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Description
| SESSION | JULY-AUGUST 2025 |
| PROGRAM | MASTER OF BUSINESS ADMINISTRATION (BBA) |
| SEMESTER | II |
| COURSE CODE & NAME | DMBA218 FINANCIAL MANAGEMENT |
Assignment Set – 1
Q1. XYZ Ltd. issues preference shares of ₹100 each:
Issue price: ₹95 (i.e., at ₹5 discount)
Dividend rate: 12%
Redemption value: ₹110
Redemption period: 5 years
Floatation cost: ₹2 per share
Required:
Calculate the cost of preference share capital (Kp) for the company in case of:
- a) Irredeemable preference shares
- b) Redeemable preference shares 5+5
Ans 1.
Given Data
| Particular | Symbol | Value |
| Face Value | FV | ₹100 per share |
| Issue Price | IP | ₹95 (Issued at ₹5 discount) |
| Dividend Rate | D | 12% |
| Redemption Value | RV | ₹110 |
| Redemption Period | n | 5 years |
| Floatation Cost | F | ₹2 per share |
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Q2. Explain the difference between profit maximization and wealth maximization. Which one is considered a better objective of financial management, and why? 10
Ans 2.
Financial management revolves around setting clear objectives that guide a company’s financial decisions. Two of the most commonly discussed goals are profit maximization and wealth maximization. While both aim at improving a firm’s financial performance, they differ in scope, approach, and long-term implications. Understanding their distinction is crucial for managers to
Q3a) Compute the future value of ₹10,000 to be invested for a period of 5 years at an annual interest rate of 12%.
- b) Compute the present value of ₹10,000 expected to be received after 5 years, assuming the same discount rate. 5+5
Ans 3.
Time Value of Money Calculations
(a) Future Value (FV) of ₹10,000 Invested for 5 Years at 12%
Formula:
Where:
PV = Present Value = ₹10,000
r = Rate of interest = 12% = 0.12
n = Number of years = 5
Substitute the values:
Future
Assignment Set – 2
Q4. A company has an annual demand for a product of 12,000 units. The cost of placing an order is ₹500, and the carrying cost per unit per year is ₹2.
Calculate the Economic Order Quantity (EOQ).
Determine the number of orders the company should place annually. 5+5
Ans 4.
Calculation of Economic Order Quantity (EOQ) and Number of Orders
Given
| Particular | Symbol | Value |
| Annual Demand | D | 12,000 units |
| Ordering Cost per Order | Co | ₹500 |
| Carrying Cost per Unit per Year | Cc | ₹2 per unit |
(a) Economic Order Quantity (EOQ)
Formula:
Q5. Both excessive and inadequate working capital are not ideal for an organization. Do you agree with this statement? Justify your answer by explaining the consequences of both situations. 10
Ans 5.
Working capital represents the difference between current assets and current liabilities and reflects a firm’s short-term financial health and liquidity. It ensures the smooth functioning of day-to-day operations, enabling timely payment of obligations and maintenance of sufficient inventory levels. However, both excessive working capital and inadequate working capital can adversely impact the efficiency and profitability of a business. Thus, maintaining an optimal level of
Q6. The cost of a project is ₹60,000 and it is expected to generate the following cash inflows over four years:
| Year | Cash Inflows (₹) |
| 1 | ₹18,000 |
| 2 | ₹20,000 |
| 3 | ₹22,000 |
| 4 | ₹15,000 |
The required rate of return (discount rate) is 10%.
The discount factors at 10% are:
| Year | PV Factor @ 10% |
| 1 | 0.909 |
| 2 | 0.826 |
| 3 | 0.751 |
| 4 | 0.683 |
Appraise the project using:
- Net Present Value (NPV)
- Profitability Index (PI)
Also, recommend whether the project should be accepted or rejected.
Ans 6.
Project Appraisal Using NPV and Profitability Index (PI)
Given
| Year | Cash Inflows (₹) | PV Factor @10% | Present Value (₹) |
| 1 | 18,000 | 0.909 | 18,000 × 0.909 = 16,362 |
| 2 | 20,000 | 0.826 | 20,000 × 0.826 = 16,520 |
| 3 | 22,000 | 0.751 | 22,000 × 0.751 = 16,522 |
| 4 | 15,000 | 0.683 | 15,000 × 0.683 = 10,245 |