Institute of Chartered Financial Analysts of India (ICFAI) University 2008 Certification Certified Financial Planner Portfolio management - Question Paper

3.5% inflation is expected every year. The remaining 25% of raw material cost is due to the usage of non-wood fibers, on which 1.5%
inflation is expected every year.
4. Repairs and maintenance will cost 4.5% and 5.5% on fixed assets excluding land, in the 1st and 2nd years respectively and
10% thereafter.
5. Salaries are estimated to be Rs.145 lakh in the 1st year and are expected to increase by 10% every year.
6. Administrative expenses are likely to be 8% of sales.
7. The subsequent periodicities have been estimated for working capital requirements:
a.
Particulars Period
(in months)
Raw materials 1.00
Stock-in-process 0.50
Receivables 1.50
b.
(Rs. in lakh)
1 two three four 5
Cash requirement 27.19 31.68 38.78 40.39 42.11
Finished goods 353.79 417.73 492.94 511.98 531.95
8. Term loan from Union Bank of India (UBI) is availed at an interest rate of 11.5% p.a. Interest is to be computed on halfhttp://
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yearly outstanding balance but it is paid at the end of every year. Repayment of principal amount is to be carried out in 5 halfyearly
installments where the 1st installment is to be paid at the end of the 3rd year.
9. The risk free rate is 7%. Historically it is observed that the risk premium on market portfolio is 8%. avg. equity beta of
the company in 1st 5 years is 0.8.
10. Depreciation rates applicable to various categories of fixed assets are as follows:
Assets For company legal regulations
purposes (SLM)
For tax purposes
(WDV)
Buildings 3.33% 10%
Plant & Machinery 11% 25%
Misc. Fixed assets 9% 25%
11. Income tax rate applicable to the company is 35%.
12. State Bank of India (SBI) has agreed to finance the working capital requirement at an interest rate of 8.5% p.a.
13. Allocate pre-operative and contingencies on fixed assets excluding land.
14. Power costs amount to Rs.18.25 lakh in the 1st year, and there after expected to increase at 5.5% every year.
15. The margin money for working capital is constant for the project life cycle.
16. The salvage value of fixed assets at the end of the project is Rs. 850 lakh. (Ignore tax on capital gain/ loss)
17. Preliminary expenses shall be written off during the life of the project in equal installments.

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