MB0045 – Financial Management - November Drive 2010

November 2010 Drive

Masters of Business Administration- MBA Semester 2

MB0045 – Financial Management - 4 Credits

(Book ID: B1134)

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

1. A company has issued a bond with face value of Rs.1000 , with 10% pa coupon rate payable annually and a tenure of 10 years to maturity. At the end of 10 years, the bond will be redeemed at a premium of 10% to face value .

a) At what price would you buy the bond if the prevailing interest rate is 12% pa on investments of similar risk?

b) What is the YTM of the bond if the prevailing price is same as calculated in a) above.

c) What is the current yield of the bond at the given price?

d) If the coupon rate is paid semi-annually, at what price would you buy the bond at the 12% pa prevailing interest rate?

2. Given the following details for a company:

Net operating income 200,000

Overall cost of capital 20%

Value of the firm 1000,000

Cost of debt 15%

Interest 75,000

Market value of debt 500,000

Market value of equity 500,000

a) Given the assumptions of the net operating income approach, what will be the cost of equity, if the market value of debt is 200,000.

b) Given the assumptions of the net income approach, what will be the overall cost of capital with Market value of debt of 200,000.

3. Given the following projects , rank them on the basis of NPV, MIRR and Payback period if the cost of capital is 10% pa.

Project A Project B Project C

Year Cash flow Year Cash flow Year Cash flow

0 -10000 0 -10000 0 -10000

1 5000 1 5000 1 5000

2 7000 2 8000 2 8500

3 8000 3 6500 3 9000

4 15000 4 11000 4 12000 November 2010 Drive

4. Given the following information, calculate Degree of operating leverage, Degree of Financial leverage, Degree of total leverage.

Quantity sold 100,000 units

Variable cost per unit 200

Selling price 800

Fixed cost 10,000

Number of equity shares 50,000

Debt 1000,000 @ 15%pa

Preference shares 10,000 of Rs.100 each @ 10%

Tax rate 30%

5. Explain the following concepts :

a) Operating cycle

b) Total inventory cost

c) Price earnings ratio

d) Financial risk

6. Explain the Net operating income approach to capital structure theories.

November 2010 Drive

Masters of Business Administration- MBA Semester 2

MB0045 – Financial Management - 4 Credits

(Book ID: B1134)

Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

1. Given the following information, prepare a cash budget:

Month

Sales

Purchases

Wages

Production overheads

Selling overheads

Jan

100000

40000

10000

6000

6000

Feb

120000

45000

15000

6500

6500

March

150000

35000

18000

7000

6600

April

160000

30000

20000

7700

6800

May

175000

25000

22000

8000

6200

June

200000

20000

24000

8500

6300

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