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Title Name Amity Solved Assignment B.Com 3rd Sem for Financial Management
University AMITY
Service Type Assignment
Course B.Com
Semester Semester-III Course: B.Com
Short Name or Subject Code Financial Management
Commerce line item Type Semester-III Course: B.Com
Product Assignment of B.Com Semester-III (AMITY)


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Answer any Three of the questions below.

At the end of five years, how much is the initial deposit of Rs 25,000 worth if the compounding annual rate is 10%. Also compute the worth of the initial deposit if the interest is compounded semiannually and quarterly.  


. Ramesh requires Rs 100,000 at the end of 5 years so he decides to keep certain equal amount out of his income at the end of each year in his bank account. The bank pays an interest of 8% per annum. How much should Ramesh save each year?  


Star hotels ltd have two investment proposals that are as follows.

Project A                                                                             Project B



Net Cash Flow


Rs 9,000

Rs 0


Rs 1,000


Rs 1,000


Rs 1,000



Net Cash Flow


Rs 12,000

Rs 0


Rs 5,000


Rs 5,000





Compare both the projects on the basis of its payback period, Net present value and its profitability index using discount rate of 15%.


A company is planning to buy a new machine for Rs 2, 00,000 with life for 2 yrs. The cost of capital is 12 %. The cash flow after tax generated from the machine for 2 yrs are:


Cash flow after tax



Rs 1,00,000



Rs 1,20,000



Rs 80,000



Rs 1,20,000


The cost of capital is 12% and risk free rate is 5%. Using the decision tree approach find out whether the investment should be made or not?



Answer any three questions out of the following


a)     What is operating cycle? How important is it for the management of working capital?

b)    Distinguish between ( i) Gross and net working capital

               ii) Permanent and temporary working capital

c)     How do working capital management policies impact a firm’s risk and profitability ?

d)    The balance sheet of X ltd as om 31 March 2010 is

Liabilities ( Rs)

Assets (Rs)

Current Liabilities


Current assets


Long Term Liabilities


Fixed assts






Calculate the current ratio for the firm.

           e) From the data provided below calculate the operating cycle.

Credit sales

Rs 5,00,000

Cost of goods sold

Rs 2,50,000


Rs 1,20,000

Average raw material stock

Rs 60,000

Average work in progress

Rs 55,000

Average finished goods stock

Rs 92,000

Average creditors

Rs 60,000

Average debtors

Rs 1,50,000


The balance sheet and income statement of R Electricals is given below.

Income statement

Net sales ( all credit)

Rs 12,680

Cost of goods sold

Rs 8,930

Gross profit

Rs 3,750

Selling, general and administration expenses

Rs 2,230

Interest Expense

Rs 460

Profit before taxes

Rs 1060


Rs 390

Profit after taxes

Rs 670

Balance Sheet


Rs   400

Accounts Receivable

Rs 1,300



Rs 2,100

               Current Assets

Rs 3,800

Net Fixed Assets

Rs 3,320

Total Assets

Rs 7,120

Accounts payable

Rs   320


Rs 260

Short term loans


Rs 1,100

          Current Liabilities

Rs 1,680

Long term debt

Rs 2,000

Net worth

Rs 3,440

Total Liabilities and net worth

Rs 7,120





Rs 4,50,000


Preference shares

Rs 1,00,000



Rs 3,00,000


Retained earnings

Rs 1,50,000


Rs 10,00,000

On the basis of information given above calculate current ratio, acid test ratio, the average collection period, inventory turnover ratio, net profit margin and return on equity.    


 Calculate the weighted average cost of capital from the following information provided  


From the data given below find out the price of the share according to the Gordon’s model when dividend payout is 25% and 50%.

§  Earnings per share = Rs 8

§  Rate of return on investment = 16%

§  Return expected by share holders = 12%

Read the case study and answer the questions given at the end. 

