Proficiency in Business Finance Assignment 1 Q1.Write short notes on any THREE of the...

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Proficiency in Business Finance Assignment 1 Q1.Write short notes on any THREE of the following (with suitable examples): i. Role of Finance Manager in a Business...

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Proficiency in Business Finance

Assignment 1

Q1.Write short notes on any THREE of the following (with suitable examples):

i.

Role of Finance Manager in a Business Organisation

ii.

Wealth Maximisation Vs. Profit Maximisation

iii.

Agency Problem

iv.

Time Value of Money and Its Applications in Business Decision Making

v.

Simple Interest Vs. Compounding Interest

Q2.

(a) A company requires

₹70,00,000 at the end of eight years from now. How much amount should this company deposit every year in a sinking fund so that the requisite amount is arranged at the end of eighth year? Interest rate applicable on this fund is 9% per annum.

(b) Sarita has taken a 7-year loan of

₹ 10,00,000 at an interest of 8% per annum from her company for purchasing a car. The company requires seven equal end-of-year installments for the payment of this loan. Find out the amount of instalment.

(c) An investor has invested Rs XXXXXXXXXXin a fund that offers a compounding interest of 8% per annum. How much time it will take for the amount to become Rs XXXXXXXXXX?

(d) Amit will be getting Rs. 70 Lacs after 25 years from now. Find out the equivalent value today if his required rate of return is 12% per annum.

Q3.

Tokyo Industries Ltd. is a reputed multinational company which is planning to start its business operations in India. Management of Tokyo Industries Ltd. is considering three investment proposals i.e. Project A, Project B and Project C for this purpose. These projects are more or less same as far as their risk profile is concerned.A committee of five analysts has estimated cash inflows and outflows related to these projects. These estimated cash flows are as follows:

Cash Flows (₹Crore)

Projects C0 C1 C2 C3 C4

Project A XXXXXXXXXX300

Project B XXXXXXXXXX200

Project c XXXXXXXXXX300

The management of this company wants your help in selecting the best investment project. Kindly help the management by ranking these projects by using Payback Period, Discounted Payback Period, NPV, PI and IRR methods.

Discounting rate is 12%.

Which of these project / projects would you recommend to the management of Tokyo Industries Ltd. if:

i. These projects are mutually exclusive.

ii. These projects are independent.

Q4

. Calculate weighted average cost of capital (WACC) for Chirag Pharmaceuticals Ltd. through Book Value as well as Market Value Method (Before tax as well as after tax) with the help of following data:

Equity Share Capital (2,00,000 shares of 10 each) - ₹ 20,00,000

12 % Preference Capital - ₹ 40,00,000

10% Debentures - ₹ 40,00,000

Other Information:

i. Ke = 15%

ii. Market Price of Equity Share is ₹ 225.

iii. Preference Shares are priced at par.

iv. Debentures are priced at 90%.

v. Applicable tax rate is 30%.

5pbf-assignment-1-jbz0vih1.docx

Answered 2 days After Feb 07, 2023

Rinki · Accepted Answer

Question 1. 
Wealth Maximisation v/s Profit maximisation: - 
In wealth Maximisation company focus to maximize the value of the shareholders wealth it considers the time value of money and also consider the uncertainty and risk evolved. The main goal of the company in wealth maximisation is to maximize the Market value of its share. Wealth maximisation emphasizes long term growth. Example if a share with face value $10 increases to $20 this means the value of company has increased. 
Profit Maximisation is the approach in which companies focus on output and price level to maximize its profit/return. It ignores time value of money and risk. Company sets its production cost, sale price and output in such a way that it can achieve its profit goals. The main goal of the company in profit maximisation is to earn the satisfactory return to sustain in the market. Profit Maximisation emphasizes short term profits. Example company increases its sale to earn more profit.
Time Value of Money and Its Applications in Business Decision Making: -
Time value of money is the basic Principle of Finance which means that the value of money today is more than its value in future due to its earning capacity. Time value of money can also be understood as the discounted value of future money today considering the discounting factor. 
It is relevant in decision making of businesses as Investor will come to the correct value of the project that will be generated in future suppose there are two projects in which one have to invest Project A and Project B both have identical cash flow of 100000 for 5 years but project A will generate 100000 at the end of each year for 5 year while project B generate 500000 at the end of 5th year. Here considering time value of money Project A is more beneficial for investment. 
Simple Interest V/s Compound Interest: -
Simple Interest in calculated on principal amount of loan. Here amount of interest due or paid is fixed over the loan period. Formula used to calculate simple interest is SI = P*R*T where P is the principal, R is rate of interest and T is time period of loan. 
Example. Amit has taken a simple interest loan of 100000 for 3 year @ 10 % interest. Here Interest will be 100000*10/100*3 = 30000
Compound Interest is calculated on Principal and interest outstanding on the loan amount.

Proficiency in Business Finance Assignment 1 Q1.Write short notes on any THREE of the following (with suitable examples): i. Role of Finance Manager in a Business...

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