Marks: 75

Advertisement

Solve all questions

  1. What do you mean by “Trading on Equity”. What impact would this have on the capital structure and earnings of the company (5 marks)
  2. A company is going through a tough financial crisis and wishes to realign the current portfolio of Rs 1 cr of capital employed. The existing structure is as follows:-

Equity Capital (FV 10)= Rs 30 lacs

10% Preference capital= Rs 20 lacs

12 % Debentures= Rs 50 lacs.

Existing share holders require a 15% dividend.

The company currently has two options:-

  1. Convert all the preference shares into debentures carrying 10% interest
  2. Convert 50% of the preference shares into 11% debentures and the remaining as present.

Help the company identify a correct option based on the WACC and also on EPS. Tax rate is 50% and the company earns 40% of capital employed. (10 marks)

  1. What is MPBF. How is it computed. (5 marks)
  2. MN Ltd. is commencing a new project for manufacture of electric toys. The following cost

information has been ascertained for annual production of 60,000 units at full capacity:

Amount per                                                       Rs

Raw materials                                                    20

Direct labour                                                      15

Manufacturing overheads:

Variable                                                               15

Fixed                                                                     10

Selling and Distribution overheads:

Variable                                                               3

Fixed                                                                      1

Total cost                                                             64

Selling price                                                        80

To assess the need of working capital, the following additional information is available:

(i) Stock of Raw materials……………………………………3 months consumption.

(ii) Credit allowable for debtors…………………………..…1½  months.

(iii) Credit allowable by creditors……………………………4 months.

(iv) Lag in payment of wages………………………………..1 month.

(v) Lag in payment of overheads…………………………..½  month.

(vi)Cash is expected to be Rs. 60,000.

(vii) Provision for contingencies is required @ 10% of working capital requirement

Bank balance is 10 percent of working capital

Prepare a working capital statement assuming all factory cost on production and debtors on actual sales.

 

 

  1. A company is contemplating investment in a project that would have an initial cost of Rs 1 crs. Since the project is based out of a backward area, the company would be eligible for a cash subsidy of Rs 20 lacs which would be realized in the second year of the production process. Also the company get a 50% tax exemption in the first 3 years after the commencement of production. Subsidy would be exempt from tax.  After the tax free period is over, the company would still enjoy a 50% concession in taxes. The project life is 6 years with a salvage value of Rs 10 lacs. The Sales generated by the company is the first year would be 3 lac units that would increase by 20% every year. The PV ratio is 40%. Fixed cost excluding depreciation is Rs 8 lacs every year. SP is Rs 10 per unit. Normal corporate tax rate is 40%. Evaluate the project based on  Discounted payback period and NPV method assuming the cost of funds to be 12%. (15 Marks)

 

 

  1. What are the short term sources of capital generation (5 marks)
  2. Prepare a schedule for cash inflows and outflow for Jan, Feb and Mar based on the following information of Pandeji and co. (10 marks)
Oct Nov Dec Jan Feb Mar
Sales 100000 150000 200000 250000 300000 300000
Purchases 20000 25000 27000 28000 50000 50000
Wages 25000 26000 30000 32000 33000 40000
Factory expenses 20000 25000 30000 25000 25000 25000
  1. 20% sales are cash and received in the same month. Of the balance 50% comes in next month and the rest after 2 months. The last installment of sales which is supposed to come generally has a bad debt of 5%.
  2. 50% Purchases are paid 1 month in advance after a 10% cash discount and the rest after 1 month. Factory expenses are paid in the same month.
  3. Wages are paid with a lag of 1 week.
  4. Opening balance on Jan 1 was Rs 100000.
  5. Pandeji had taken a loan of Rs 10 lacs in October last year and is liable to pay interest at 12% per annum accuring monthly.

 

  1. A company has a sales of Rs 50 lacs and gives a 3 months credit. Due to such liberal credit, the company has a bad debt of 5% on sales. The company plans to tighten the credit period and ensure that debtors are correctly monitored. It is planning to have a 1 month credit period and the sales are expected to drop by 5%. There would not be any bad debts. The company has a PV ratio of 40% and expects a 20% return on investment. Advice the company if the new plan can be adopted. (5 marks)
  2. The balance sheet of M/s Bulbul is available. Another company M/s Sunita wishes to acquire the same. Sunita is willing to offer a maximum of Rs 35 per share. Please check approach if the offer can be accepted. Tax rate is 50%(10 marks)
Equity (FV 10) 500000
Retained earnings 200000
10% debt 300000
12% PS 250000
Current liability 250000
Total 1500000
FA 1000000
Investment 200000
Current asset 300000
Total 1500000
EBIT 2000000
P E ratio 20

 

 

 

All the best

 

 

Vipin Saboo

9820779873
Advertisement
The following two tabs change content below.
Education Qualification: BMS- N M College (University Rank Holder) PGDBM- Sydenham College M Com- College topper Mr Vipin Saboo has been associated with the following institutes as a visiting faculty Lords college, Malad Patkar College, Goregoan Saraf college, Malad Dalmia college, Malad St Andrews College, Bandra Wilson College, Grant Road Thakur college, Kandivili L N College, Kandivili N K College, Malad Dhanukar College, Vile Parle St Xaviers College, Marine Lines Shroff College, Kandivili KES College, Khar Mr.Vipin Saboo also has more than 5 years of industry expertise with corporate like CRISIL, Motilal Oswal Investment Banking and Yes Bank. Mr. Saboo has also published a text book on Logistics and Supply Chain Management for TYBMS Students.
0 Comments
  1. vagragenericaar.org 1 month ago

    Thank you.

    Youseful blog. Good post.

Leave a reply

Your email address will not be published. Required fields are marked *

*

*

BMS.co.in is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2020 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp
or

Log in with your credentials

or    

Forgot your details?

or

Create Account