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Summer
2017
PROGRAM
MBA
SEMESTER
II
SUBJECT
CODE &
NAME
MB0045
FINANCIAL
MANAGEMENT
Set
1
1
Explain the differences between wealth maximization and profit maximization.
Explain
relation between finance and accounting
Differences between
wealth maximization and profit maximization
Explanation of
relation between finance and accounting
Answer: Wealth
maximisation vs. profit maximisation
·
Wealth maximisation is based on cash flow. It is not
based on the accounting profit as in the case of profit maximisation.
·
Through the process of discounting, wealth
maximisation takes care of the quality of cash flow. Converting uncertain
2
Explain about the doubling period and future 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?
Explanation of
doubling period
Solving the problem
Explanation of future
value
Answer: Doubling period
Doubling period is
the period which makes the investment as "Doubled", that is the
amount invested fetches 100% return.
1.
Rule of 72
The initial amount
of investment gets Doubled within which 72/I
Where, I = Interest
Rate of
3
Write short notes on:
a)
Irredeemable bonds
b)
Zero coupon bonds
c)
Valuation of Shares
Answer: Irredeemable
bonds or perpetual bonds
Bonds which will never mature are known as
irredeemable or perpetual bonds. Indian Companies Act restricts the issue of
such bonds and therefore, these are very rarely issued by corporates these
days. In case of these bonds, the
Q4. List the
Assumptions in theories of 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. Calculate the equity capitalisation rates of the
firms.?
Details
of Firms A and B
Assumptions in theories of Capital
Structure
Solution for the
problem
Solution:
Assumptions in
theories of Capital Structure:
·
The
Q5. What ate the merits and demerits of
risk-adjusted discount rate?
A project costs Rs. 50,000. It is expected to generate
cash inflows as below.
If the risk free
rate is 10%, compute NPV.
|
Year
|
Cash inflows
|
Certainty
equivalent
|
|
1
|
32000
|
0.9
|
|
2
|
27000
|
0.6
|
|
3
|
20000
|
0.5
|
|
4
|
10000
|
0.3
|
Merits and demerits of
risk-adjusted discount rate
Solution for the problem
Answer:
Merits and demerits of risk-adjusted
discount rate
Merits
·
Considers time value
of money.
6
Explain the concepts of working capital. Explain the determinants of working
capital.
Explanation of
concepts of working capital
Explanation of
determinants of working capital
Answer: Concepts
of Working Capital
Gross working capital: Gross
working capital refers to the amounts invested in various components of current
assets. It basically refers to
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