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UPES Assignment 2014 Financial Management-1-2014J
 
Product Name : Financial Management-1-2014J
Product Code : AC1
Category : UPES
Soft Copy Type B  : Rs. 1000   img
 
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Description :

Section A (20 Marks)

Write short notes on any four of the following

  1. Objectives of Financial Management
  2. Concept of Time Value of Money
  3. Types of Long-term Sources of Financing
  4. Concept of Venture Capital
  5. Concept of Economic Value Added (EVA)

 

Section B (30 marks)

(Attempt any three)

  1. Scope of financial management and nature of financial management.
  2. Given the time value of money as 10% (i.e. the discounting factor), you are required to find out the present value of future cash inflows that will be received over the next four years.

Year    Cash flows

1          1,000

2          2,000

3          3,000

4          4,000

  1. What are Commercial Papers (CPs)? What are the features, advantages and disadvantages of CP? What are the eligibility criteria for issuing CP?
  2. What is a Cost of Capital? How to compute specific cost of capital? What are the various classifications of cost?

 

Section C (50 marks)

(Attempt all questions. Every question carries 10 marks)

Read the case “Bhatt Industries Basic Planning” and answer the following questions.

 

Bhatt Industries Basic Planning

This case will help the reader and develop an approach to structuring a case solution. It requires a logical approach to solving a general financial problem.

Bhatt Industries has been manufacturing fireworks at a small facility just outside Greensboro, North Carolina. The firm is known for the high level of quality control in its production process and is generally respected by distributors in the states, where fireworks are legalized. Its selling market is fairly well defined; it has the capacity to produce 800,000 cases annually, with peak consumption in the summer. The firm is fairly confident, that the whole of next year’s production can be sold for ` 25 a case.

On September 7, the company has ` 8,000,000 in cash. The firm has a policy against borrowing, to finance its production, a policy first established by William Bhatt, the owner of the firm. Mr. Bhatt keeps a tight rein on the firm’s cash and invests any excess cash in treasury bonds that pays a 12 percent return and involve no risk of default.

The firm’s production cycle revolves around the seasonal nature of the fireworks business. Production begins right after Labour Day and runs through May. The firms’ sales occur in February through May; the firm closes from June 1 to Labour Day, when its employees return to farming. During this time, Mr. Bhatt visits his grandchildren in New York and Pennsylvania. As a result of this scheduling, the firm pays all its expenses during September and in May receives all its revenues from its distributors within 6 weeks after the 4th of July. The customers send their checks directly to Kenmy National Bank, where the money is deposited in Bhatt’s account.

Mr. Bhatt is the only full-time employee of his company and he and his family hold all the common stock. Thus, the company’s only costs are directly related to the production of fireworks. The costs are affected by the law of variable proportions, depending on the production level. The first 100,000 cases cost `16 each; the second 100,000 cases, ` 17 each; the third 100,000 cases, ` 18 each and the fourth 100,000 cases, ` 19 each; the fifth 100,000 cases, ` 20 each; the sixth 100,000 cases, `21 each. As an example, the total of 200,000 cases would be `1,600,000 plus `1,700,000 or `3,300,000.

BHATT INDUSTRIES - INCOME STATEMENT

(August 31, fiscal year just ended)

                                                                                                                   `

Revenues from operations

50,00,000

Revenues from interest on government bonds

9,20,000

Total revenues

59,20,000

Operating expenses

40,50,000

Earnings before taxes

18,70,000

Taxes

9,48,400

Net income after taxes

9,21,600

 

 

Bhatt Industries is a corporation and pays a 30 per cent tax on income, because of the paperwork involved. Mr. Bhatt invests his excess cash on September 6 in one year treasury bonds. He does not invest for shorter periods.

Questions

1.                  Summarize the case in your own words.

2.                  What is the problem stated in the in the case?

3.                  What should be the level of production to maximize the profit?

4.                  How does the level affect long-term prospects of wealth maximization?

5.                  How the costs of company are directly related to the production.

 
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