Case Study 

Mergers and acquisitions in banking sector have become familiar in the majority of all the countries in the world. A large number of international and domestic banks all over the world are engaged in merger and acquisition activities. One of the principal objectives behind the mergers and acquisitions in the banking sector is to reap the benefits of economies of scale. With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent. Another important advantage behind this kind of merger is that in this process, competition is reduced because merger eliminates competitors from the banking industry. Mergers and acquisitions in banking sector are forms of horizontal merger because the merging entities are involved in the same kind of business or commercial activities. Sometimes, non-banking financial institutions are also merged with other banks if they provide similar type of services. Through mergers and acquisitions in the banking sector, the banks look for strategic benefits in the banking sector. They also try to enhance their customer base.

In the context of mergers and acquisitions in the banking sector, it can be reckoned that size does matter and growth in size can be achieved through mergers and acquisitions quite easily. Growth achieved by taking assistance of the mergers and acquisitions in the banking sector may be described as inorganic growth. Both government banks and private sector banks are adopting policies for mergers and acquisitions.

In many countries, global or multinational banks are extending their operations through mergers and acquisitions with the regional banks in those countries. These mergers and acquisitions are named as cross-border mergers and acquisitions in the banking sector or international mergers and acquisitions in the banking sector. By doing this, global banking corporations are able to place themselves into a dominant position in the banking sector, achieve economies of scale, as well as garner market share.

Mergers and acquisitions in the banking sector have the capacity to ensure efficiency, profitability and synergy. They also help to form and grow shareholder value. In some cases, financially distressed banks are also subject to takeovers or mergers in the banking sector and this kind of merger may result in monopoly and job cuts.

Deregulation in the financial market, market liberalization, economic reforms, and a number of other factors have played an important function behind the growth of mergers and acquisitions in the banking sector. Nevertheless, there are many challenges that are still to be overcome through appropriate measures.

Mergers and acquisitions in banking sector are controlled or regulated by the apex financial authority of a particular country. For example, the mergers and acquisitions in the banking sector of India are overseen by the Reserve Bank of India (RBI).Indian competition law grants a maximum time period of 210 days for the determination of the combination, which comprises acquisitions, mergers, amalgamations and the like. One needs to take note of the fact that this stated time frame is clearly distinct from the minimum compulsory wait period for applicants.

As per the law, the compulsory period of waiting for applicants can either be 210 days starting from the day of notice filing or receipt of the Commission´s order, whichever occurs earlier.

The threshold limits for firms entering business combinations are substantially high under the Indian law. The threshold limits are set either in terms of the asset value or in terms the firm´s turnover. Indian threshold limits are greater than those for the EU. They are twice as high when compared with UK.

The Indian law also provides for the modern day phenomenon of merger and acquisitions, which are cross border in nature. As per the law domestic nexus is a pre-requisite for notification on this type of combinations.

It can be noted that Competition Act, 2002 has undergone a recent amendment. This has replaced the voluntary notification regime with a mandatory regime. Of the total number of 106 countries, which possess competition laws only 9 are thought to be credited with a voluntary notification regime. Voluntary notification regimes are generally associated with business uncertainties. Post-combination, if firms are seen to be involved in anti-competitive practices de-merger shows the way out.

Indian Income Tax Act has provision for tax concessions for mergers/demergers between two Indian companies. These mergers/demergers need to satisfy the conditions pertaining to section 2(19AA) and section 2(1B) of the Indian Income Tax Act as per the applicable situation.

In case of an Indian merger when transfer of shares occurs for a company they are entitled to a specific exemption from the capital gains tax under the “Indian I-T tax Act”. These companies can either be of Indian origin or foreign ones.

A different set of rules is however applicable for the ´foreign company mergers´. It is a situation where an Indian company owns the new company formed out of the merger of two foreign companies.

It can be noted that for foreign company mergers the share allotment in the merged foreign company in place of shares surrendered by the amalgamating foreign company would be termed as a transfer, which would be taxable under the Indian tax law.

Also as per conditions set under section 5(1), the ´Indian I-T Act´ states that, global income accruing to an Indian company would also be included under the head of ´scope of income´ for the Indian company.  

Q.No 1: Discuss the reasons they encourage mergers in the banking sector?

