What are the differences between fund flow and cash flow?

Last date of submitting the assignment is 10th November, 2015. In case of late submission, ONE mark will be deducted for each day after the due date.

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Question 1. Critically evaluate various approaches to the financial management. (Points 2)

Question 2. What are the differences between fund flow and cash flow? (Points 2)

Question 3. (a) Critically examine the advantages and disadvantages of equity shares. (Points 2)

(b) Evaluate the overall view of debentures. (Points 2)

Question 4. (a) What is optimum capital structure? (Points 1)

(b) Compute the market value of the firm, value of shares and the average cost of capital from the following information. (Points 1)

Net operating income Rs. 2, 00,000

Total investment Rs. 5, 00,000

Equity capitalization Rate:

(a) If the firm uses no debt 10%

(b) If the firm uses Rs. 25,000 debentures 11%

(c) If the firm uses Rs. 4, 00,000 debentures 13%

Assume that Rs. 5, 00,000 debentures can be raised at 6% rate of interest whereas

Rs. 4, 00,000 debentures can be raised at 7% rate of interest.

Question 5. A company has on its books the following amounts and specific costs of each type of capital. (Points 2)

Type of Capital Book Value Rs. Market Value Rs. Specific Costs (%)
Debt 4,00,000 3,80,000 5
Preference 1,00,00 1,10,00 6
Equity 6,00,00 9,00,000 15
Retained Earning 2,00,00 3,00,000 13

13,00,000 16,90,00

Determine the weighted average cost of capital using:

(a) Book value weights, and

(b) Market value weights.

Question 6. Distinguish the operating leverage from financial leverage. (Points 2)

Question 7. Explain the factors affecting the dividend policy. (Points 2)

Question 8. (a) A project costs Rs. 20, 00,000 and yields annually a profit of Rs. 3, 00,000 after depreciation @ 12½% but before tax at 50%. Calculate the pay-back period. (Points 1)

Profit after depreciation 3, 00,000

Tax 50% 1, 50,000

1, 50,000

Add depreciation:

20, 00,000 12.5 % 2, 50,000

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