MBA Semester 1 Management Process and Organization Behavior Communication Strategy Functions

Fall 2014
MBA Semester 1
MB0038 – Management Process and Organization Behavior
Q1. Define the terms ‘strategy’. Explain the following:
a) Corporate strategy
b) Business strategy
c) Functional strategy
Strategy: each organization makes their vision then they have to see how that vision can be executed. Here is where
strategy comes in. Strategy means the impressive plan of action designed to achieve a long-term or overall aim.
Strategy in organizations can be divided into three:
 Corporate strategy
 Business strategy
 Completed Answers available on www.smuhelp.com
Q2. Define the term ‘management’. Explain the Behavioural science theory and Systems theory.
Definition of management:
According to F.W. Taylor, “Management is an art of knowing what to do, when to do, and see that it is done in the
best and cheapest way”.
The other definition based on Harold Koontz, management defined as ‘the process of designing and maintaining an
environment in which the individuals working in groups efficiently employ resources and accomplish the selected
goals of self and the organisation’.
Completed Answers available on www.smuhelp.com
Q3. Give the definition and importance of planning in an organisation and explain the steps in planning.
Definition of planning: Planning is the process of setting goals, developing strategies, and outlining tasks and
schedules to accomplish the goals. Planning can be defined as a basic management function which enables one to
select the purpose of the business, and how the resources should be mustered to achieve that purpose to include
using the available resources optimally to do that.
Q4. Define the term Controlling? What are the prerequisites of effective control?
Controlling can be defined as measuring and correcting of performance to achieve the organisational goals.
According to Brech, “Controlling is a systematic exercise which is called as a process of checking actual
performance against the standards or plans with a view to ensure adequate progress and also recording such
experience as is gained as a contribution to possible future needs.” According to Donnell, “Just as a navigator
Q5. What are ‘attitudes’? Explain the components and functions of attitude.
An attitude is a settled way of thinking or feeling about something. Attitudes are also known as "frames of
reference." They provide the background against which facts and events are viewed. It becomes necessary to know
the attitudes of members of an organisation because they have to perceive specific aspects like pay, hours of work,

promotion, etc. of their work life in the wider context of their generalised attitudes. Attitudes are also known as
Q6. Define leadership. Write a brief note on ‘Contingency Theories of Leadership’.
Warren Bennis' definition of leadership is focused much more on the individual capability of the leader: "Leadership
is a function of knowing yourself, having a vision that is well communicated, building trust among colleagues, and
taking effective action to realise your own leadership potential."
FALL 2014
MBA SEMESTER 1
MB0039 –Business Communication
Q1. What are the various types of communication? Describe the clas sification of non-verbal communication.
The various types of communication are:
 Intrapersonal communication
 Interpersonal communication
 Group communication
 Mass communication
Intrapersonal communication
Communication within one person, it could be talking to yourself, reading something etc. In this type of
communication the source and the recipient of information are limited to one person. Intrapersonal communication
is self-communication. This is the mos t basic form of communication. It occurs for clarifying ideas or for analysing
Q2. Describe any situation in your own experience where the communication failed because the listening was
faulty. Identify the barrier to listening in this situation.
My experience: Situation where Communication was a failure to me: As an Associate Manager, I was a sender for a
communication and intended to be received by my executives. I have sent the following communication to my
Technical lead through a phone call: “Coming Second Saturday to complete our targets for the month a review
meeting is arranged and please inform to all executive and all should attend. If any executive is not able to attend
should find out the contents of the meeting from their peers without fail”. The same time my other mobile starting
Q3. Describe any 5 types of presentations with examples and their target audience.
Presentations may be of different types and purposes depending on the type of audience. Presentations can be made
for orientation, for briefing or for training.
5 types of presentations:
I. Briefing and Information
II. Orientation
III. Training
IV. Reporting Research Findings
V. Reporting Progress

Q4. Explain the different types of meetings.
According to Deborah Tannen, “A meeting is any focused conversation that has a specific agenda, especially but not
only if it has been set up in advance.” This definition implies that meetings are not aimless discussions, but they
require careful planning and revolve around a specific topic that is decided in advance. Therefore, while meetings
may be more or less formal in the way they are conducted, they need to be planned, irrespective of the nature of the
Q5. You are going to face a job interview for the post of Manager-operations. Which aspects you will keep in
mind while facing the interview?
Aspects to be kept in mind during job interview are as follows:
Opening formalities – Since it is important to create a good first impression, the way you greet and introduce
yourself is important. Using the name of the interviewer correctly, giving a firm handshake, waiting till you are
asked to be seated and sitting with an erect posture are common courtesies that should be observed to project a

