Dear students, get latest Solved assignments and case studies by professionals.
Mail us at : help.mbaassignments@gmail.com
Call us at : 08263069601
ASSIGNMENT 1
Case Let on Agency Conflict
15 Marks
Lean Conductors Ltd is a mid-sized Public limited company engaged in the manufacture and sale of electrical cables. As a public limited company the organization was performing reasonably well, earning steady profits and declaring a stable dividend of 12-15%. The CEO was feeling the urge to expand the business and taste the growth of business operations and profits. He started addressing various options and shortlisted 2 options namely manufacture of LED bulbs and solar panels. He called the Gen Mgr. – Finance for a discussion in this regard to probe the matter further. He also went on to share his dream of making the company a larger one and his belief in people like the GM who needs to stay and grow with the organization. The GM felt excited at this prospect and started making a project report. He decided in his own mind the solar panel project with a larger profit margin looked to be a better one than LED bulbs which was dealer intensive and lesser in terms of unit margin.
Feeling the need to expand rapidly on the investment of the company and make it bigger and become a CFO in the bargain, he chose the solar panel project which was more capital intensive. An assumption about a capital structure and cost congruent to the existing structure was assumed and the projected financials were prepared.
The board of directors representing the majority of shareholders believing in the recommendations of the report adopted it for implementation. The project faced various hurdles in its implementation such delay in signing collaboration agreements, inflated cost due to poor supply of money in the market, downturn of the economy and so on. The project cost started spiraling up and to fund the expansion the funds of the existing business line were inducted into the new project since no further borrowing could be made. The company slipped into the red and reached a stage of bankruptcy without the new project even taking off.
Questions:
Question.1 Trace the conflict between the management and the shareholders in this case study.
Answer: Opportunity to management increases their compensation. They are as follows:
1) Excessive consumption of perquisites
2) Manipulation of earnings and dividends (when compensation is in the form of share)
3) Maximizing the size of the firm rather than its value.
4) By setting up shell companies.
Question.2 Is the act of the GM Finance an error or sin?
Answer: It’s a sin and more specifically it would be greed. The GM chose to pursue status & personal growth instead of acting in the shareholders’ interests. As GM Finance, he should be aware of the current market status and should have analyzed risk before choosing the capital-intensive solar panel project. In
Question.3. Where do you think the CEO went wrong?
Answer: Firstly, the CEO wanted to fulfil his urge by expanding the business and tasting the growth of business operations and
Question.4 What according to you is the approach the CEO should have taken?
Answer: Keeping the personal agenda aside, he should have focused firstly on the maximization of shareholder’s wealth and after that he could have focused on the expansion of the business. As GM had already discovered two options i.e. manufacturing of LED bulbs and Solar Panels which would help in expanding the business. So for better decision CEO could have asked the GM to prepare reports on both the
Dear students, get latest Solved assignments and case studies by professionals.
Mail us at : help.mbaassignments@gmail.com
Call us at : 08263069601
ASSIGNMENT 2
Time Value of Money
- Marks
Question. 1. Compute the Future Value & Present Value of the following Cash Flows:
| Year CF 1 2000 2 2000 3 2000 4 2000 5 2000 Take rate as r = 7.5% | Year CF 1 4500 2 6000 3 12000 4 9000 5 10000 Take rate as r = 10% |
Formulas Used:
Dear students, get latest Solved assignments and case studies by professionals.
Mail us at : help.mbaassignments@gmail.com
Call us at : 08263069601
ASSIGNMENT 3
Weighted Average Cost of Capital
15 Marks
XYZ Ltd. wishes to raise finance of Rs. 10, 00,000 for meeting its investment plans. It has Rs. 240000 in form of Retained earnings.
The following details avail:
Debt/equity mix 30% / 70%
Earnings per share Rs/ 4
Dividend payout: 50% of earnings
Cost of debt up to Rs. 1, 80,000 10% before tax beyond Rs 1,80,000
16% before tax
Expected growth of dividend 10%,
Current market price : Rs. 44 and
Tax rate 50%
Calculate:
- Determine the pattern for raising additional finance,
Answer : Determining the pattern for raising additional finance:-
- Determine the post-tax average cost
Answer :
The post-tax average cost is 6.20%
Dear students, get latest Solved assignments and case studies by professionals.
Mail us at : help.mbaassignments@gmail.com
Call us at : 08263069601
*********************************************************************