Financial
Management: Theory and Practice, By MICHAEL C. EHRHARDT and EUGENE F. BRIGHAM,
13th edition, SOUTH-WESTERN CENGAGAE LEARNING.