## November 29, 2016

### MB0045 [Financial Management] Set1 Assignments

Master of Business Administration - MBA Semester 2
MB0045 – Financial Management
(Book ID: ) Assignment Set-1
2nd Sem Spring/Fall Assignments

Note: Each question carry 10 Marks. Answer all the questions.

1. Your grandfather is 75 years old. He has total savings of Rs.80,000. He expects that he live for another 10 years and will like to spend his savings by then. He places his savings into a bank account earning 10 per cent annually. He will draw equal amount each year- the first withdrawal occurring one year from now in such a way that his account balance becomes zero at the end of 10 years. How much will be his annual withdrawal?

2. What factors affect financial plan?

3. Suppose you buy a one-year government bond that has a maturity value of Rs.1000. The market interest rate is 8 per cent. (a) How much will you pay for the bond? (b) If you purchase the bond for Rs.904.98, what interest rate will you earn from this investment?

4. Case Study: (20 Marks) Deepak Hand tools Private Limited
DHPL is a small sized firm manufacturing hand tools. It manufacturing plan is situated in Haryana. The company’s sales in the year ending on 31st March 2007 were Rs.1000 million (Rs.100 crore) on an asset base of Rs.650 million. The net profit of the company was Rs.76 million. The management of the company wants to improve profitability further. The required rate of return of the company is 14 percent.
The company is currently considering an investment proposal. One is to expand its manufacturing capacity. The estimated cost of the new equipment is Rs.250 million. It is expected to have an economic life of 10 years. The accountant forecasts that net cash inflows would be Rs.45 million per annum for the first three years, Rs.68 million per annum from year four to year eight and for the remaining two years Rs.30million per annum. The plant can be sold for Rs.55 million at the end of its economic life.
The company would need to raise debt to the extent of Rs.200 million. The company has the following options of borrowing Rs.200 million:
a. The company can borrow funds from a nationalized bank at the interest rate of 14 percent for 10 years. It will be required to pay equal annual installment of interest and repayment of principal.
b. A financial institution has offered to lend money to DHPL at 13.5 per annum but it needs to pay equated quarterly installment of interest and repayment of principal.