Q.No 2: Discuss the legal implications of merger in India?


Question No.  1          

Compounding technique shows---     


  1. Present Value
  2. Future Value
  3. Both present and future value
  4. None of the above.

Question No.  2          

An infinite series of periodic cash flows growing at a constant rate is---      



  1. Annuity
  2. Perpetuity
  3. Future value
  4. compounding

Question No.  3          

Working capital represents---


  1. the capital raised by the company
  2. capital required to meet day to day expenses
  3. Equity capital of the company
  4. Total capital of the company

Question No.  4          

An example of liquidity ratio is---     



  1. Current ratio
  2. Debt –equity ratio
  3. Debtors turnover ratio
  4. Return on equity

Question No.  5          

Discounting techniques in capital budgeting include---        



  1. NPV
  2. Profitability Index
  3. Payback period
  4. None of the above

Question No.  6          

Net Profit Ratio Signifies---  



  1. Operational Profitability
  2. Liquidity Position
  3. Big-term Solvency
  4. Profit for Lenders.

Question No.  7          

ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5, 00,000. What are the Current Assets?              



  1. 5,00,000
  2. 10,00,000
  3. 15,00,000
  4. 25,00,000

Question No.  8          

Financial Planning deals with---        



  1. Preparation of Financial Statements
  2. Planning for a Capital Issue
  3. Preparing Budgets
  4. All of the above

Question No.  9          

Capital Budgeting is a part of---        



  1. Investment Decision
  2. Working Capital Management
  3. Marketing Management
  4. Capital Structure

Question No.  10        

A proposal is not a Capital Budgeting proposal if it--           


  1. is related to Fixed Assets
  2. brings long-term benefits
  3. brings short-term benefits only
  4. has very large investment

Question No.  11        

Two mutually exclusive projects with different economic lives can be compared on the basis of---            



  1. Internal Rate of Return
  2. Profitability Index
  3. Net Present Value
  4. Equivalent Annuity Value

Question No.  12        

Risk in Capital budgeting implies that the decision-maker knows ___________of the cash flows.



  1. Variability
  2. Probability
  3. Certainty
  4. None of the above

Question No.  13        

Cost of Capital refers to---     



  1. Flotation Cost
  2. Dividend
  3. Rate of Return Required
  4. None of the above

Question No.  14        

Which of the following cost of capital require tax adjustment?        



  1. Cost of Equity Shares
  2. Cost of Preference Shares
  3. Cost of Debentures
  4. Cost of Retained Earnings

Question No.  15        

Which is the most expensive source of funds?          



  1. New Equity Shares
  2. New Preference Shares
  3. New Debts
  4. Retained Earnings

Question No.  16        

In case the firm is all-equity financed, WACC would be equal to---            



  1. Cost of Debt
  2. Cost of Equity
  3. Neither (a) nor (b)
  4. Both (a) and (b)

Question No.  17        

Which of the following is true?         



  1. Retained earnings are cost free
  2. External Equity is cheaper than Internal Equity
  3. Retained Earnings are cheaper than External Equity
  4. Retained Earnings are costlier than External Equity

Question No.  18        

Advantage of Debt financing is---     



  1. Interest is tax-deductible
  2. It reduces WACC
  3. Does not dilute owners control
  4. All of the above

Question No.  19        

Cost of Equity Share Capital is more than cost of debt because---  



  1. Face value of debentures is more than face value of shares
  2. Equity shares have higher risk than debt
  3. Equity shares are easily saleable
  4. All of the three above

Question No.  20        

Which of the following is true for Net Income Approach?  



  1. Higher Equity is better
  2. Higher Debt is better
  3. Debt Ratio is irrelevant
  4. None of the above

Question No.  21        

NOI Approach advocates that the degree of debt financing is---     



  1. Relevant
  2. May be relevant
  3. Irrelevant
  4. May be irrelevant

Question No.  22        

Dividend Pay-out Ratio is---             



  1. PAT÷ Capital
  2. DPS ÷ EPS
  3. Dividend ÷ PAT
  4. Dividend ÷ Equity Dividend

Question No.  23        

Which of the following is not the responsibility of financial management?             



