Course: Corporate Finance

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NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Corporate Finance

Internal Assignment Applicable for June 2017 Examination

Assignment Marks: 30

Instructions:

·       All Questions carry equal marks.

·       All Questions are compulsory

·       All answers to be explained in not more than 1000 words for question 1 and 2 and for question 3 in not more than 500 words for each subsection. Use relevant examples, illustrations as far as possible.

·       All answers to be written individually. Discussion and group work is not advisable.

·       Students are free to refer to any books/reference material/website/internet for attempting their assignments, but are not allowed to copy the matter as it is from the source of reference.

·       Students should write the assignment in their own words. Copying of assignments from other students is not allowed.

Question1. Mr. Grover wants to invest Rs 50lacs in order to expand his business. He explored three to five options to invest in. Discuss-

·      Is there any significance of implementing capital budgeting.

·       Capital budgeting as a process.                                               (10 Marks)

Answer1.

Significance of implementing capital budgeting-

An organization undertakes multiple projects with different capital requirements, rates of return, and time duration. Some projects may need investment over a longer period of time, whereas others need investments only in the initial years. An organization should take project selection decisions very prudently to ensure the optimum utilization of funds invested. Any wrong selection of a project may incur heavy losses for the

Question2. In the financial market, shares and debentures are recognized as the long term sources of finance. But there are certain points which define how different these instruments are. Elaborate.                                   (10 Marks)

Answer2.

Definition of Shares

Smallest division of the company’s capital is known as shares. The shares are offered for sale in the open market, i.e. stock market to raise capital for the company. The rate on which the shares are offered is known as share price. It represents the portion of ownership of the shareholder in the company. The shareholders are entitled to the

Question3a. A company produces and sells 12500 units of Commodity X at Rs 50 each. The variable cost of the production is 20 % of selling price. Fixed cost being Rs 100000 per annum. Calculate the PV ratio and BEP if -          (5 Marks)

·       The selling price is reduced by 5 %.

·       Fixed cost is increased by 2 lacs

Answer3a.

Quantity- 12500

Selling Price – 50

Variable Cost- 10 (20% of selling price)

Question3b. A fruit dealer sells 32000 boxes of strawberries during the year. The cost of placing an order is Rs 50 and each box of strawberry costs Rs100. The cost of carrying the inventories is 20%. You are required to find out the economic order quantity.                                                                                               (5 Marks)

Answer3b.

          Economic order quantity (EOQ)= square root of (2 x d x s/h)

D=Annual demand/usage (in units)

S= cost per order

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