Time: 2Hrs.                        FM Prelims                                Total Marks: 60

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Note : Section I   :- All Questions are Compulsory     (30 marks)

            Section II :- Attempt any three.                        (30 marks)

 

Section I

 

Q.1 a) Each Question of 1 Mark (5C x 1M = 5M)

i)        Explain Non-Core Asset

ii)      2/10 Net 60

iii)    RTGS

iv)    Formula of cost of redeemable debt

v)      Explain ‘Capital Market Conditions’ as a factor determining capital structure

 

Q.1 b) Each Question of 5 Marks. Attempt any two.            (5 x 2 = 10 Marks)

 

(i)     Given below is Balance Sheet of A Ltd.

 

Liabilities

$

Assets

$

ESC (Rs.10 / Share)

10% Preference Shares

8% Debentures

1000000

1000000

1100000

Sundry Assets

3100000

 

3100000

 

3100000

1)      If ROI is 18% and Tax rate is 40%,

Calculate:-

a)      DFL          b)  EPS            c)  DOL

Company’s assets turnover ratio is 0.6 and the P/V ratio is 33.33% (1/3)

 

(ii)   XYZ Ltd. is planning to acquire PQR Ltd. Since the current EPS is $ 5 for the ABC Company, the management is keen to get EPS of $ 6 at least post merger. They seek your advice on the possible exchange ratio that would give the merged entity an EPS of  $ 6. It is also provided that the acquisition would result in a synergy of 200 Lakh. The following financial data is given:

 

Particulars

XYZ Ltd.

PQR Ltd.

EPS

No. of Shares

Market Price

$ 5

200 Lakh

$ 100

$ 4

80 Lakh

$ 70

 

(iii) Capital Structure

Particulars

$

Equity

(70,000 sh. of $ 10)

10% Preference

15% Debt

7 Lakh

 

1.75 Lakh

12.25 Lakh

  21 Lakh

Expected Profit after tax is $ 577500

Stock price today (Po) = $ 32/-

Tax @ 40%

Calculate WACC.                                                                              

 

Q.2)    Amruta Enterprises (having installed capacity of 2,00,000 units p.a.) produced 1,00,000 units in the financial year 2010 – 2011. The cost – structure in 2010 – 2011 was as under :

 

(a)

(b)

(c)

(d)

 

(e)

 

Raw Materials

Wages

Factory Overheads

Administrative and Selling Overheads

Total Cost

Profit

Selling Price

40%

15%

10%

15%

80%

20%

100%

 

The selling price, which was $ 500 per unit in 2010 – 11, is estimated to be fixed as at $ 600 per unit for the year 2011 – 12; and production & sale expected to increase by 40,000 units. It is, further, anticipated that raw materials cost per unit would increase by 10% due to price rise, whereas wage rate per unit would decrease by 20% due to automation. 56% of all the overheads are fixed and balances are variable. As a Management Accountant, you are required to prepare (a) Cost Statement for the year 2011 – 12 & (b) Statement showing estimated working capital required for the year 2011 – 12 after considering the following additional information :

 

(a)    Raw Materials stock equivalent to two & half month’s consumption would be stored.

(b)   Production time is one month. Raw materials are introduce at the beginning of the process, whereas wages and factory overheads accrue evenly during the production period.

(c)    Two months stock of finished goods (Valued at factory cost) would be carried in stock.

(d)   20% of raw materials would be imported from China an advance payment of two months would be made there against. 15% of indigenous raw materials requirement would be procured locally against immediate cash payment. Suppliers of balance of indigenous raw materials, allow a credit of one month.

(e)    50% of customers would enjoy a credit of one month, whereas balance 50% of customers would accept a bill of exchange payable after three months. These bills of exchange are immediately hypothecated with the bank against which overdraft facility would be available equal to 70% of amount of bills of exchange.

(f)    Time – lag in payment of wages would be one month and for all overheads, it would be half month.

(g)   The company would carry cash balance of $ 40,000 in its currency chest. Debtors are to be estimated at selling price.

(h)   The activities are spread evenly throughout the year. Degree of completion of work – in – progress is 50%.                                                                                              (15 Marks)

 

Section II

Q.3)    Easy Ltd specializes in the manufacture of a computer component. The component is           currently sold for $ 1,000 and its variable cost is $ 800 for the year ended 31.12.2009           the company sold on an average 400 components per month. At present the company grants         one month credit to its customers. The company is thinking of extending the same to two           months on account of which the following is expected :

 

Increase in Sales                      25%

Increase in Stock                     $ 2,00,000

Increase in Creditors               $ 1,00,000

You are required :

To Advise the company on whether or not to extend the credit terms if –

(a)       All customers avail the extended credit period of two months and

(b)      Only new customers avail two months credit. Assume in this case that the entire  increase in sales is attributable to the new customers.

The company expects a minimum return of 40% on the investment. Assume 30 days to a month and 360 days to a year.                                                                                    (10 Marks)                                                                                          

 

Q.4)    From the following particulars prepare a cash budget for the quarter ended 31st March, 2010

All figures in $

Month

Sales

Purchases

Wages

Expenses

November ‘09

5,00,000

1,00,000

2,00,000

40,000

December ‘09

6,00,000

2,00,000

2,00,000

40,000

January ‘10

4,00,000

3,00,000

2,20,000

50,000

February ‘10

5,00,000

2,00,000

2,20,000

50,000

March ‘10

6,00,000

1,00,000

2,40,000

50,000

Other Information :

10% of sales and purchases are on cash.

Credit to Debtors : 1 month. On an average 50% of Debtors make payment on the due date while the rest make payment one month thereafter.

Credit from Creditors : 2 months, 1% cash discount if payment is made within 1 month.

It is estimated that 50% of creditors will be paid within 1 month.

Lag in payment of wages is 15 days.

Expenses generally paid in the same month.

Plant costing $ 1,00,000 installed on 31st January, on payment of 25% of the cost in addition to the installation cost of  $ 5,000 and balance to be paid in 3 equal monthly installments from the following month including interest @ 12% p.a. on unpaid balance. Cash and bank balance on 1st January, 2010 is expected to be $ 2,00,000.                                                                                                                                                                 (10 Marks)                                                                                                   

Q.5)    Excel Ltd. is considering three financing plans. The key information is as follows:

a)      Total investment to be raised $ 200000.

b)     Plan of financing proportion:

 

Plan Equity Debt Preference Shares
A

B

C

100%

50%

50%

50%

50%

 

c)      Cost of Debt 8%. Cost of Preference Shares 8%.

d)     Tax rate 50%.

e)      Equity Shares of the face value of $ 10 each will be issued at a premium of Rs.10 per share.

f)       Expected PBIT is $ 80000.

Determine for each plan:

i)        Earnings per share (EPS) and

ii)      The financial break-even point.                                                                    (10 Marks)                                                                          

Q.6) A company has an investment opportunity costing $ 40,000 with the following expected net cash flow (i.e. after taxes and before depreciation)

 

Year

Net Cash Inflows $

1

2

3

4

5

6

7

8

9

10

  7000

  7000

  7000

  7000

  7000

  8000

10000

15000

10000

  4000


Using 10% as the cost of capital (rate of discount) determine the following:

1.Payback period and payback profitability

2.NPV at 10% discounting factor and 15% discounting factor

3.Profitability index at 10% discounting factor and 15% discounting factor

4.Internal rate of return with the help of 10% discounting factor and 15% discounting factor.

                                                                                                                        (10 Marks)                                                                                                                                                      

Q.7)    (a) Explain example of short term source of finance                                         (5 Marks)

(b) Functions of finance manager                                                                      (5 Marks)

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