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DRIVE-
SUMMER 2014
PROGRAM-
MBADS / MBAN2 / MBAHCSN3 / PGDBAN2 / MBAFLEX
SEMESTER-II
SUBJECT
CODE & NAME- MB0045FINANCIAL MANAGEMENT
Q1.
TCS has emerged as India's most admired company ahead of Hindustan Unilever,
ITC, and Infosys, says global management consultancy Hay Group. TCS replaced
last year's winner group company Tata Steel by scoring highest on parameters
such as corporate governance, financial soundness, and talent management. Two
criteria in particular, Leadership, and Creating Shareholder Value separated
the winners.
How
do you think effective interaction between HR and finance department of a firm
helps in achieving its skills?
Do
you think that TCS has preferred the profit maximization approach over the
wealth maximization approach? (Interaction between HR and finance functions,
Goals of Financial management) 4,6
Answer:
Finance and HR
Financial management
is also related to human resource department as it provides manpower to all the
functional areas of the management. Financial manager should carefully evaluate
the requirement of manpower to each department and then allocate the required
finance to the human resource department as wages, salary, remuneration,
commission, bonus, pension, and other monetary benefits to the human resource
department. Attracting and retaining the best manpower in the industry cannot
be done unless they are paid salary at competitive rates.
Q2.
A) The current price of an Ashok Leyland share is Rs. 30. The company is expected
to pay a dividend of Rs. 2.50 per share which goes up annually at 6%. If an
investor’s required rate of return is 11%, should he or she buy this share or
not?
Solution:
P = D1 (1+g) / Ke-g =
2.5(1+0.06) / 0.11-0.06 = Rs. 53
The investor should certainly
buy this share at the current price of Rs. 30 as the valuation model says the
share is worth
B) A bond with a face value of Rs. 100 provides an annual
return of 8% and pays Rs. 125 at the time of maturity, which is 10 years from
now. If the investor’s required rate of return is 12%, what should be the price
of the bond?( A Problem , B problem )5,5
Solution:
P = Int*PVIFA (12%,
10y) + Redemption value*PVIF (12%, 10y)
Q3. a) How do you think the trend of capital structure across
the Indian corporate affect the economy as a whole?
b) What proportion of debt and equity should be taken up in
the capital structure of a firm?
c) Discuss the theories that are propounded to understand the
relationship between financial leverage and value of the firm.
a) Trend of
capital structure. b)
proportion of debt and equity c) explain
the theories ) 2,3,5
Answer :
a) Trend of
capital structure
Factors Affecting
Capital Structure Capital structure should be planned at the time a company is
promoted. The initial capital structure should be designed very carefully. The
management of the company should set a target capital structure,
Q4. HPCL was established in 1952, operates from 500 different
locations, including refineries, terminals, LPG plants, aviation service
facilities, etc. They developed a Lotus Notes workflow tool and deployed it
across the organization so that any capital investment proposal from any
operating location in the country can be routed to relevant reviewers and
approving authorities. With the implementation of the new online system, the
total cost savings as a result of reduced man-hours amounts to about Rs 25 lakh
per annum.
1. What do you think would have been the complexities
involved in implementing this new project at HPCL?
2. What are the various phases in the capital budgeting
process? To what extent do you believe that automation can ease out the process? 1) capital budgeting process 2) phases in
capital budgeting decisions ) 5,5
Answer:
Capital Budgeting
Process
After the screening of
proposals for potential involvement is over, the company should take up the
following aspects of capital budgeting process:
·
A
proposal should be commercially viable. The following aspects are examined to
ascertain the commercial viability of any investment proposal:
ΓΌ Market for the product
Q5. A) Indicate whether the operating cycle in the following
industries is short (less than 30 days), medium (less than 6 months) or long
(more than 6 months)
Steel, rice, vegetables, fruits, jewelry, processed food,
furniture, mining, flowers and textiles
b) Companies with the shortest working capital cycles have
current ratios much lower than the firms
with longer cycles. What is your view on this statement? How do you think the
operating cycle affects operating profit margins?
c) Discuss the relationship between working capital
management and market performance of a company? Do you think the kind of
relationship varies depending on the type of industry?
(a) duration b) operating cycle c) need for working capital )
2,4,4
Answer:
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a) Duration
·
Short:
vegetables, fruits, flowers
·
Medium:
rice, fruits, processed food,
·
Long:
Steel, jewelry, furniture, mining, textiles
Q6. Nirma acquired Core Healthcare Ltd. in FY 2007. To bring
about improvement in terms of liquidity in the script of the Company, it has
gone for a stock split because it hasn’t had any buyback in the recent past.
Nirma paid Interim dividend in 2007 to avoid the higher dividend tax announced
in that year’s budget.
Henkel, on the other hand, has a very weak Dividend Policy.
The major reason being that the company has weak operations and low margins.
There is no record of Stock Splits and Buybacks by Henkel India in the past.
Discuss the dividend polices of these two companies. ( a) Analyze
the dividend policies of the two companies for the last 10 years , b) Explain
stock split and buyback of shares ) 5,5
Answer :
a) Dividend polices of these two companies
Dividend policy is the set of
guidelines a company uses to decide how much of its earnings it will pay out to
shareholders. Some evidence suggests that investors are not concerned with a
company's dividend policy since they can sell a portion of their portfolio of
equities if they want cash. This evidence is called the "dividend
irrelevance theory," and it essentially indicates that an issuance of
dividends should have little to no impact on stock price. That being said, many
companies do pay dividends, so let's look at how they do it.
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