MASTER OF BUSINESS ADMINISTRATION (MBA) SEMESTER II
SESSION : JULY - AUG 2024
DMBA202 – FINANCIAL MANAGEMENT
Assignment Set – 1
Q1. “Financial planning is essential for any organization or individual looking to achieve financial stability and growth. The process involves a series of structured steps that help in setting, monitoring, and adjusting financial goals”. Explain in detail the steps involved in financial planning, highlighting how each step contributes to a successful financial strategy of a company. Additionally, discuss the various factors that can impact the financial plan of an organization.
Answer:
Steps Involved in Financial Planning
Financial planning is a structured process that ensures the availability and efficient utilization of funds to achieve organizational objectives. The steps involved contribute to a successful financial strategy as follows: Contact us to get full Answers
Q2. a)XYZ India Ltd.’s share is expected to be Rs.450 one year from now. The company is expected to declare a dividend of Rs. 25 per share. What is the price at which an investor would be willing to buy if his or her required rate of return is 15%?
b) Differentiate between Operating and Financial leverage.
Answer:
a) To determine the value of an equity share held for one year, we can apply the Single-Period Valuation Model. This model is effective for estimating the price of a share when the holding period is one year. The formula for the share price is as follows: Contact us to get full Answers
Q3. A company has the following capital structure:
Equity Capital: 10 crore shares of Rs.10 each, fully paid up.
9% Preference Capital: 1 lakh shares of Rs.100 each, fully paid up, redeemable after 8 years.
15% Debentures: 2 lakh debentures of Rs.100 each, redeemable after 5 years.
12% Term Loans: Rs.20 crores.
Additional information:
The next expected dividend on equity shares is Rs.4 per share, with an annual growth rate of 6%. The market price per equity share is Rs.50.
The market price of the preference shares is Rs.90 per share.
The market price of debentures is Rs.85 per debenture.
The company’s income tax rate is 35%.
Requirement: Compute the Weighted Average Cost of Capital (WACC) using the market value approach.
Answer:
To compute the Weighted Average Cost of Capital (WACC) using the market value approach, we calculate the cost of each capital component (Equity, Preference Shares, Debentures, and Term Loans) and their respective weights in the total capital structure. Finally, we combine these costs using the weighted average formula. Contact us to get full Answers
Assignment Set – 2
Q4. A company is considering, the following mutually exclusive projects:
Cash Flows (in ₹) Projects
Q R S
C0 -25000 -25000 -25000
C1 10000 7000 10000
C2 13000 11000 10000
C3 11000 13000 10000
C4 7000 10000 10000
C0 represents initial investment and C1, C2, C3, and C4 are annual cash inflows in the year 1,2,3 and 4 respectively.
Assuming a 12% discount factor, estimate the net present value of projects Q, R, and S. Which project should be recommended under the net present value (NPV)method?
The present value factor (PVF) @ 12% is as follows:
Year 1 2 3 4
12% 0.893 0.797 0.712 0.636
Answer:
Q5. Explain in detail the theory of the MM approach to capital structure in the presence of taxes and absence of taxes.
Answer:
Miller and Modigliani (MM) Approach to Capital Structure
The Miller and Modigliani (MM) approach revolutionized financial theory by proposing that, under certain assumptions, a firm's value is independent of its capital structure. MM's theory is analyzed in two scenarios: absence of taxes and presence of taxes. Contact us to get full Answers
Q6. Efficient cash management will aim at maximizing the cash inflows and slowing cash outflows. Discuss the statement in light of effective cash planning opted by the organizations.
Answer:
Efficient cash management is crucial for businesses to maintain liquidity, meet obligations, and optimize financial performance. It involves the strategic planning of cash inflows and outflows to ensure Contact us to get full Answers
