GLOBAL RISK MANAGEMENT INSTITUTE
ASSIGNMENT
FINANCIAL MANAGEMENT
Batch: 15
Academic Year: 07-2024
Reg. No……………
Name……………………. Marks: 100
Note: Each Question carries a weightage of 10 Marks
Q1. A company is considering investing in a new machine. The machine costs Rs 500,000 and is
expected to generate the following cash flows over the next 5 years:
Year 1: Rs 150,000
Year 2: Rs 160,000
Year 3: Rs 170,000
Year 4: Rs 180,000
Year 5: Rs 190,000
The company’s required rate of return is 10%. Should the company invest in the machine state with
reason?
Q2. A company is evaluating a project with the following cash flows:
Year 0 (initial investment): Rs 250,000
Year 1: Rs 70,000
Year 2: Rs 90,000
Year 3: Rs 110,000
Year 4: Rs 130,000
How long will it take for the company to recover its initial investment?
Q3. A company is considering a project that requires an initial investment of Rs 500,000. The expected
cash flows are:
Year 1: Rs 150,000
Year 2: Rs 160,000
Year 3: Rs 170,000
Year 4: Rs 180,000
Year 5: Rs 190,000
The required rate of return is 10%. Should the company invest in the project based on the Profitability
Index (PI)?
Q4. Compute the following:
(a) A company’s stock has a beta of 1.2, the risk-free rate is 4%, and the expected return on the
market is 12%. What is the company’s cost of equity using the Capital Asset Pricing Model
(CAPM)? (5)
(b) A company has net income of Rs. 800,000 and decides to pay a dividend of Rs. 320,000. What is
the company’s dividend payout ratio? (5)
Q5. Offer solutions to the following:
(a) A company has net income of Rs. 1,000,000 and pays out dividends of Rs. 250,000. What is the
company’s retention ratio? (5)
(b) A company pays a dividend of Rs. 2 per share, and the stock is priced at Rs. 50 per share. An
investor in a 40% tax bracket would prefer a stock with no dividend, while an investor in a 20%
tax bracket prefers a stock with a dividend. If the company changes its dividend policy and
switches to no dividend, how will the stock price be affected? (5)
Q6. Company ABC has current assets of Rs. 250,000, including Rs. 50,000 in inventory, and current
liabilities of Rs 100,000. The company wants to know how much of its working capital is tied up in
inventory. What is the proportion of working capital tied up in inventory?
Q7. Compute the following:
(a) You save Rs. 1,000 every year for 5 years in an account earning 6% annual interest, compounded
annually. What will be the future value of the annuity? (5)
(b) You want to save Rs. 10,000 in 6 years. If the annual interest rate is 5%, how much do you need
to save annually to reach your goal? (5)
Q8. Offer solutions to the following:
(A)A company has the following financial information:
Earnings Before Interest and Taxes (EBIT): Rs. 500,000
Interest Expense: Rs. 100,000
Earnings Before Taxes (EBT): Rs. 400,000
Calculate the Degree of Financial Leverage (DFL). (5)
(B) A company’s EBIT is expected to grow by 10% next year. The company has an operating leverage of
2.5 and a financial leverage of 1.8. What will be the percentage change in the company’s Earnings Per
Share (EPS)? (5)
Q9. Discuss the Dividend policy of any company of your choice through a Quantitative Analysis for the
last 5 Years (2020-2025). Taking into consideration the key aspects concerning the company’s Dividend
Policy. (1500-2000 words)
Q10. The following information is available for a company for the year:
Net Income: Rs.50,000
Depreciation Expense: Rs.10,000
Increase in Accounts Receivable: Rs. 5,000
Increase in Accounts Payable: Rs. 3,000
Loss on Sale of Equipment: Rs. 2,000
Calculate the Cash Flow from Operating Activities using the indirect method.
