BCOE – 143 FUNDAMENTALS OF FINANCIAL MANAGEMENT

BCOE – 143 Fundamentals of Financial Management: Assignment Solutions Master Post

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Introduction This post includes direct links to the answers for all the questions from the BCOE – 143 Fundamentals of Financial Management assignment for IGNOU students. Each answer is designed to help you understand key concepts clearly and easily. Section A What is capital asset pricing model and arbitrage pricing theory? Differentiate between them. Discuss […]

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Distinguish between: a) Equity shares and Preference share b) Net income approach and net operating income approach

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a) Equity Shares vs. Preference Shares Point of Difference Equity Shares Preference Shares Ownership Represents ownership in the company with voting rights No ownership rights; generally no voting rights Dividend Paid after preference shareholders; not fixed Fixed rate of dividend paid before equity holders Repayment Repaid after all liabilities in case of liquidation Priority in

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Write short notes on: a) Financial leverage b) Gordon’s model of dividend

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a) Financial Leverage Definition:Financial leverage refers to the use of debt in the capital structure of a company to enhance the return on equity. It measures the sensitivity of earnings per share (EPS) to changes in operating income due to the presence of fixed financial charges like interest. Formula:Financial Leverage = EBIT / EBTWhere:EBIT =

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Explain the concepts of factoring and forfaiting.

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Introduction Factoring and forfaiting are two important financial tools used by businesses to manage their receivables and enhance cash flow. These mechanisms provide working capital by converting outstanding invoices or future receivables into immediate cash. Although both serve similar purposes, they differ significantly in structure, risk, and applicability. Factoring Definition:Factoring is a financial arrangement in

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Discuss the conditions under which dividends can’t be declared.

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Introduction Dividends are the portion of profits distributed to shareholders as a return on their investment. However, companies are not always in a position to declare dividends. Legal, financial, and operational constraints may restrict dividend declarations. This article discusses various conditions under which a company cannot declare dividends. 1. Inadequate Profits or Losses A company

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Explain the dual method for the valuation of shares.

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Introduction The valuation of shares is essential in investment decisions, mergers, acquisitions, and financial reporting. Among the different techniques, the dual method combines two approaches to derive a more balanced and accurate valuation. This method is particularly useful when market data is incomplete or when both dividend potential and asset backing are relevant. What is

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What is payback period? Explain the acceptance criteria using payback period method.

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Introduction The payback period is a capital budgeting technique used to evaluate the time it takes for an investment to recover its initial cost from its cash inflows. It is a simple and widely used method to assess the risk and liquidity of investment projects. This article defines the payback period, explains how it is

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Explain future value and present value of money giving examples.

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Introduction The concepts of Future Value (FV) and Present Value (PV) are central to the understanding of the time value of money—a foundational principle in finance. They help in evaluating investments, loans, and financial planning decisions by accounting for the impact of time and interest on money. Future Value (FV) Definition:Future Value refers to the

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Explain the various approaches to calculate cost of equity with help of examples.

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Introduction The cost of equity represents the return that investors expect for investing in a company’s equity. It is a critical component in financial management, particularly in capital budgeting and valuation. Several models are used to estimate the cost of equity, each with its own assumptions and inputs. This article explains the major approaches to

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Discuss with suitable examples various types of risks involved in capital budgeting decisions.

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Introduction Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the goal of the firm’s wealth maximization. However, these decisions involve significant risks due to uncertainties in future cash flows, project life, and external factors. Understanding various types of risks involved in capital budgeting is crucial for effective financial

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