DBB1215 FINANCIAL MANAGEMENT

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SESSION JULY-AUGUST 2025
PROGRAM BACHELOR OF BUSINESS ADMINISTRATION (BBA)
SEMESTER II
COURSE CODE & NAME DBB1215  FINANCIAL MANAGEMENT
   
   

 

 

Assignment Set – 1

 

Q1. Calculate the cost of equity for Triveni Ltd., which has issued equity shares with a face value of ₹1000 at a 8% premium. The expected dividend at the end of the year is 10%, and the annual dividend growth rate is 6%. Additionally, determine the cost of equity under the assumption of zero dividend growth. 5+5

Ans 1.

(A) Cost of Equity Using Dividend Growth Model

Given:

  • Face Value = ₹1000
  • Issue Premium = 8%
  • Market Price
  • Expected Dividend = 10% of Face Value
  • Dividend

 

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Q2a) Compute the future value of ₹10,000 to be invested for a period of 5 years at an annual interest rate of 12%.

  1. b) Compute the present value of ₹10,000 expected to be received after 5 years, assuming the same discount rate. 5+5

Ans 2.

Time Value of Money

(A) Future Value of ₹10,000 after 5 years at 12%

Given:

PV = ₹10,000

Rate

Time  years

Formula:

Sub

 

 

Q3a) What is leverage in financial management? Explain how it contributes to maximizing shareholders’ wealth

  1. b) Define the concept of wealth maximization. How does it contrast with the notion of profit maximization? 5+5

Ans 3.

(a) Leverage in Financial Management and Its Role in Maximizing Shareholders’ Wealth

Leverage in financial management refers to the strategic use of fixed-income securities or debt to increase the potential returns to shareholders. It represents the proportion of fixed costs in the capital structure, including interest payments or fixed operating expenses. The core idea behind leverage is that borrowing can amplify the company’s return on equity (ROE) when the firm earns more on the borrowed funds than the cost of the debt. Leverage is broadly categorized into

 

 

Assignment Set – 2

 

 

Q4. Differentiate between the following concepts:

(a) Gross Working Capital and Net Working Capital, and

(b) Permanent Working Capital and Temporary Working Capital.       5+5     

Ans 4.

Gross Working Capital vs Net Working Capital

Gross Working Capital refers to the total investment made in current assets, including cash, inventory, receivables, prepaid expenses, and marketable securities. It emphasizes the management of current assets and focuses on ensuring sufficient liquidity for day-to-day operations. Gross Working Capital is helpful for determining the firm’s need for total current resources and planning short-term financing requirements. It highlights the scale of operations and the total

 

Q5. Critically analyze the major theories of capital structure, highlighting their key assumptions, implications, and relevance with appropriate examples  10       

Ans 5.

Major Theories of Capital Structure – Critical Analysis

Capital structure theories explore the relationship between debt, equity, and the overall value of the firm. These theories provide insights into how companies can design their financing mix to minimize cost of capital and maximize firm value. The major theories include the Net Income Approach, Net Operating Income Approach, Modigliani–Miller (MM) Theory, and the Traditional

 

Q6. Given the following information for XYZ Ltd. – earnings per share of ₹10, capitalization rate of 10%, and return on investment of 15%:

(a) Compute the market price of the share using Walter’s Model for a dividend payout ratio of 50%.

(b) Assess whether the chosen payout ratio is optimal in accordance with Walter’s theory. 5+5         

Ans 6.

Walter’s Model – Market Price & Optimal Payout Decision

Walter’s Model formula:

Where:

  •  = Earnings per share
  •  =