Q6. Write short notes on:
a) Internet
b) Intranet
a) Internet – The Internet, sometimes called the "Information Superhighway", is a worldwide, publicly accessible
series of interconnected computer networks that transmit data by packet switching, using the standard Internet
Protocol (IP). It is a "network of networks" that consists of millions of smaller domestic, academic, business, and
government networks, which together carry various information and services, such as electronic mail, online chat,
FALL 2014
MBA SEMESTER 1
MB0039 –Business Communication
Q1. What are the various types of communication? Describe the classification of non-verbal communication.
The various types of communication are:
Intrapersonal communication
Interpersonal communication
Interpersonal communication usually involves direct face-to-face contact
Q2. Describe any situation in your own experience where the communication failed because the listening was
faulty. Identify the barrier to listening in this situation.
My experience: Situation where Communication was a failure to me: As an Associate Manager, I was a sender for a
communication and intended to be received by my executives. I have sent the following communication to my
Technical lead through a phone call: “Coming Second Saturday to complete our targets for the month a review
meeting is arranged and please inform to all executive and all should attend. If any executive is not able to attend
should find out the contents of the meeting from their peers without fail”. The same time my other mobile starting
ringing and Technical lead have not lis tened the word “Second”, this way my communication went wrong and out of
Q3. Describe any 5 types of presentations with examples and their target audience.

Presentations come in nearly as many forms as there are life situations. In the business world, there are sales
presentations, informational and motivational presentations, first encounters, interviews, briefings, status reports,
image-building "dog and pony shows," and, of course, the inevitable training sessions. Presentations may be of
different types and purposes depending on the type of audience. Presentations can be made for orientation, for
Q4. Explain the different types of meetings.
A meeting is any focused conversation that has a specific agenda, especially but not only if it has been set up in
advance. This implies that meetings are not aimless discussions, but they require careful planning and revolve
around a specific topic that is decided in advance. Therefore, while meetings may be more or less formal in the way
they are conducted, they need to be planned, irrespective of the nature of the meeting.
Q5. You are going to face a job interview for the post of Manager-operations. Which aspects you will keep in
mind while facing the interview?
Listening is also a skill that is needed by both job interviewers and interviewees, in order to make the interview a
success. Ideally, listening should take up half the interviewing time, although this rarely happens in reality, since one
person or the other fails to listen for some reason or the other. Aspects to be kept in mind during job interview are as
a) Internet
b) Intranet
a) Internet – The Internet is a global system of interconnected computer networks that use the standard Internet
protocol suite (TCP/IP) to link several billion devices worldwide. It is a network of networks that consists of
millions of private, public, academic, business, and government networks, of local to global scope, that are linked by
a broad array of electronic, wireless, and optical networking technologies. The Internet carries an extensive range of
information resources and services, such as the inter-linked hypertext documents and applications of the World
FALL 2014
MBA SEMESTER I
MB0040 STATISTICS FOR MANAGEMENT
Q1. Statistics plays a vital role in almost every facet of human life. Describe the functions of Statistics.
Explain the applications of statistics.
Statistics plays an important role in almost every facet of human life. In business context, managers are required to
justify decisions on the basis of data. They need statistical models to support these decisions. Statistical skills enable
managers to collect, analyse and interpret data in order to take suitable decisions.
Statistics is used for various purposes. It is used to simplify mass data and to make comparis ons easier. It is also
Q2. a) Explain the approaches to define probability.
b) State the addition and multiplication rules of probability giving an example of each case.
a) Explanation of the approaches to define probability
There are four approaches to probability. They are:
i) Classical / Mathematical / Priori approach

