**ASSIGNMENT**

**DRIVE SPRING 2015**

**PROGRAM MBA/ MBADS/ MBAFLEX/ MBAHCSN3/ PGDBAN2**

**SEMESTER II**

**SUBJECT CODE &**

**NAME**

**MB0045 FINANCIAL MANAGEMENT**

**BK ID B1628**

**CREDITS 4**

**MARKS 60**

.

**Q.No Questions Marks Total**

**Marks**

1 *Explain the liquidity decisions and its important elements. Write complete information on dividend decisions.*

2 *Explain about the doubling period and present value. *S*olve 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?*

3 *Write short notes on:*

*a) Operating Leverage*

*b) Financial leverage*

c) *Combined leverage*

4 *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 ofcapital 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*

5 *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*

6 *Explain the objectives of Cash Management. Write about the Baumol model with their assumptions.*