NMIMS University 2006 Advanced Diploma in Business Administration Financial Management (Financial Analysis and Management) - Question Paper

NARSEE MONJEE INSTITUTE OF MANAGEMENT & HIGHER STUDIES

(DEEMED UNIVERSITY)

Department of Distance Learning

 

COURSE : ADBM TOTAL MARKS: 100

SUBJECT : Financial Management DURATION : 3 hours

 

Note:

1.    Total numbers of questions given in the question paper are seven.

2.    Attempt any five questions

3.    All questions carry equal marks

4.    Give working notes to support your answers

5.    You may make assumptions wherever required.

 

1.    You have been furnished with the financial information of Progressive Manufacturing Limited as under:

Balance sheet as on March 31

Liabilities		Assets
	Rs		Rs
Equity share capital (Rs 100 each)	10,00,000	Plant and equipment	6,40,000
Retained earnings	3,68,000	Land and building	80,000
Sundry creditors	1,04,000	Cash	1,60,000
Bills Payable	2,00,000	Sundry debtors Rs 3,60,000
Other current liabilities	20,000	Less allowances 40,000	3,20,000
		Stock	4,80,000
		Prepaid insurance	12,000
	16,92,000		16,92,000

 

Statement of profit for the year ended March 31.

Sales	Rs 40,00,000
Less cost of goods sold	30,80,000
Gross profit on sales	9,20,000
Less operating expenses	6,80,000
Net profit	2,40,000
Less taxes (0.35)	84,000
Net profit after taxes	1,56,000

 

Sundry debtors and stock at the beginning of the year were Rs 3,00,000 and Rs 4,00,000, respectively.

Determine the following ratios of M/S Progressive Manufacturing Ltd:

a.    Current ratio

b.    Acid test ratio

c.    Stock turnover

d.    Debtors turnover

e.    Gross profit ratio

f.     profit ratio

g.    Operating ratio

h.    Earnings per share (EPS)

i.      Rate of return on equity capital

2.    From the following projections of ABC Ltd for the next year, you are required to work out the working capital (WC) required by the company.

 

Annual sales	Rs 14,40,000
Cost of production including depreciation, Rs 1,20,000	12,00,000
Raw material purchases	7,05,000
Monthly expenses	30,000
Anticipated opening stock of raw materials	0
Anticipated closing stock of raw materials	1,25,000
Inventory norms:
Raw material (month)	2
Work-in-progress (days)	15
Finished goods (month)	1

 

The firm enjoys a credit of 15 days on its purchases, and allows 1 moths credit on its supplies. The company has received an advance of Rs 15,000 on sales orders. You may assume that production is carried on evenly throughout the year, and the minimum cash balance desired to be maintained is Rs 10,000.

 

 

3.      Your factory buys and uses a component for production at Rs 10 per piece. The annual requirement is 2000 numbers. Carrying cost of inventory is 10 per cent per annum, and ordering cost is Rs 40 per order. The purchase manager argues that as the ordering cost is very high, it is advantageous to place a single order for the entire annual requirement. He also says that if we order 2000 at a time, we can get a 3 per cent discount from the supplier. Evaluate this proposal and make your recommendations.

 

 

4.      ABC Ltd whose cost of capital is 10 per cent, is considering two mutually exclusive projects, X and Y, the details of which are:

 

		Project X	Project Y
Investment		Rs 70,000	Rs 70,000
Cash inflow: Year	1	10,000	50,000
	2	20,000	40,000
	3	30,000	20,000
	4	45,000	10,000
	5	60,000	10,000
		1,65,000	1,30,000

 

Compute the NPV to decide which project, if any, is worth pursuing.

 

 

 

 

 

 

5.      Capital structure of the M/S ABC Ltd as on 31-3-2006 is as under

 

	Rs Lakhs
Equity Share Capital (Rs 10 each)	100
Retained Earnings	120
12% Preference share capital (FV Rs 100)	10
14% Debentures (FV Rs 100)	70
14% Term Loan	100
Current Liability	100
Total	500

 

Further information:

i.        Current Market price of equity share is Rs 25 and the expected dividend for next year is Rs 2.00. The expected growth is 8%. The floating cost was Rs 2.00 per share.

ii.      Preference shares are redeemable after 7 years and is to be redeemed at Rs 110

iii.    Debentures are to be redeemed after 6 years at the face value. Floating cost was Rs 10 per Debenture.

iv.    Tax rate of the company is 50%.

Calculate the overall cost of capital for the firm.

 

6.      Rajesh Mfg. Co. Ltd. is considering purchase of a new machine. The technical experts have suggested two alternatives. Machine A & Machine B. Each costing Rs 4.00 lakhs. Earnings after tax but before depreciation are expected to be as under.

Cash Flows

Year	Machine A	Machine B
1	40,000	1,20,000
2	1,20,000	1,60,000
3	1,60,000	2,00,000
4	2,40,000	1,20,000
5	1,60,000	80,000
Total	7,20,000	6,80,000

 

The return on capital employed is 10% for the firm.

You are required to:

1. Compare profitability of the machines and advise which alternative is preferable
2. Compute Pay back period &
3. Annual Rate of Return

for each project. Also state, if different methods lead to different conclusions or not?

 

7.      M/S Trinity & Co. Ltd issued partly convertible debentures of FV of Rs 200 each. Coupon rate is 10%. Rs 100 will be convertible into 5 equity shares after 4 years and non-convertible portion of Rs 100 will be redeemed at a premium of 5% at the end of 4 years. If the market price of companys share is estimated to be Rs 25 each, calculate yield for the investor if he holds the investment till maturity.