ii) Statistical / Relative frequency / Empirical / Posteriori approach
iii) Subjective approach
iv) Axiomatic approach
Classical / Mathematical / Priori approach Under this approach the probability of an event is known before
Q3. a) The procedure of testing hypothesis requires a researcher to adopt several steps. Describe in brief all
such steps.
b) Explain the components of time series.
a) The hypothesis testing procedure:
Step 1: State null hypothesis (Ho) and altemate hypothesis (H1)
Step 2: State the level of significance. This gives you the tabulated normal/”t” – value
Q4. a) What is a Chi-square test? Point out its applications. Under what conditions is this test applicable?
b) Discuss the types of measurement scales with examples.
a) A Chi-Square tests allow us to do a lot more than just test for the quality of several proportions. If we classify a
population into several categories with respect to two attributes, we can then use a Chi-Square test to determine
whether the two attributes are independent of each other. So, Chi-Square tests can be applied on a contingency table.
Q5. Business forecasting acquires an important place in every field of the economy. Explain the objectives
and theories of Business forecasting.
Business forecasting refers to the analysis of past and present economic conditions with the object of drawing
inferences about probable future business conditions. The process of making definite estimates of future course of
events is referred to as forecasting and the figure or statements obtained from the process is known as ‘forecast’;
Q6. a) What is analysis of variance? What are the assumptions of this technique?
b) Three samples below have been obtained from normal populations with equal variances.
Test the hypothesis at 5% level that the population means are equal.
A B C
8 7 12
10 5 9
7 10 13
14 9 12
11 9 14
[The table value of F at 5% level of significance for V1 = 2 and V2 = 12 is 3.88]
Answer:
a. Analysis of Variance (ANOVA) is a collection of statistical models used to analyze the differences between group
means and their associated procedures.
In statistical terms, the difference between two statistical data is known as variance. When two data are compared
for any practical purpose, their difference is studied through the techniques of ANOVA. With the analysis of
variance technique, we can test the null hypothesis and the alternative hypothesis.

FALL 2014
MBA SEMESTER 1
MB0041 - FINANCIAL AND MANAGEMENT ACCOUNTING
Q1. Analyze the following transaction under traditional approach
18.1.2011 Received a cheque from a customer, Sanjay at 5 p.m. Rs.20,000
19.1.2011 Paid Ramu by cheque Rs.1,50,000
20.1.2011 Paid salary Rs. 30,000
20.1.2011 Paid rent by cheque Rs. 8,000
21.1.2011 Goods withdrawn for personal use Rs. 5,000
25.1.2011 Paid an advance to suppliers of goods Rs. 1,00,000
26.1.2011 Received an advance from customers Rs. 3,00,000
31.1.2011 Paid interest on loan Rs. 5,000
31.1.2011 Paid instalment of loan Rs. 25,000
31.1.2011 Interest allowed by bank Rs. 8,000
Solutions:
Sl.
No.
Accounts
Involved
Nature of
Account
Affects Debit/
Credit
Cash a/c
Sanjay a/c
Real
Personal
Cash (cheque) is coming in
Sanjay is the giver
Debit
Credit
Q2. The trial balance of Nilgiris Co Ltd., as taken on 31st December, 2002 did not tally and the difference was
carried to suspense account. The following errors were detected subsequently.
a) Sales book total for November was under cast by Rs. 1200.
b) Purchase of new equipment costing Rs. 9475 has been posted to Purchases a/c.
c) Discount received Rs.1250 and discount allowed Rs. 850 in September 2002 have been posted to wrong
sides of discount account.
d) A cheque received from Mr. Longford for Rs. 1500 for goods sold to him on credit earlier, though entered
correctly in the cash book has been posted in his account as Rs. 1050.
e) Stocks worth Rs. 255 taken for use by Mr Dayananda, the Managing Director, have been entered in sales
day book.
f) While carrying forward, the total in Returns Inwards Book has been taken as Rs. 674 instead of Rs. 647.
g) An amount paid to cashier, Mr. Ramachandra, Rs. 775 as salary for the month of November has been
debited to his personal account as Rs. 757.
Pass journal entries and draw up the suspense account.
Solution:
Nilgiris Co Ltd.
Date Particulars LF Debit Rs. Credit Rs.
31-12-2002 Suspense account Dr
To Sales account
(Being under casting of sales bookrectified)
1,200
1,200
Q3. From the given trial balance draft an Adjusted Trial Balance.
Trial Balance as on 31.03.2011
Debit balances Rs. Credit balances Rs.
Furniture and Fittings 10000 Bank Over Draft 16000

