DMBA218 FINANCIAL MANAGEMENT JULY-AUGUST 2025

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:

1. a) Irredeemable preference shares
2. 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

 

Net Proceeds (NP) = Issue Price – Floatation Cost

= 95 – 2 = ₹93

 

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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 make sustainable business decisions.

Meaning of Profit Maximization

Profit maximization refers to the process of increasing a company’s earnings in the short

 

 

Q3a) 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 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:

 

 

 

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:

Substitute the values:

Step 1:

Multiply numerator:

2 × 12,000 × 500 = 12,000,000

Step 2:

 

 

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 working capital is essential for balancing liquidity, risk, and profitability.

Working capital is the capital used to finance current assets such as cash, accounts receivable,

 

 

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:

1. Net Present Value (NPV)
2. 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

 

Cost of Project (Initial Investment) = ₹60,000

(1) Calculation of Net Present Value (NPV)

Formula: