Advanced Financial Management Assignments

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ASSIGNMENT

1 When a firm follows wealth maximization goal, it achieves maximization of market value of a share. Do you agree? Substantiate your arguments.

Answer:-Explain Wealth maximization

The term wealth means shareholder’s wealth or the wealth of the personsthose who are involved in the business concern. Wealth maximisation isalso known as value maximisation or net present worth maximisation. Thisobjective is an universally accepted concept in the field of business.

Wealth maximisation is possible only when the company pursues policies that would increase the market value of shares of the company. It has beenaccepted by the finance managers as it overcomes the limitations of profit maximisation.

2 A) If you deposit Rs 10000 today in a bank that offers 8% interest, how many years will the amount take to double?

Solution :-9 years (using rule of

B) What is the future value of a regular annuity of Re 1.00 earning a rate of 12% interest p.a. for 5 years?

Solution: FVAn= A *

3 The concept of financial leverage is a significant, as it has direct relation with capital structure. Do you agree? If so, substantiate your arguments.

Answer:-Financial leverage relates to the financing activities of a firm and measuresthe effect of EBIT on Earnings Per Share (EPS) of the company.A company’s sources of funds fall under two categories:

• Those which carry fixed financial charges
• 4 A project requires an initial outlay of Rs. 1, 00, 000. It is expected to generate the cash inflows shown in table

Solution:-

Step 1: The average of annual cash inflows is computed as shown in table 8.16.

5 Below Table gives the complete details of sales and costs of the goods produced by XYZ ltd for the year 31.03.12.Table -Sales and Costs Produced by XYZ Ltd.

What is the length of the operating cycle? What is the cash cycle?

Assume 365 days in a year.

a) length of the operating cycle

b) cash cycle

Solution