Buildings 500000 Capital Account 400000
Sales Returns 1000 Purchase Returns 4000
Bad Debts 2000 Sundry Creditors 30000
Sundry Debtors 25000 Commission 5000
Purchases 90000 Sales 235000
Advertising 20000
Cash 10000
Taxes and Insurance 5000
General Expenses 7000
Salaries 20000
TOTAL 690000 TOTAL 690000
Adjustments:
1. Charge depreciation at 10% on Buildings and Furniture and fittings.
2. Write off further bad debts 1000
3. Taxes and Insurance prepaid 2000
4. Outstanding salaries 5000
5. Commission received in advance1000
Answer:
Ledger accounts:
Furniture and fittings a/c
Dr. Cr.
Particulars Rs. Particulars Rs.
To bal b/d 10000 By Depreciation 1000
By bal c/d 9000
Total 10000 Total 10000
To bal b/d 9000
Q4. Compute trend ratios and comment on the financial performance of Infosys
Technologies Ltd. from the following extract of its income statements of five years.
(in Rs. Crore)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Revenue 27,501 22,742 21,693 16,692 13,893
Operating Profit
8,968 7,861 7,195 5,238 4,391
(PBIDT)
PAT from
ordinary
activities
6,835 6,218 5,988 4,659 3,856
(Source: Infosys Technologies Ltd. – Annual Report)
Solution: Infosys Technologies Ltd.
Trend Analysis
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Revenue 27,501 22,742 21,693 16,692 13,893
Operating Profit (PBIDT) 8,968 7,861 7,195 5,238 4,391
PAT from ordinary activities 6,835 6,218 5,988 4,659 3,856

Q5. Give the meaning of cash flow analysis and put down the objectives of cash flow analysis. Explain the
preparation of cash flow statement.
Meaning of Cash Flow Analysis
Cash flow analysis is an important tool of financial analysis. It is the process of understanding the change in posit ion
with respect to cash in the current year and the reasons responsible for such a change. Incidentally, the analysis also
helps us to understand whether the investing and financing decision taken by the company during the year are
Q6. Write the assumptions of marginal costing. Differentiate between absorption costing and marginal costing.
Marginal costing is based on the following assumptions:
1. Segregation of cost into fixed and variable
The whole principle of marginal costing is based on the idea that some costs vary with production while some costs
don’t. Therefore, it is assumed that a clear bifurcation between fixed and variable costs is possible. Even if some
FALL 2014
MBA SEMESTER 1
MB0042- MANAGERIAL ECONOMICS
Q1. Inflation is a global Phenomenon which is associated with high price causes decline in the value for
money. It exists when the amount of money in the country is in excess of the physical volume of goods and
services. Explain the reasons for this monetary phenomenon.
Inflation: Inflation is defined as a sustained increase in the general level of prices for goods and services. It is
measured as an annual percentage increase. Inflation is the percentage change in the value of the Wholesale Price
Index (WPI) on a year-on year basis. It refers to the average rise in the general level of prices and fall in the value o f
money. Inflation is an upward movement in the average level of prices. The opposite of inflation is deflation, a
Q2. Monopoly is the situation there exists a single control over the market producing a commodity having no
substitutes with no possibilities for anyone to enter the industry to compete. In that situation, they will not
charge a uniform price for all the customers in the market and also the pricing policy followed in that
situation.
Monopoly: Monopoly means existence of a single seller in the market. Monopoly is that market form in which a
single producer controls the whole supply of a single commodity which has no close substitutes. Monopoly may be
defined, as a condition of production in which a single firm has the power to fix the price of the commodity or the
output of the commodity. It is a situation there exists a single control over the market produc ing a commodity
Q3. Define monopolistic competition and explain its characteristics.
Monopolistic Competition is a market structure in which a large number of small s ellers sell differentiated products
which are close, but not perfect substitutes for one another. Under this market, the products produced and sold are
different, but they are close substitutes for one another. This leads to competition among different sellers.

