ASSIGNMENT – MBA (Banking and Finance) semester 2

MBF 201 –Financial Management - 4 Credits

Assignment Set- 2 (30 Marks)

Descriptive Questions (30 Marks – 10 marks each)

1. The Capital Structure of Hindustan Traders Ltd. as on 31-03-2005 is as follows:

Equity Capital (Rs. 10 each fully paid) 100000012% Preference Shares (Rs.100 each fully paid) 20000014% Debenture(Rs.100 each fully paid) 300000

For the year ended 31-03-2005 the company has paid equity dividend at 20%. As the company is a market leader with good future, dividend is likely to grow b 5% every year. The equity shares are now traded at Rs.80per share in the stock exchange. Preference stock, redeemable after 10 years, is currently selling at Rs.95 per share Debentures, redeemable after 5 years, are selling at Rs. 90 per debenture.Income tax rate applicable to the company is 50%. You are required to

a) The weighted cost of capital on the basis of book value.b) The company plans to raise Rs.500000 by a way of long term loan at 16%.

When this takes place the market value of the equity shares is expected to fall Rs.70 per share. What will be the new WACC of the company?

2. A company expects a net income of Rs. 10000. The equity capitalization rate of the company is 10%. Calculate the value of the firm and overall capitalization rate according to Net Income Approach when

A. There is no debentureB. There is Rs. 50000 6% DebenturesC. There is Rs. 100000 6% Debentures

3. From the following information is available for Divya manufacturing concern:Particulars 2004-05

(in lakhs)2005-06(in lakhs)

Opening raw material inventoryPurchasesClosing raw material inventoryWages and salariesOther manufacturing expensesDepreciationOpening work-in-process inventoryClosing work-in-process inventoryOpening finished goods inventory

5.225.66.88.13.21.81.82.03.2

6.833.57.611.24.42.02.03.12.8

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Closing finished goods inventorySelling, administrative and other expensesSalesOpening debtorsClosing debtorsOpening creditorsClosing creditors

2.81.345.98.310.83.74.6

3.61.960.110.814.94.68.0

You are required to calculate Gross and Net operating cycle for both the years.A proforma of cost sheet of a company provides the following particulars

Elements of CostRaw materialsDirect LaborOverheadTotal CostProfitSelling Price

Amount per unit80306017030200

The following further particulars are available:Raw materials in stock, on average, one month; material in process (completion stage 50%), on average, half month; finished goods in stock, on average, one month.Credit allowed by suppliers is one month in overhead expenses; one fourth of the output is sold against cash; cash in hand and at bank is desired to be maintained at Rs.365000.You are required to prepare a statement showing the working capital needed to finance a level of activity of 104000 units of production. You may assume that production is carried on evenly through out the year, and wages and overheads accrue similarly.

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