  1. allocation of funds to current and capital assets
  2. obtaining the best mix of financing alternatives
  3. preparation of the firm´s accounting statements
  4. development of an appropriate dividend policy

Question No.  24        

Which of the following are not among the daily activities of financial management?         



  1. sale of shares and corporate bonds
  2. credit management
  3. inventory control
  4. the receipt and disbursement of funds

Question No.  25        

The mix of debt and equity in a firm is referred to as the firm´s---  



  1. primary capital
  2. capital composition
  3. cost of capital
  4. capital structure

Question No.  26        

(1 + i) n stands for---              



  1. PVIF
  2. FVIF
  3. PVIFA
  4. FVIFA

Question No.  27        

Net working capital refers to---         



  1. Total assets minus fixed assets.
  2. Current assets minus current liabilities
  3. current assets minus inventories
  4. Current assets

Question No.  28        

Retained earnings are---         



  1. An indication of a company´s liquidity.
  2. The same as cash in the bank.
  3. Not important when determining dividends.
  4. The cumulative earnings of the company after dividends.

Question No.  29        

The restructuring of a corporation should be undertaken if---           



  1. The restructuring can prevent an unwanted takeover.
  2. The restructuring is expected to create value for shareholders.
  3. The restructuring is expected to increase the firm´s revenue.
  4. The interests of bondholders are not negatively affected.

Question No.  30        

__________ is concerned with the acquisition, financing, and management of assets with some overall goal in mind.  



  1. Financial Management
  2. Profit Maximization
  3. Agency theory
  4. Social responsibility

Question No.  31        

What is the most appropriate goal of the firm?         



  1. Shareholder wealth maximization.
  2. Profit Maximization
  3. Stakeholder maximization.
  4. EPS maximization.

Question No.  32        

A company can improve (lower) its debt-to-total asset ratio by doing which of the following?      



  1. Borrow more.
  2. Shift short-term to long-term debt.
  3. Shift long-term to short-term debt.
  4. Sell common stock.

Question No.  33        

The DuPont Approach breaks down the earning power on shareholders´ book value (ROE) as follows--            ROE = __________.              



  1. Net profit margin × Total asset turnover × Equity multiplier
  2. Total asset turnover × Gross profit margin × Debt ratio
  3. Total asset turnover × Net profit margin
  4. Total asset turnover × Gross profit margin × Equity multiplier

Question No.  34        

Which group of ratios measures how effectively the firm is using its assets?           



  1. Liquidity ratios.
  2. Coverage ratios.
  3. Profitability ratios.
  4. Activity ratios.

Question No.  35        

Which of the following is not a cash outflow for the firm?  


  1. Depreciation
  2. Dividends
  3. Interest payments.
  4. Taxes

Question No.  36        

The accounting statement of cash flows reports a firm´s cash flows segregated into what categorical order?            



  1. Operating, investing, and financing.
  2. Investing, operating, and financing.
  3. Financing, operating and investing.
  4. Financing, investing, and operating.

Question No.  37        

Which of the following is a basic principle of finance as it relates to the management of working capital?            



  1. Profitability varies inversely with risk.
  2. Liquidity moves together with risk.
  3. Profitability moves together with risk.
  4. Profitability moves together with liquidity.

Question No.  38        

The amount of current assets required to meet a firm´s long-term minimum needs is referred to as __________ working capital          



  1. permanent
  2. temporary
  3. net
  4. gross

Question No.  39        

The overall (weighted average) cost of capital is composed of a weighted average of __________.          



  1. the cost of common equity and the cost of debt
  2. the cost of common equity and the cost of preferred stock
  3. the cost of preferred stock and cost of debt
  4. the cost of common equity, the cost of preferred stock and cost of debt

Question No.  40        

What is the most likely reason that a firm (who is highly profitable) might consider acquiring a firm that has had large recent losses and will continue to have losses into the near future?     



  1. Hubris
  2. White knight.
  3. Tax-loss usage.
  4. Increase assets


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