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ASSIGNMENT
| DRIVE FALL | FALL 2014 |
| PROGRAM | MBA/ MBADS/ MBAFLEX/ MBAHCSN3/ PGDBAN2 |
| SUBJECT CODE & NAME | MB0045 – FINANCIAL MANAGEMENT |
| SEMESTER | II |
| BK ID | B1628 |
| CREDITS | 4 |
| MARKS | 60 |
Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.
1 Explain the liquidity decisions and its important elements. Write complete information on dividend decisions.
Answer :
Liquidity decisions with its important elements
The liquidity decision is concerned with the management of the current assets, which is a pre-requisite to long-term success of any business firm. This is also called as working capital decision. The main objective of the current assets management is the trade-off between profitability and liquidity, and there is a conflict between these two concepts. The short term liquidity is important to pay off the current liabilities of the company. Where in short run, the company has more current liabilities than current assets, the company can
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?
Answer :
Doubling Period
Doubling Period = log (2)/ (log 1 +r). r stands for rate of return
The Doubling Time formula is used in Finance to calculate the length of time required to double an investment or money in an interest bearing account.
It is important to note that r in the doubling time formula is the rate per period. If one wishes to calculate the amount of time to double their money in a
3 Write short notes on:
- a) Operating Leverage
- b) Financial leverage
- c) Combined leverage
Answer :
3a) Operating Leverage
Operating Leverage is a measurement of the degree to which a firm or project incurs a combination of fixed and variable costs. The higher the degree of operating leverage, the greater is the potential danger from forecasting risk. That is, if a relatively small error is made in forecasting sales, it can be magnified into large errors in cash flow projections. The opposite s true for businesses that are less leveraged. A business that sells millions of products a year, with each contributing slightly to paying for fixed costs, is not as
3b) Financial Leverage
Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity. The more debt financing a company uses, the higher its financial leverage. A high degree of financial leverage means high interest payments, which negatively affect the company’s bottom-line earnings per share.
Financial risk is the risk to the stockholders that is
3c) Combined Leverage
A leverage ratio that summarizes the combined effect the degree of operating leverage (DOL), and the degree of financial leverage has on earnings per share (EPS), given a particular change in sales. This ratio can be used to help determine
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 of capital of both firms?
Answer :
Factors affecting capital structure
Capital structure means the proportion of debt and equity used for financing the operations of business.
Factors Determining the Capital Structure:
The various factors which influence the decision of
5 Explain all the sources of risk in capital budgeting with examples.
Solve the below given problem:
Answer :
Sources of risk in capital budgeting
Risk arises in capital budgeting because the firm cannot predict the occurrence of possible future events with certainty and hence, cannot make any correct forecast about the cash flows. The uncertain economic conditions are the sources of uncertainty in the cash flows. For example, a company wants to produce and market a new product to their prospective customers. The demand is affected by the general economic conditions. Demand may be
- Explain the objectives of Cash Management. Write about the Baumol model with their assumptions.
Answer:
Objectives of Cash Management
Cash management is a broad term that refers to the collection, concentration, and disbursement of cash. It encompasses a company’s level of liquidity, its management of cash balance, and its short-term investment strategies. In some ways, managing cash flow is the most important job of business managers. If at any time a company fails to pay an obligation when it is due because of the lack of cash, the company is insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such a dire consequence should compel companies to manage their cash with care. Moreover, efficient cash management means more than just preventing bankruptcy. It improves the profitability and reduces the risk to which the firm
Dear students get fully solved SMU MBA Fall 2014 assignments
Send your semester & Specialization name to our mail id :
“ help.mbaassignments@gmail.com ”
or
Call us at : 08263069601
(Prefer mailing. Call in emergency )