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Assignment
| DRIVE | FALL 2014 |
| PROGRAM | BBA |
| SEMESTER | V |
| SEMESTER CODE & NAME | BBA502 & FINANCIAL MANAGEMENT |
| BK ID | B1850 |
| 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.
Q.1 Explain the functions of finance Explain about the role of a finance manager and funds allocation.
Answer: – Functions of finance:
Investment Decision
One of the most important finance functions is to intelligently allocate capital to long term assets. This activity is also known as capital budgeting. It is important to allocate capital in those long term assets so as to get maximum yield in future. Following are the two aspects of investment decision
Q.2 Write short notes on:
- a) Operating Budgets
Answer: An operating budget is the annual budget of an activity stated in terms of Budget Classification Code, functional/sub functional categories and cost accounts. It contains estimates of the total value of resources required for the performance of
- b) Financial Budgets
Answer: Financial budgets are financial plans that are structured to detail projections on incomes and expenses on both a long-term and a short-term basis. Budgets of this type normally incorporate aspects of other types of budgeting strategies, including the preparation of a detailed budgeted balance sheet, a section that functions as a cash flow budget and
- c) Capital Budgets
Answer: – Capital budgeting, or investment appraisal, is the planning process used to determine whether an organization’s long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth the funding of cash through the firm’s capitalization structure (debt, equity or
Q.3 Explain on cost of capital and cost of preference capital.
Answer: – Cost of capital: In accounting, the cost of capital is the cost of a company’s funds (both debt and equity), or, from an investor’s point of view “the shareholder’s required return on a portfolio company’s existing securities”. It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
The cost of debt is relatively simple to calculate, as it is composed of the rate of interest paid. In practice, the interest-rate paid by the company can be modeled as the risk-free rate plus a risk component (risk premium), which itself incorporates a probable rate of default (and amount of recovery given default). For companies with similar risk
Q.4 Solve the given problem below:
Sales 25,00,000 ; Variable cost 15,00,000 ; Fixed cost 5,00,000 (including interest on 10,00,000). Calculate degree of financial leverage.
Answer: –
Q.5 Explain the capital budgeting process. Why is Net Present Value (NPV) important?
Answer: Capital budgeting process: Capital budgeting is the planning process used to determine which of an organization’s long term investments are worth pursuing.
- Net present value
- Internal rate of return
- Payback period
- Profitability index
- Equivalent annuity
Q.6 Write about cash planning and explain about cash forecasting and budgeting.
Answer: cash planning: Cash planning is nothing but simply to forecast the cash needs well in advance for a given period with a view to maintain adequate cash balance in hand, sufficient to met the payments and obligations as and when they mature. Thus it includes forecasting of cash inflows and cash outflows. Cash control involves proper implementation of policies and procedures regarding inflow and outflow of cash. It includes short term investment plans when cash in surplus and borrowing programmes during the days of cash deficit.
Cash forecasting and budgeting: A cash flow forecast indicates the likely future movement of cash in and out of the business. It’s an estimate of the amount of money you expect to flow in (receipts) and out (payments) of your business and includes all
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