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ASSIGNMENT
DRIVE
PROGRAM
SEMESTER
SUBJECT CODE & NAME
BOOK ID
CREDITS
MARKS

SUMMER 2016
MASTER OF BUSINESS ADMINISTRATION (MBA)
II
MB0045 FINANCIAL MANAGEMENT
B1628
4
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.
Q.
Questions
Marks Total
No
Marks
1. Explain the differences between wealth maximization and profit maximization. Explain
relation between finance and accounting
Differences between wealth maximization and profit maximization
5
10
Explanation of relation between finance and accounting
5
2. Explain about the doubling period and future value. Solve the below given problem:
Under the ABC Banks 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.

4.

Explanation of doubling period

Solving the problem
Explanation of future value

2
3
5

10

Write short notes on:

a) Irredeemable bonds
b) Zero coupon bonds
c) Valuation of Shares
Explanation of irredeemable bonds
Explanation of zero coupon bonds
Explanation on valuation of shares

3
3
4

10

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
Net operating income EBIT
Interest on debentures I

Firm B

Rs. 1, 00, 000

Rs. 1, 00, 000

Nil

Rs. 25, 000

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Equity earnings E

Rs. 1, 00, 000

Rs. 75, 000

Cost of equity Ke

15%

15%

Cost of debentures Kd

10%

10%

Rs. 6, 66, 667

Rs. 5,00, 000

Nil

Rs. 2, 50, 000

Total value of firm V

Rs. 6, 66, 667
Explanation of factors affecting capital structure
Solution for the problem
Interpretation
Explain the capital Budgeting process and its appraisals
Solve the below given problem:

Rs. 7, 50, 000

6
3
1

Market value of equity S = E/Ke

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Market value of debt B

5.

10

Given below are the details on the cash flows of two projects A and B. Compute pay-back
period for A and B.

Cash flows of A and B

Year
0
1
2
3
4
5

Project A cash flows (Rs.)

(4,00,000)
2,00,000
1,75,000
25,000
2,00,000
1,50,000

Project B cash flows (Rs.)

(5,00,000)
1,00,000
2,00,000
3,00,000
4,00,000
2,00,000

Explanation of capital budgeting process and its appraisals.

6.

10

Solution for the problem

3
Explain the concepts of working capital. Explain the determinants of working capital.
Explanation of concepts of working capital
Explanation of determinants of working capital

5
5

10