FINANCIAL MANAGEMENT MODEL I 8.9.2023

NATIONAL MANAGEMENT COLLEGE – THUDUPATHY

CA INTERMEDIATE (2022-2023) – MODEL EXAMINATION –I

PAPER : FINANCIAL MANAGEMENT

MARKS : 60 MARKS TIME :1.45 HOURS DATE : 8.9.2023

SECTION A

ANSWER THE FOLLOWING QUESTIONS : (6*10=60)

  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% Cost of Goods Sold

Direct wages                                                             10% of Cost of Goods Sold                                                                          Stock of Raw materials                                           3 months’ usage                                                                                              Stock of finished goods                                           6% of Cost of Goods sold                                                                    Gross Profit                                                               15% of Sales                                                                                                    Debt collection period                                             2 Months

(All sales are on credit)

Current ratio 2 : 1

Fixed assets to Current assets 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 31 st March, 2022 in the following format

Particulars(₹)Particulars(₹)
To     Direct Materials consumed

To     Direct Wages

To     Works (Overhead)

To     Gross Profit c/d

 

 

 

To     Selling and Distribution Expenses

To     Net Profit

 

 

 

?

?

?

?

?

 

 

?

?

 

 

?

By Sales

 

 

 

 

 

 

By Gross Profit b/d

 

?

 

 

 

?

 

 

?

 

 

 

?

 

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

Liabilities(₹)Assets(₹)
Share Capital

Reserves and Surplus

Long term loans

Current liabilities

?

?

?

?

 

 

 

 

?

Fixed Assets

Current Assets:

Stock of Raw Material

Stock of Finished Goods

Debtors

Cash

1,30,00,000

 

?

?

?

?

 

 

?

 

  1. 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 redeemable at par.                       Rate of interest on bank term loan is 1.5 times that of debenture. Remaining tenure of debenture and bank loan is 3 years respectively. Book value of equity share capital, retained earnings and bank loan is Rs. 1,00,000, 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 shares of the company stands at 5. You are required to CALCULATE the rate of interest on bank loan debentures if tax rate applicable is 25%.
  2.    ABC Limited provides you the following information:
 (₹)
Profit (EBIT)

Less: Intt. On Debt @ 10%

EBT

Less: Income Tax @ 50%

 

No.of Equity Shares (₹ 10 each)

Earnings per share (EPS)

Price / EPS (P/E) Ratio

Ruling Market price per share

2,80,000

40,000

2,40,000

1,20,000

1,20,000

30,000

4

10

40

 

The company has undistributed reserves of Rs. 7,00,000 and needs Rs. 4,00,000 further for expansion. This 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 .           (i) If the additional funds are raised as debt; and

(ii) If the amount is raised by issuing equity shares at ruling market price of  Rs. 40 per share .

  1. 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 plan:

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

Plan-II : Issue 5,20,000 equity shares of Rs. 10 each 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-

(i) CALCULATE EPS in each of the above plans.                                                                                                          (ii) ASCERTAIN financial leverage in each plan and comment.

  1. 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 Loans6,75,000Fixed Assets (WDV)?
Bank Overdraft60,000Stock?
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 I: Raise the funds via 25% equity capital and 75% debt at 10% PE ratio in such scenario would be 12.
  2. Proposed alternative II: Rasie the funds via 50% equity capital and rest from 12%                                    Preference capital and rest from 12% Preference capita. 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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