DMBA218 FINANCIAL MANAGEMENT

Description

SESSION	JUL-AUG 2026
PROGRAM	MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER	II
COURSE CODE & NAME	DMBA218 FINANCIAL MANAGEMENT

 

Assignment Set – 1

 

Q.1. Explain the scope and objectives of Financial Management. Distinguish between Profit Maximization and Wealth Maximization, and discuss why wealth maximization is considered an important objective of modern financial management. (10 Marks)

Ans 1.

Scope of Financial Management

Financial Management is planning, organising, directing and controlling the financial activities of an organisation. It applies to large capital decisions like how much capital should a firm raise, how it should invest it, how it should distribute earnings and how it should manage working capital day to day. The decisions combined contribute to the monetary well-being and sustainability of the business.

Financial Management

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Q.2. A company is considering an investment that will generate cash flows of Rs 80,000 at the end of each year for 4 years. If the required rate of return is 10% per annum, calculate the present value of the cash flows. Explain how the Time Value of Money concept supports capital investment decisions. (10 Marks)

Ans 2.

Meaning of Time Value of Money

Time Value of Money (TVM) is an important concept in finance that says that a dollar today is worth more than a dollar tomorrow. This is because money received today can be invested and used for earning a return, and by delaying the receipt of money an opportunity is given up. It also incorporates the uncertainty and risk associated with future cash flows, as the cash may not come in a

 

Q.3. Explain the concept of Cost of Capital and discuss the methods of determining the cost of different sources of finance. A firm has 40% equity costing 14%, 20% preference shares costing 10%, and 40% debt costing 8%. If the corporate tax rate is 25%, calculate the Weighted Average Cost of Capital (WACC). (10 Marks)

Ans 3.

Meaning of Cost of Capital

The rate of return that a firm needs on its investments to meet the expectations of the investors that have provided the funds to the business is Cost of Capital. It is the cost the firm would have to pay on the funds it has raised from various sources including equity, preference shares and debt. Each source is associated with a different cost, so the overall cost of capital is a

 

Assignment Set – 2

 

Q.4. Explain Operating Leverage, Financial Leverage and Combined Leverage. Discuss how leverage affects the risk and return of a firm. Illustrate your answer with suitable numerical or business examples. (10 Marks)

Ans 4.

Meaning of Operating Leverage

The concept of operating leverage is based on the fact that some of a firm’s operating costs are fixed costs, which do not vary with the level of output (e.g., rent, depreciation, some salaries). Sales volume changes have a much greater effect on operating profit when the fixed costs are a high percentage of total costs than when they are a small percentage, because fixed costs don’t change, but variable costs do. This magnifying effect on operating profit is a measure of operating leverage.

Meaning of Financial Leverage

Financial leverage is created

 

 

Q.5. Explain in detail, Dividend Relevance Model, Miller and Modigliani Model, Stability of Dividends, Forms of Dividends. (10 Marks)

Ans 5.

Dividend Relevance Model

The dividend relevance school of thought believes that the dividend decision of the firm has a direct impact on the market value of the firm. This argument suggests that investors would rather receive the dividend now as opposed to risk a capital gain in the future, as an amount of dividends received now is more assure than the potential of capital gain later. This type of school (Walter’s model and Gordon’s model) implies that the value of a share of a company is related to its dividend policy, and that the optimal dividend policy is determined by whether the return on investment exceeds the

 

Q.6. Tabulate the key differences between the Conventional & operating cycle approaches of Working Capital Management and provide one example for each. (10 Marks)

Ans 6.

Meaning of Working Capital Management

Working Capital Management is the operation of a firm’s short term assets and liabilities (e.g., cash, inventory, receivables and payables) to ensure the smooth day to day activities of a business without any unnecessary strains on its resources. There are two methods of working capital evaluation and management that are often