DBB1215 FINANCIAL MANAGEMENT

Description

SESSION	JAN – FEB 2026
PROGRAM	BACHELOR OF BUSINESS ADMINISTRATION (BBA)
SEMESTER	II
COURSE CODE & NAME	DBB1215 FINANCIAL MANAGEMENT

 

Assignment Set – 1

 

Q.1. Calculate the cost of equity for Triveni Ltd., which has issued equity shares with a face value of ₹1000 at an 8% premium. The expected dividend at the end of the year is 10%, and the annual dividend growth rate is 6%. Also determine the cost of equity assuming zero dividend growth. (5+5 = 10 Marks)

Ans 1.

Equity costs are the minimum rate of return investors in equity expect from their investment. It’s a crucial factor in capital budgeting, valuation of the portfolio, and calculation of the weighted average cost of capital. The Dividend Growth Model, also called Gordon’s Model, is commonly employed to calculate the value of equity when dividends are growing with a constant pace in time.

Market perception plays a major part in determining cost of equity. Things like company’s reputation and performance of the industry, macroeconomic stability, and the sentiment of investors can affect stock prices as well as expected results. If a company is in a high-risk sector or that has unpredictable

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Q.2. (a) Compute the future value of ₹10,000 invested for 5 years at 12% p.a. (b) Compute the present value of ₹10,000 expected after 5 years at the same discount rate. (5+5 = 10 Marks)

Ans 2.

Time value of money is the foundation of financial management, reflecting the concept that money accessible today will be worth more equivalent amounts later on due to its earning potential. Future value and present value calculations are crucial instruments for appraisal of investments as well as capital budgeting and financial planning decisions in all business organizations.

The idea of the time worth of cash is associated with reinvestment and compounding frequency. Once money has been invested the profits earned in every time period could be used to earn additional returns. This process

 

Q.3. (a) What is leverage and how does it contribute to maximizing shareholders’ wealth? (b) Define wealth maximization and contrast it with profit maximization. (5+5 = 10 Marks)

Ans 3.

Wealth maximization and leverage are the two most important concepts of the field of financial management. They determine how the managers allocate debt capital, manage risks, and take decisions to increase the value of shareholders over time. The distinction between maximization of profit and wealth is essential for setting the proper financial goal for every business.

Concept and Types of Leverage

Leverage is the term used to describe the

 

 

Assignment Set – 2

 

 

Q.4. Differentiate between: (a) Gross Working Capital and Net Working Capital, and (b) Permanent Working Capital and Temporary Working Capital. (5+5 = 10 Marks)

Ans 4.

The management of working capital is an essential component of financial management. It makes sure that the firm has sufficient funds to fulfill the short-term needs of its customers while effectively making use of its existing assets. Understanding the distinctions between net and working capital, in addition to permanent and temporary working capital, can help managers devise the financing strategy and keep operational stability.

Gross Working Capital versus Net Worki

 

Q.5. Critically analyze the major theories of capital structure, highlighting their key assumptions, implications, and relevance with appropriate examples. (10 Marks)

Ans 5.

Capital structure refers to the blend of equity and debt used by an organization to fund its assets. The choice of capital structure impacts the costs of capital along with the value of the company and the financial risk. Several theories have been proposed in order to determine the most optimal financial structure. Each of them has particular assumptions, implications as well as real-world implications for corporate financial management.

Modigliani-Miller Theory

Modigliani and Miller made a proposal

 

Q.6. Given EPS = ₹10, capitalization rate = 10%, ROI = 15%: (a) Compute market price using Walter’s Model at 50% payout ratio. (b) Assess whether this payout ratio is optimal per Walter’s theory. (5+5 = 10 Marks)

Ans 6.

Walter’s Model, developed in the work of James E. Walter, provides a correlation between the dividend policy and prices of shares in the marketplace. It suggests that the dividend decision matters greatly when the returns on investment are different from its equity cost. The model offers a simple formula for computing share price based on earnings, dividends and investment return.

Walter’s Model insists on the fact that