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ASSIGNMENT
DRIVE WINETR SPRING 2014
PROGRAM BBA
SUBJECT CODE & NAME BBA 502 - FINANCIAL MANAGEMENT
SEMESTER v
BK ID B1850
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.
1. Assume you are promoted to Finance Manager of a company. Describe the three important
components of the master budget in detail with an example
Answer : A master budget is exactly what it sounds like -- one main budget that is made up of
multiple smaller budgets. For instance, a city government may group its general fund, enterprise
fund and internal services fund -- each with its own expenses and revenue sources -- under a single,
all-encompassing operating budget. Many organizations rely on master budgets, from businesses to
municipalities to individual households.
Cash
2 Explain the concept of time value of money. Suppose Narsimham pays Rs 10,000 at the end of
each year for 5 years into a public provident fund. The interest rate being 12% per year. What is
the present value of the series of Rs 10,000 paid each year for 5 years?
Answer : Time Value of Money (TVM) is an important concept in financial management. It can be
used to compare investment alternatives and to solve problems involving loans, mortgages, leases,
savings, and annuities.
TVM is based on the concept that a dollar that you have today is worth more than the promise or
expectation that you will receive a dollar in the future. Money that you hold today is worth more
because you can invest it and earn interest.
2. 3 Assume that project ‘X’ costs Rs 2,500 now and is expected to generate year end cash inflows of
Rs 900, Rs 800, Rs 700, Rs 600 and Rs 500 in years 1 to 5. The opportunity cost of the capital is 10%.
Calculate the Net present value. Discuss capital rationing.
Answer : Solution :
Capital rationing is a strategy used by organizations attempting to limit the costs of their own
investments. Typically, a company engaging in capital rationing has made unsuccessful investments
of capital in the recent past and would like to raise the return on those investments prior to
engaging in new business.
4 Discuss the financing arrangements for the Metro project in Delhi. Critically evaluate the
arrangements in terms of costs and risks.
Answer : The Union Budget outlay for the Delhi Metro for the 2012-13 was Rs 2,200 crore. The Phase
III Metro — with seven corridors covering nearly 140 km of the city — will be the largest expansion
project by the DMRC so far.
A major highlight of the Metro expansion is that it connects two arterial roads — the Ring Road and
the Outer Ring Road. Phase III will also extend to the satellite cities of Faridabad and Bahadurgarh.
5 Assume that you are the financial manager of a Pvt ltd company. What would be your decision
on dividend if you are planning to expand the business? Explain the constraints that a company
faces on paying dividends.
Answer : Some of the most important determinants of dividend policy are: (i) Type of Industry (ii)
Age of Corporation (iii) Extent of share distribution (iv) Need for additional Capital (v) Business Cycles
(vi) Changes in Government Policies (vii) Trends of profits (vii) Trends of profits (viii) Taxation policy
(ix) Future Requirements and (x) Cash Balance.
6 Calculate the EOQ, if the total requirement is 1200 units, ordering cost per order is Rs 37.50 and
carrying cost per unit is Rs 1. Explain various inventory management techniques.
Answer : Economic Order Quantity (EOQ) Formula
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