Q4. When should a firm in perfectly competitive market shut down its operation?
At OP4 price, the firm will neither cover AFC nor AVC and hence it has to wind up its operations. It is regarded as
shut-down point. A competitive firm will reach equilibrium position at a point where short run MR equals MC. At
this point, equilibrium output and price is determined.
Q5. Discuss the practical application of Price elasticity and Income elasticity of demand.
Practical applications of price elasticity are as follows:
 Production planning – It helps a producer to decide about the volume of production. If the demand for his
products is inelastic, specific quantities can be produced while he has to produce different quantities, if the
demand is elastic.
Q6. Discuss the scope of managerial economics.
Managerial Economics: Managerial economics is a science that deals with the application of various economic
theories, principles, concepts and techniques to business management in order to solve busin ess and management
problems. It deals with the practical application of economic theory and methodology in decision -making problems
faced by private, public and non-profit making organisations.
FALL 2014
MBA SEMESTER 1
MB0043 –Human Resource Management
Q1. What do you mean by Human Resource Management? Describe the functions of Human Resource
Management.
Human Resource Management involves all management decisions and practices that directly affect or influence the
people or Human resources who work for the organization.
The concept of human resources entails:
Q2. Discuss the elements of a Career Planning Programme. Explain some of the benefits of a Career Planning
program to an organization
There are four distinct elements of career planning programme:
 Individual assessment and need analysis
 Organizational assessment and opportunity analysis
 Need – opportunity alignment

 Career counselling
Q3. What do you mean by HRIS? Explain the components of HRIS. Describe the different applications of
HRIS in Human Resource Management.
HRIS is a key management tool which collects, maintains, analyses and reports information on people and jobs. It is
a system because it integrates all the relevant data, which otherwise might have been lying in a fragmented and
scattered way at various points in the larger system, converts this data into meaningful conclusions or information
Q4. Discuss the objectives of Discipline. Explain the Action –penalties of Discipline
Discipline is a course of actions leading to certain goal or ideal. A disciplined person is one that has estab lished a
goal and is willing to achieve that goal at the expense of his or her individuality. Discipline is employee self -control
Q5. Suppose you have joined as an HR and you have been assigned a task to carry out the grievance handling
procedure in your organization. What according to you are the causes of Grievance? Describe in detail the
Grievance handling procedure
Following are the Causes of Grievance according to me as HR: Grievances may occur for a number of reasons:
Work environment: Poor physical conditions of workplace, tight production norms, defective tools and Completed
Answers available on www.smuhelp.com

Q6. Write a short note on the following :
a)Index /Trend Analysis
b)Delphi Technique
a) Index /Trend Analysis:
Trend analysis in Human Resource is analysing the current practises of HR according to industry standards. There
could be various trends with respect to number of practises of Human Resource. For instance the company can be
interested to do trend analysis of compensation & benefits in order to have an edge over other orga nizations or rather
to be competitive in industry. Trend analysis can be used for forecasting overall Organisation, Aub -units, or Indirect
Fall 2014
MBA Semester 2
MB0044 - PRODUCTION AND OPERATION MANAGEMENT
Q1. People's productivity key to Indian manufacturing competitiveness: Boston Consulting Group Namrata
Singh, TNN | Mar 14, 2013, 09.34PM IST
MUMBAI: People productivity is the key to Indian manufacturing competitiveness, says a report by the
Boston Consulting Group (BCG).
In most global people productivity surveys, not only does people productivity of Indian manufacturing sector
lags developed nations such as US and Japan, but also lags in most manufacturing sectors to China. While
earlier, many explained this to differences in technology, level of automation, etc., the report suggests such
differences are not only rapidly shrinking, but they do not fully explain the significant gaps in productivity
that exists.

Skill gap and engagement gap are the two critical factors that explain lower people productivity. Under gap
in skill, Indian manufacturing sector faces significant challenges in attracting quality manpower that is 'right'
skilled prior to entering the workforce. In addition, continuous skill development efforts are required for the
work force, throughout their careers, as processes and technologies evolve.
On the other hand, many manufacturing studies have indicated a direct correlation between workforce
engagement and productivity. For most Indian manufacturing companies, the level of engagement and
alignment with corporate vision, amongst their union work force and contract labour is extremely low, when
compared to their global peers.
"An improvement in people productivity can be beneficial across all levels of an organization. At the
employee level, it results in higher wages and enhanced job satisfaction. At company level, the direct
correlation between profits and resource productivity has been established through research multiple times.
And at industry level, increased people productivity leads to improved skills and better working
environment—thus paving the way for higher investments and faster economic growth. Therefore, it is
critical for the Indian manufacturing sector to work toward enhancing people productivity to achieve the
goals it has set for itself," the report says.
The subject gains importance in the backdrop of a slowdown in western economic countries and China, as
well as cost increases in China. Indian manufacturing sector stands at the cusp of a tremendous opportuni ty.
After reading the case study answer the following questions:
a. What do you think are the reasons for low people productivity in India?
b. Compare and analyze India’s producti vity with respect to other countries?
c. What suggestions do you offer to improve the situation?
a) Skill gap and engagement gap are the two critical factors that explain lower people productivity. Under gap in
skill, Indian manufacturing sector faces significant challenges in attracting quality manpower that is 'right' skilled
prior to entering the workforce. In addition, continuous skill development efforts are required for the work force,
Q2. List the elements of operations strategy. Explain any TWO elements of operations strategy.
The six elements of operations strategy are:
1) Designing of the production system
2) Facilities for production and services
3) Product or service design and development
Q3. What are the basic capacity (production) options a company can choose?
Capacity options
Under this option, the company decides to vary the production output by varying the time, workforce, or by
outsourcing. A company can choose from the following basic capacity (production) options:
a) Changing inventory levels: Under this option the inventory is increased during periods of low demand to meet
high demand in future periods. If this strategy is selected, costs associated with storage, insurance, han dling,
a. Qualitative methods of forecasting
b. Taguchi’s quality loss function
a. Qualitative methods of forecasting

