Financial Management — Winter 2023

Define financial management and elaborate its goals.

Suppose you deposit Rs.20,000 today in a bank which pays 10 percent interest compounded annually. How much will the deposit grow to after 8 years?

Q .2 (b) At present you are doing business. You want to buy a house after 5 years when it is expected to cost ₹ 1 million. How much should you save annually if your savings earn a compound return of 12 per cent?

Chief Financial Officer of the Gold tree Co., expected ₹600 earnings per share for the next year. Further, its current market price is Rs.100. Find the cost of equity as per earning-price approach.

The Silver Ltd., wishes to calculate its cost of capital using the Capital Asset Pricing Model approach. Company’s analyst found that its risk free rate of return equals 6 per cent, beta equals 0.85 and the return on market portfolio equals 7.25 per cent. As a financial manager of the company convey your calculation to your immediate superior.

07 Company Xand Company Yare in the same risk class, and are identical in every respect except that company Xuses debt, while company Ydoes not. The leverage firm has ₹ 9,00,000 debentures, carrying 10 per cent rate of interest. Both the firms earn 20 per cent operating profit on their total assets of ₹15 lakhs. Assume perfect capital markets, rational investors and so on; a tax rate of 35 per cent and capitalization rate of 15 per cent for an all equity company. Compute the value of firms Xand Yusing the Net Income Approach.

From above information Compute the value of each firm using Net Operating Income Approach. Page 1 of

Rama & Co., has 15 per cent irredeemable debentures of Rs.100 each of Rs. 10,00,000. The tax rate is 35 per cent. Determine debenture cost assuming it is issued at i) face value/par value ii) per cent premium and iii) 10 per cent discount. Calculate the cost with tax. Q-4 (b) Rama & Co., has 15 per cent irredeemable debentures of Rs.100 each of Rs. 10,00,000. The tax rate is 35 per cent. Determine debenture cost assuming it is issued at i) face value/par value ii) per cent premium and iii) 10 per cent discount. Calculate the cost without tax.

XYZ company supplied the following information to you and requested to compute cost of capital based on book values and market values. Source of finance Book value (₹) Market (₹) After tax cost (%) Equity capital 10,00,000 15,00,000 Long term debt 8,00,000 7,50,000 Short term debt 2,00,000 2,00,000 Total 20,00,000 24,50,000

07 The Platinum Company has been buying a given in lots of 2500 units which is three month’s supply, the cost per unit is ₹ 15, order cost is ₹ 10 per order and carrying cost is ₹5. The Golden company need your advice as manager. You are required to calculate the EOQ and give your suggestion.

Case Study: Max manufacturing company has following present details are as under Sales (@₹100 per unit) ₹ 24,00,000 Variable cost 50% Fixed cost ₹ 10,00,000. It has borrowed ₹ 10,00,000 @10% p.a. and its equity share capital is ₹ 10,00,000(₹100 each). Due to promotion strategies company is expecting that sales will increase by ₹6,00,000 in near future. As a financial manager of the company help company to find

Operating leverage at present and future level.

Financial leverage at present and future level.

Find combine leverage at present level and future level.

As a financial manager, analyzed the company on its financial condition via leverages analysis. Page 2 of