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ASSIGNMENT
DRIVE FALL 2016
PROGRAM MBADS/ MBAFLEX/ MBAHCSN3/ MBAN2/ PGDBAN2
SUBJECT CODE & NAME MB0045 - FINANCIALMANAGEMENT
SEMESTER 2
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 questionis followedbyevaluationscheme.
Q1 Explainthe differencesbetweenwealthmaximizationandprofit maximization.
Explainrelation betweenfinance andaccounting
Differencesbetweenwealthmaximizationandprofitmaximization
Explanationof relationbetweenfinance andaccounting
Answer:Wealthmaximisationvs. profit maximisation
 Wealthmaximisationisbasedoncashflow.Itis

2. Q2 Explainabout the doublingperiodand future value.Solve the belowgivenproblem:
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?
Explanationof doublingperiod
Solvingthe problem
Explanationof future value
Answer:Doubling period
Doubling period is the period which makes the investment as "Doubled", that is the amount invested
fetches100% return.
1. Rule of 72
The initial amountof investmentgetsDoubledwithinwhich72/I
Where,I= InterestRate of the investment.
2. Rule of 69
The amount method is found to crude logic in determining the doubling period which has its own
limitations.The rule of 69 eliminatesthe bottleneck
Q3 Write short noteson:
a) Irredeemable bonds
Answer:Irredeemable bondsor perpetual bonds
Bonds which will never mature are known as irredeemable or perpetual bonds. Indian Companies Act
restricts the issue of such bonds and therefore, these are very rarely issued by corporates these days. In
case of these bonds, the terminal value or maturity value does not exist because they are not
redeemable.The face
b) Zero couponbonds
Zero coupon bonds
In India, zero coupon bonds are alternatively known as Deep Discount Bonds (DDBs). These bonds
became very popular in India for over a decade because of issuance of such bonds at regular intervals by
IDBI and ICICI. Zero coupon bonds have no coupon rate, that is, there is no interest to be paid out.
Instead,these bondsare issuedata

3. c) Valuationof Shares
Valuationof Shares
A company’ssharescanbe categorisedinto:
 Ordinaryor equityshares
 Preference shares
The returns the shareholders receive in return are called dividends. Preference shareholders get a
preferential treatment as to the payment of dividend and repayment of capital in the event of winding
up.Such holders are
Q4 Explainthe factors affecting Capital Structure. Solve the belowgivenproblem:
Given below are two firms, A and B, which are identical in all aspects except the degree of leverage,
employedbythem. What isthe average cost of capital of both firms?
Detailsof Firms A and B
Firm A Firm B
Netoperating income EBIT Rs. 1, 00, 000 Rs. 1, 00, 000
Intereston debenturesI Nil Rs.25,000
Equity earningsE Rs.1,00,000 Rs.75,000
Cost of equityKe 15% 15%
Cost of debenturesKd 10% 10%
Market value of equityS = E/Ke Rs. 6, 66, 667 Rs.5,00,000
Market value of debt B Nil Rs.2,50,000
Total value of firmV Rs. 6, 66, 667 Rs,7,50,000
Explanationof factorsaffectingcapital structure
Solutionforthe problem
Interpretation
Answer:Factors AffectingCapital Structure
Leverage: The use of sources of funds that have a fixed cost attached to them, such as preference
shares, loans from banks and financial institutions, and debentures in the capital structure, is known as
“trading on equity” or “financial leverage”. If the assets financed by debt yield a return greater than the
cost of the debt, the EPS will increase without an increase in the owner’s investment. Similarly, the EPS
will also increase if preference share capital is used to acquire assets. But the leverage impact is felt
more in case of debtbecause of the followingreasons:
Q5 Explainthe capital Budgetingprocess and its appraisals
Solve the belowgivenproblem:
Given below are the details on the cash flows of two projects A and B. Compute payback period for A
and B.
Cash flowsof A and B
Year Project A cash flows(Rs.) Project B cash flows(Rs.)
0 (4,00,000) (5,00,000)

4. 1 2,00,000 1,00,000
2 1,75,000 2,00,000
3 25,000 3,00,000
4 2,00,000 4,00,000
5 1,50,000 2,00,000
Explanation ofcapital budgetingprocess and its appraisals.
Solutionfor the problem
Answer:Capital budgetingprocess
After the screening of proposals for potential involvement is over, the company should take up the
followingaspectsof capital budgetingprocess:
 A proposal should be commercially viable. The following aspects are examined to ascertain the
commercial viabilityof anyinvestment proposal:
 Market for the product
 Availabilityof rawmaterials
 Sourcesof raw materials
Q6 Explainthe conceptsof working capital. Explain the determinants of working capital.
Explanationof conceptsof workingcapital
Explanationof determinantsof workingcapital
Answer:Concepts ofWorking Capital
Gross working capital: Gross working capital refers to the amounts invested in various components of
current assets. It basically refers to the current assets. This concept has the following practical
relevance:
 Managementof currentassetsis the crucial aspectof workingcapital management
 Gross workingcapital helpsinthe fixationof variousareasof financial responsibility
 Gross workingcapital isan importantcomponentof operatingcapital.

Dear students get fully solved assignments
Send your semester & Specialization name to our mail id :
“ help.mbaassignments@gmail.com ”
or
Call us at : 08263069601
(Prefer mailing. Call in emergency )