The different qualitative methods of forecasting are as follows:
 Market surveys
 Nominal group testing
 Historical analysis
 Jury of executive opinion
 Life cycle analysis
 Delphi method
Market surveys
Conducting surveys among the prospective buyers or users is a very old method of forecasting. Here, a questionnaire
Q5. Describe the process of value analysis.
Process of Value Analysis
The process of value analysis can be divided into the following four steps:
1. Data gathering
2. Analysis and valuation of functions
3. Idea generation and evaluation of substitutes
4. Implementation and regulation
Step 1: Data gathering
All relevant information concerned with the product and the parts that go to make it are collected. The concerns at
Q6. Write short notes on
a. Tools for implementation of operations
b. Fixed position layout
a. Tools for implementation of operations
All functions in the organisation including administration, finance, materials, purchase, marketing, production,
logistics, communication, and others can be considered as operations. The reason is that all of them use some inputs
like materials or information either on a person-to-person basis or through a flow line. They are required to use some
Fall 2014
MBA Semester 2
MB0045: FINANCIAL MANAGEMENT
Q1. Explain the liquidity decisions and its important elements. Write complete information on dividend
decisions.
Liquidity decisions
The liquidity decision is concerned with the management of the current assets, which is a pre-requisite to long-term
success of any business firm.This is also called as working capital decision. The main objective of the current assets

management is the trade-off between profitability and liquidity, and there is a conflict between these two concepts.
If a firm does
Q2. 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?
Doubling period
A very common question arising in the minds of an investor is “how long will it take for the amount invested to
double for a given rate of interest”. There are 2 ways of answering this question:
1. One way is to answer it by a rule known as ‘rule of 72’. This rule states that the period within which the amount
doubles is obtained by dividing 72 by the rate of interest. Though it is a crude way of calculating, this rule is
a) Operating Leverage
b) Financial leverage
c) Combined leverage
a) Operating Leverage
Operating leverage arises due to the presence of fixed operating expenses in the firm’s income flows. It has a close
relationship to business risk. Operating leverage affects business risk factors, which can be viewed as the uncertainty
inherent in estimates of future operating income.
Q4. 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
Factors Affecting Capital Structure

Capital structure should be planned at the time a company is promoted. The initial capital structure should be
designed very carefully. The management of the company should set a target capital structure, and the subsequent
financing decisions should be made with a view to achieve the target capital structure.
Q5. 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.
Year Cash Inflow
1 40000
2 50000
3 15000
4 30000
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.
Sources of risk
The five different sources of risk are:
 Project-specific risk
 Competitive or competition risk
 Industry-specific risk
 International risk
 Market risk
Project-specific risk
Project-specific risk could be traced to something quite specific to the project. Managerial deficiencies or error in
estimation of cash flows or discount rate may lead to a situation of actual cash flows realised being less than the
Q6. Explain the objectives of Cash Management. Write about the Baumol model with their assumptions.
Objectives of Cash Management
The major objectives of cash management in a firm are:
 Meeting payments schedule
 Minimizing funds held in the form of cash balances
Meeting payments schedule
In the normal course of functioning, a firm has to make various payments by cash to its employees, suppliers and
infrastructure bills. Firms will also receive cash through sales of its products and collection of receivables. Both of
these do not occur simultaneously.

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MBA Semester 1 Management Process and Organization Behavior Communication Strategy Functions