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Master of Business Administration - MBA Semester 2

MBA202 – Financial Management

Set - 1

Q1. Financial planning means deciding in advance the financial activities to be carried on to achieve
the basic objective of the firm. Explain the objectives, benefits and guidelines for financial
Planning.
a) Objectives 4
b) Benefits 3
c) Guidelines 3

Answer: Factors Affecting Financial Plan

 Nature of the industry – The first factor affecting the financial plan is the nature of the
industry. Here, we must check whether the industry is a capital-intensive or labour-intensive
industry. This will have a major impact on the total assets that a firm owns.
 Size of the company – The size of the company greatly influences the availability of funds
from

Q2. Explain the ‘Rule of 69’ and ‘Rule of 72’.

The below depicts the interest rates offered by the fixed deposit scheme of a bank.

Period of deposit
Rate per annum
<45 days 9%
46 days to 179 days 10%
180 days to 365 days 10.5%
365 days and above 11%

What will be the status of Rs. 1,00,000 after four years if it is invested at this point of time?
a) Explanation of ‘Rule of 69’ and ‘Rule of 72’ 5
b) Solution to the problem 5

Answer. Rule 72 is a rule-of-thumb method used to determine how many years it takes to double in
investment money.
For example, using the rule of 72, dividing the number 72 by the fixed rate of return

Q3. Calculate the upper and lower limits, and the return point as per MO (Miller-Orr) model for
Gupta Industries which have a policy of maintaining Rs. 500000 minimum cash balance. The
standard deviation of the company’s daily cash flows is Rs. 200000. The interest rate is 14%. The
company has to spend Rs. 150 per transaction.
Solution to the problem 10

Answer. Z = 3√3/4*(cσ2/i)
3√3/

Set - 2

Q1. Roy Ltd. has an expected usage of 50,000 units of a certain product during the next year. The
cost of processing an order is Rs 20 and the carrying cost per unit per annum is Rs 1. Lead time for
an order is seven days and the company will keep a reserve of three days usage. Calculate EOQ and
Re – order point. Assume 250 days in a year.
a) Calculation of EOQ 5
b) Calculation of Re-order point 5

Answer.

Q2. List and explain the various costs associated with Maintaining Receivables.
Costs associated with maintaining Receivables 10

Answer. Costs Associated with Maintaining Receivables

There are four different varieties of costs associated with maintaining receivables: capital cost,

Q3. Stability of dividends is the consistency in the stream of dividend payments. This method
relates to the payment of certain amount of minimum dividend to the shareholders. List and
explain the advantages because of it?

Advantages which are due to Stability of dividend 10

Answer.
Stability of dividends is the consistency in the stream of dividend payments. This method relates to
the payment of certain amount of minimum dividend to the

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