(Assignment)

Financial Management

Q1. a) Define Financial Leverage.

b) What is Capital asset pricing model?
c) Define Agency Problem.
d) You are investing Rs.1,50,000 in fixed deposit at 8% rate of interest. In how many
years the amount will be doubled.
e) What is the difference between cumulative and non-cumulative preference shares?
f) If a project involves a cash outlay of Rs.6,00,000 and generates cash inflows of
Rs.1,00,000; Rs.1,50,000; Rs.1,50,000; Rs.1,00,000 and Rs.2,00,000; in the first, second, third,
fourth and fifth year respectively. Calculate its payback period.
g) Define Share split and share consolidation.
h) Mr. Z has perpetual bond of face value of Rs.1,000. He receives Rs.60 as interest
annually. What should be its value if the required rate of return is 10%?
i) Define Capital rationing.
j) Is dividend policy relevant for the value of firm?

Q2. What is leasing? Discuss various types of lease.

Q3. Abacus Ltd. Has the following book value capital structure on 31st March,2004
Sources of finance Book Value (Rs.) After tax cost of capital (%)
Share capital 4,50,000 22
Reserves & surplus 3,00,000 22
Preference share capital 1,00,000 12
Debt 4,00,000 14
Compute WACC of Abacus Ltd...

Q4. What is Working capital Management? What are the factors that affect the quantum of
working capital requirement?

Q5. Define Theories of capital structure.

Q6. Phoenix Company is considering two mutually exclusive investments, Project P and
Project Q. The expected cash flows of the project are given:
Year Project P Project Q PVIF @10%
0 (1,000) (1,600) 1
1 1,200 200 .909
2 600 400 .826
3 250 600 .751
4 2,000 800 .683
5 4,000 100 .621
If the cost of capital is 10%, which of the two projects should be accepted?

Q7. What are different sources of long term finance?