Solve any 2 questions from Q 1-4. Each carries 7.5 marks. Q 5 is compulsory and carries 15 marks.
Q 1. A. Compute the working capital requirement for financing an annual production of 72000 units based on the following data. SP- Rs 50. Raw material 50%, Labour- 10%, Factory overheads- 20%(including depreciation of Rs 2per unit). Raw material and finished goods in stock for 2 months, WIP to be valued at 50% of one month factory cost. 20% sales and 10% purchases are cash. Debtors are given 2 month credit period and suppliers give 1 month credit. Wages are paid with a lag of 15 days. Provide a safety margin of 20% of working capital.
B. A company has an annual turnover of 50 lacs and is currently giving a 1 month credit period to its customers. PV ratio is 40% and fixed cost are 5 lacs. Bad debts amount to 1% while collection charges are 1 lacs. The company is thinking to implement the following 2 proposal.
Proposal Increase in sales Increase in credit period Bad debts(%) Admin cost
A 5,00,000 1 month 1.5% 2 lacs
B 10,00,000 2 months 3% 5 lacs
The company expects are 20% pretax return. Help the company choose a correct plan.
C. From the following information, prepare a cash budget for Jan-March. Opening balance Rs 1 lacs.
Month Sales Purchase Wages Factory Expenses General expenses
Nov 3,00,000 1,00,000 50,000 10,000 12,000
Dec 3,20,000 80,000 55,000 12,000 12,000
Jan 4,00,000 1,20,000 60,000 15,000 13,000
Feb 4,20,000 2,00,000 75,000 20,000 16,000
Mar 4,50,000 2,00,000 80,000 10,000 14,000
a. 10% sales and 10% purchase are cash. Credit sales comes in 2 equal instalment in subsequent 2 months. Its generally observed that the last instalment of sales comes after deducting a 5% bad debt amount. Credit purchase are paid in the following month.
b. Wages are paid with a lag of 15 days. Factory overheads and general expenses are paid in the same month.
c. Income tax liability of Rs 25,000 to be paid in March.
d. Income from investment of Rs 30,000 to be received in Jan.
Q 2 a. A company sells 5000 units at Rs 100 per unit. PV ratio is 25% and fixed cost is 1,00,000. Interest amount is 50% and tax rate is 50%. The company expects the sales to grow by 10% every years. Fixed cost and interest would remain unchanged. Tax rate constant. Prepare a projected income statement for 3 years and compute all the leverages.
B. A company has the following capital structure as on 31st March 2015
Ordinary Share capital (4 lacs shares) Rs 1,00,00,000
10% Preference shares Rs 25,00,000
14% debentures Rs 50,00,000
The MPS of each share is Rs 25. The company is expected to pay a dividend of Rs 3 which would grow at 10% per annum. Tax rate is 40%. Compute the WACC on existing structure. Also if the company raises additional 25 lacs as a way of 15% debentures, the MPS would drop to Rs 15 per share and the expected dividend would be Rs 2. All others things remain unchanged.
c. A company has a capital of 50,00,000 divided equally between equity (FV 10) and Debt at 12%. The company further needs 25,00,000 and is considering the following 3 options.
a. raise equity at premium of Rs 15 per share
b. raise a fresh debt at 15%
c. Raise 11% preference shares.
The company earn 30% on capital employed. Tax rate is 50%. Identify the best option according to the EPS approach.
Q 3 A. What are the different tools of capital budgeting.
B. A machine requires an investment of Rs 2,00,000 with scrap value of Rs 50,000 at the end of 5 years. There is also an additional Rs 50,000 working capital requirement that would get released during the last year. The EBITD values are Rs 35,000; 50,000; 75000; 80,000 and 1,00,000. Tax rate is 30%. Discounting factor to be taken at 10%. Compute simple pay back period , ARR and NPV.
C. The following information is given about 2 machines. Scarp value is 0. Life of both machines 5 years.
Particulars Superman Batman
Cost 1 lacs 1.2 lacs
Cost of material 20,000 25,000
Labour 10,000 15,000
Saving in scrap 10,000 12,000
Additional sales 60,000 72,000
Discounting factor at 10%. Compute Pay back period and NPV of both the machines and recommend. Tax rate 50%
Q 4 A. What are the factors affecting working requirement of a company
B. What are the different types of mergers.
c. Kiran limited is looking to overtake Akshay limited by the way of merger. The below information is given.
Particulars Kiran Akshay
Equity Capital (FV 10) 5 lacs 3 lacs
PAT 20 lacs 18 lacs
MPS 20 Rs 12 Rs
Compute the EPS of both the companies pre merger and post merger(assume merger to take place based on MPS)
Q 5. A company is expecting to invest in the following 2 machines each costing 50 lacs and life is 5 years. Scrap value is 0 and tax rate is 50%. The cash flows for 5 years are as follows
Machine A 12lacs 20lacs 25lacs 28 lacs 30 lacs
Machine B 8 lacs 22lacs 23 lacs 30 lacs 32 lacs
Discounting factor to be assumed at 12% and tax rate is 50%. Compute the discounted payback period, NPV and PI and evaluate the above 2 proposals.