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# MB0045 FINANCIAL MANAGEMENT (Code: mb0045assignment)

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. 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?

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.

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