1. The approach focused mainly on the financial problems of corporate enterprise
A). Ignored routine problems
2. These are those shares, which can be redeemed or repaid to the holders after a lapse of the stipulated period
A).Redeemable preference shares
3. This type of risk arise from changes in environmental regulations, zoning requirements, fees, licenses and most frequently taxes.
A). Political risk
4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment proposal A). Future cost
5. This concept is helpful in formulating a sound & economical capital structure for a firm
A). Designing optimal corporate capital structure
6. It is the minimum required…show more content… A). loan is an amount raised from outsiders at a specified period (lump sum) or in installments. The repayment of loan is known as amortization.
4. What is the Difference between NPV and IRR?
NPV Method IRR Method
1.Intrest rate is a known factor 1. Interest rate is an unknown factor
2.It involves computation of the amount that can be 2.It attempts to find out the maximum rate of
invested in a given project so that the anticipated earnings interest at which funds are invested in the project
will be sufficient to repay this amount with market rate earnings from the project in the form of cash
of interest. Flow will help us to get back funds already
3.It assumes that the cash inflows can be reinvested at 3.It also assumes the cash inflows can be reinve-
the discounting rate in the new projects sted the discounting rate in the new projects .
4.reinvestment is assumed to be at the cut-off rate 4. Reinvestment funds is assumed to be at the IRR
Section C: Applied Theory (30 marks)
2. Explain the concept of working capital. What are the factors which influence the working capital?
A). There are two concepts of working capital commonly found in the existing literature of finance such as :
1. Gross working capital
2. Net working capital
The above concepts each has its relevance in specific situations from the management point of view and its