ASSIGNMENT

MB0029
Financial Management
1. Compare and contrast NPV with IRR
2. Zodiac Ltd is considering purchase of investment worth Rs. 40 lakhs.
The estimated life and the new cash flow fir 3 years are as under.
Machines
A B C
Estimated life 3 Years 3 Years 3years
Cash inflows(in lakhs)
1 Year 27 06 12
2 Year 18 21 80
3 Year 55 33 30
Which machine should be selected on the basis of payback period? Calculate discounted payback period if the
cost of capital is 12%
3a. Reliant Ltd has to redeem 12% Rs. 30 million debenture 5 years hence. How much should it
deposit annually in sinking fund account so that it can accumulate Rs. 30 million at the end of 5
years.

b. Road Transport Corporation issued deep discount bands in 1996 which has a face value of Rs.
2,00,000 maturing after 25 years. The bond was issued at Rs. 5300. What is the effective
interest rate earned by the investor from this bond?
4. A bond has a par value of Rs. 1000 bearing a coupon rate of 10% maturing in 10 years. If the YTM
is 12% what is the market value of the bond? If the YTM is increase to 14%, what is the market value
of the bond? Compare and give the inference.
5a. ABC Ltd, produced and sold Rs.1,00,000 of a product at the rate of Rs.100. For production of Rs.1,00,000 units,
it has spent a variable cost of Rs.6,00,000 at the rate of Rs.6 per unit and the fixed cost if Rs. 2,50,000. The firm
has paid interest Rs. 50,000 at the rate of 5 percent and Rs.1,00,000 debts. Calculate operating leverage.
b. Explain the importance of capital budgeting

CASE STUDY
6. Financial Planning: Assume you are working for an investment banker. A client aged 30 has approached you on
investment planning. His present salary is Rs.6,00,000 per year and his current savings is Rs.1,50,000. (a) How
much does this current saving grow to in 3 years if the interest rate is12% compounded annually. (b) Assume he
plans to save Rs.60000 at the end of every year for 5 years, what would be the amount at the end of 5 years if
the interest being 10% compounded annually.