1. The following information of ASD Ltd. relate to the year ended 31 st March, 2022

Net profit                                            8% of sales

Raw materials consumed                20% of cost of Goods Sold

Direct wages                                      10% of cost of Goods Sold

Stock of raw materials                     3 moths’ usage

Stock of finished goods                   6% of cost of Goods Sold

Gross profit                                       15% of sales

Debt collection period                   2 Moths

(All sales are on credit)

Current ratio

Fixed assets to Current assets              2 : 1

Fixed assets to Sales                              13:11

Fixed assets to sales                              1:3

Long-term loans to Current liabilities 2:1

Capital to Reserves and Surplus          1:4

You are required to PREPARE-

(a)Profit & Loss statement of ASD Limited for the year ended 31st March, 2022 in the following format


Particulars           (₹)                                                 Particulars              (₹)

To Direct Materials consumed    ?                            By Sales   ?

To Direct Wages    ?

To Works (Overhead)    ?

?  ?

To Selling and Distribution Expenses           ?        By Gross profit b/d  ?

To Net profit    ?

? ?


b)Balance Sheet as on 31st March, 2022 in the following format


                ( ₹)

Share Capital           ?                         Fixed Assets: 1,30,00,00

Reserves and surplus           ?          Current Assts:

Stock of Raw Materials ?

Long term loans           ?                   Stock of Finished Goods ?

Current liabilities          ?                 Debtors ?

Cash ?

? ?

2.Bounce Ltd. Evaluates all its capital projects using discounting rate of 15% . Its capital structure consists of equity share capital, retained earnings, bank term loan and debenture and bank loan is 3 years and 5 years respectively. Book value of equity share capital, retained earnings and bank loan is Rs. 10,00,000, Rs. 15,00,000 and Rs. 10,00,000 respectively. Debentures which are having book value of Rs. 15,00,000 are currently trading at Rs. 97 per debenture. The ongoing P/E multiple for the shares of the company stands at .

5.You are required to CALCULATE the rate of interest on bank loan and debentures if tax rate applicable is 25%.

3.ABC Limited provides you the following information:

Profit (EBIT)                                    2,80,000

Less: Intt. On Debt @10%              40,000

EBT                                                    2,40,000

Less: Income Tax  @ 50%            1,20,000


No. of Equity Shares (₹ 10 each)              30,000

Earnings per share (EPS)                          4

Price / EPS (P/E) Ratio                            10

Ruling Market price per share                 40

The company has undistributed reserves of Rs.7,00,000  and needs Rs. 4,00,000 further for expansion. The investment is expected to earn the same rate as funds already invested. You are informed that a debt equity (debt/debt + equity) ratio higher than 32% will push the P/E ratio down to 8 and raise the interest rate on additional borrowings (debentures) to 12%. You are required to ASCERTAIN the probable price of the share.

  • If the additional funds are raised as debt; and
  • If the amount is raised by issuing equity shares at ruling market price of Rs.40 per share.

4.Debu Ltd. Currently has an equity share capital of Rs. 1,30,00,000 consisting of  13,00,000 Equity shares. The company is going through a major expansion plan requiring to raise funds to the tune of Rs. 78,00,000. To finance the expansion the management has following plans:

Plan-I : Issue 7,80,000 Equity shares of Rs. 10 each.

Plan-II : Issue 5,20,000 Equity shares of Rs. 10each and the balance through long-term borrowing at 12% interest p.a.

Plan-III : Issue 3,90,000 Equity shares of Rs. 10 each and 39,000, 9% Debentures of Rs. 100 each.

Plan-IV : Issue 3,90,000 Equity shares of Rs. 10 each and the balance through 6% preference shares.

EBIT of the company is expected to be Rs. 52,00,000 p.a.                                                                                                                                                     Considering corporate tax rate @ 40%, you are required to-

  • CALCULATE EPS in each of the above plans.
  • ASCERTAIN financial leverage in each plan and comment.

5.From the following information, find out missing figures and REWRITE the balance sheet of Mukesh Enterprise.

Current Ratio = 2:1

Acid Test ratio = 3:2

Reserves and surplus = 20% of equity share capital

Long term debt = 45% of net worth

Stock turnover velocity = 1.5 months

Receivables turnover velocity = 2 months You may assume closing Receivables as average Receivables.

Gross profit ratio = 20%

Sales is Rs. 21,00,000 (25% sales are on cash basis and balance on credit basis)

Closing stock is Rs. 40,000 more than opening stock.

Accumulated depreciation is 1/6 of original cost of fixed assets.

Balance sheet of the company is as follows:

Liabilities (₹) Assets (₹)

Equity share capital   ?                    Fixed Assets (cost)      ?

Reserves & surplus   ?                     Less: Accumulated. Depreciation   ?

Long Term Loans       6,75,000     Fixed Assets (WDV)   ?

Bank Overdraft           60,000        Stock   ?

Creditors   ?                                       Debtors   ?

Cash   ?

Total  ?                                               Total   ?

  1. Current Capital Structure of XYZ Ltd is as follows:

Equity Share Capital of 7 lakh shares of  face value Rs. 20 each

Reserves of Rs. 10,00,000

9% bonds of Rs. 3,00,00,000

11% preference capital: 3,00,000 shares of face value Rs. 50 each

Additional Funds required for XYZ Ltd are Rs. 5,00,00,000.

XYZ Ltd is evaluating the following alternatives:

  1. Proposed alternative II: Raise the funds via 50% equity capital and rest from 12%                                   preference capital. PE ratio in such scenario would be 11. Any new equity capital would be issued at a face value of Rs. 20 each. Any new preferential capital would be issued at a face value of Rs. 20 each. Tax rate is 34%

DETERMINE the indifference point under both the alternatives.



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