Summer 2011- May drive

Masters of Business Administration- MBA Semester 2

MB0045 –Financial Management - 4 Credits

(Book ID: B1134)

Assignment Set- 1 (60 Marks)

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

1. A company has issued a bond with face value of Rs.1000 , with 10% pa coupon rate payable annually and a tenure of 10 years to maturity. At the end of 10 years, the bond will be redeemed at a premium of 10% to face value .
a) At what price would you buy the bond if the prevailing interest rate is 12% pa on investments of similar risk?
b) What is the YTM of the bond if the prevailing price is same as calculated in a) above.
c) What is the current yield of the bond at the given price?
d) If the coupon rate is paid semi-annually, at what price would you buy the bond at the 12% pa prevailing interest rate?

2. Given the following details for a company:

a) Given the assumptions of the net operating income approach, what will be the cost of equity, if the market value of debt is 200,000.
b) Given the assumptions of the net income approach, what will be the overall cost of capital with Market value of debt of 200,000.

3. Given the following projects , rank them on the basis of NPV, MIRR and Payback period if the
cost of capital is 10% pa.


4. Given the following information, calculate Degree of operating leverage, Degree of Financial
leverage, Degree of total leverage.


5. Explain the following concepts :
a) Operating cycle
b) Total inventory cost
c) Price earnings ratio
d) Financial risk

6. Explain the Net operating income approach to capital structure theories.