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Master of Business Administration- MBA Semester 2
MB0045-Financial Management-4 Credits
(Book ID: B1628)
Assignment (60 Marks)
Note: Answer all questions within 400 words each. Each Question carries
10 marks 6 X 10=60
Qus1: Explain the liquidity decisions and its important elements. Write
complete information on dividend decisions.
Answer. 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. If a firm does not have adequate working
capital, it may become illiquid and consequently
Q2. Explain about the doubling period and present value. Solve the below
given problem:
Under the ABC Banks 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

A very common question arising in the minds of an investor is how long will it take
for the amount invested to double for a given rate of interest. There are 2 ways of
answering this question:
1. One way is to answer it by a rule known as rule of 72. This rule states that the
period within which the amount doubles is obtained
Q3. Write short notes on:
a) Operating Leverage
b) Financial leverage
c) Combined leverage
Q4. 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.

Q5. Explain all the sources of risk in capital budgeting with examples.
Solve the below given problem:
An investment will have an initial outlay of Rs 100,000. It is expected to
generate cash inflows. Cash inflow for four years.

If the risk free rate and the risk premium is 10%,

a) Compute the NPV using the risk free rate
b) Compute NPV using risk-adjusted discount rate
Answer. There are several definitions for the term risk. It may vary depending on
the situation, context and application. Risk may be termed as a degree of
uncertainty. It may be defined as the possibility that the actual result from an
investment will differ from the expected result. Risk in capital budgeting maybe
defined as the variation of actual cash flows from the expected cash flows.
Q6. Explain the objectives of Cash Management. Write about the Baumol
model with their assumptions.
Answer. The major objectives of cash management in a firm are:
Meeting payments schedule
Minimizing funds held in the form of cash balances
Meeting payments schedule
In the normal course of functioning, a firm has to make various payments by cash to
its employees, suppliers and infrastructure bills. Firms will also receive cash through
sales of its products and collection of receivables

Spring-2015

Get solved assignments at nominal price of

Rs.100 each.
Mail us at: subjects4u@gmail.com or contact at
08894344452