Fm Revision set 2

1)      Wcm	The following information has been extracted from the records of a Company: Product Cost Sheet Rs./unit Raw materials -45 Direct labour -20 Overheads -40 Total -105 Profit- 15 Selling price 120 Raw materials are in stock on an average of two months. The materials are in process on an average for 4 weeks. The degree of completion is 50%.  Finished goods stock on an average is for one month.  Time lag in payment of wages and overheads is 1½ weeks.  Time lag in receipt of proceeds from debtors is 2 months.  Credit allowed by suppliers is one month. 20% of the output is sold against cash.  The company expects to keep a Cash balance of Rs.1,00,000.  Take 52 weeks per annum. The Company is poised for a manufacture of 1,44,000 units in the year. You are required to prepare a statement showing the Working Capital requirements of the Company.
2)      Rm	Radiance Garments Ltd. manufacturers readymade garments and sells them on credit basis through a network of dealers. Its present sale is Rs. 60 lakh per annum with 20 days credit period. The company is contemplating an increase in the credit period with a view to increasing sales. Present variable costs are 70% of sales and the total fixed costs Rs. 8 lakh per annum. The company expects pre-tax return on investment @ 25%. Some other details are given as under: Proposed Credit Policy    Average Collection Period (days)    Expected Annual                                                                                                           Sales(Rs. Lakh) I                                                   30                                                      65 II                                                  40                                                      70 III                                                 50                                                       74 IV                                                 60                                                       75 Required: Which credit policy should the company adopt? Present your answer in a tabular form. Assume 360-days a year. Calculations should be made upto two digits after decimal.
3)      CM	1)      Prepare the Monthly forecast of Cash of G Ltd. For the Quarter ended 31 December, 2007 from the following information: (a) Opening Balance as on 1st Oct., 2007 is Rs. 52, 000 b) The Budgeted and Actual sales were Rs. 1, 00, 000 each for august and September, October Rs. 1, 20, 000, November Rs. 1, 35, 000 and December Rs. 1, 40, 000. 30 % of the sales were for Cash and out of the balance 50 % in the subsequent month of the sale and remaining 50 % in the second month subsequent of the sale. C) Dividend on the Investments is being declared on the 20th December, amounting to Rs. 1200 d) Machinery Sale in the month of December is Rs. 15, 000  e) Materials worth Rs. 40, 000 each is being purchased in August and September, 50 % of which is payable on 1st October and proposed purchases for the quarter October to December evenly spread out to Rs. 1, 50, 000. Vendors offer 5 % discount for the cash payments. It is decided to maintain the cash balance at Rs. 10, 000 each month and the balance to be utilized for payment to vendors. f) Wages are expected to be Rs. 12, 000 per month payable a month in arrear g) Manufacturing expenses payable in the month incurred Rs. 15, 000 per month. h) General Selling expenses are expected to be Rs. 5, 000 per month i) Machine costing Rs. 55, 000 is proposed to be purchased for cash in December.
4)      Coc	A Company issues Rs. 10,00,000 12% debentures of Rs. 100 each. The debentures are redeemable after the expiry of fixed period of 7 years. The Company is in 35% tax bracket. Required:(i) Calculate the cost of debt after tax, if debentures are issued at (a) Par (b) 10% Discount (c) 10% Premium.(ii) If brokerage is paid at 2%, what will be the cost of debentures, if issue is at par?
5)      WACC	JKL Ltd. has the following book-value capital structure as on March 31, 2003.          Rs. Equity share capital (2,00,000 shares)                                                       40,00,000 11.5% preference shares                                                               10,00,000 10% debentures                                                                             30,00,000 80,00,000 The equity share of the company sells for Rs.20. It is expected that the company will pay next year a dividend of Rs.2 per equity share, which is expected to grow at 5% p.a. forever. Assume a 35% corporate tax rate. Required: a)      Compute weighted average cost of capital (WACC) of the company based on the existing capital structure. b)      Compute the new WACC, if the company raises an additional Rs.20 lakhs debt by issuing 12% debentures. This would result in increasing the expected equity dividend to Rs.2.40 and leave the growth rate unchanged, but the price of equity share will fall to Rs. 16 per share. c)       Comment on the use of weights in the computation of weighted average cost of capital.
6)      CSP	The Modern Chemicals Ltd. requires Rs. 25,00,000 for a new plant. This plant is expected to yield earnings before interest and taxes of Rs. 5,00,000. While deciding about the financial plan, the company considers the objective of maximising earnings per share. It has three alternatives to finance the project- by raising debt of Rs. 2,50,000 or Rs. 10,00,000 or Rs. 15,00,000 and the balance, in each case, by issuing equity shares. The company’s share is currently selling at Rs. 150, but is expected to decline to Rs. 125 in case the funds are borrowed in excess of Rs. 10,00,000. The funds can be borrowed at the rate of 10% upto Rs. 2,50,000, at 15% over Rs. 2,50,000 and upto Rs. 10,00,000 and at 20% over Rs. 10,00,000. The tax rate applicable to the company is 50%. Which form of financing should the company choose?
7)      Lev	The net sales of A Ltd. is Rs. 30 crores. Earnings before interest and tax of the company as a percentage of net sales is 12%. The capital employed comprises Rs. 10 crores of equity, Rs. 2 crores of 13% Cumulative Preference Share Capital and 15% Debentures of Rs. 6 crores. Income-tax rate is 40%. (i) Calculate the Return-on-equity for the company and indicate its segments due to the presence of Preference Share Capital and Borrowing Debentures). (ii) Calculate the Operating Leverage of the Company given that combined leverage is 3.
8)      CB	(b) S Ltd. has Rs. 10,00,000 allocated for capital budgeting purposes. The following proposals and associated profitability indexes have been determined. Project     Amount    Profitability Index 1                 3,00,000 1.22 2                 1,50,000 0.95 3                 3,50,000 1.20 4                 4,50,000 1.18 5                 2,00,000 1.20 6                 4,00,000 1.05 Which of the above investments should be undertaken? Assume that projects are indivisible and there is no alternative use of the money allocated for capital budgeting.
9)      BR	2.  Assam Ltd. acquired the business of Bora and Saha who are in partnership sharing profits and losses in the ratio of 2:1 on 31-12-2008. Their Balance Sheet on that date stood as follows:                                                                                                                 Balance Sheet Following is the Balance Sheet of X Co. Ltd. as at 31st March, 2008: Balance Sheet as at 31st March, 2008 Liabilities Rs.                                                                                        Assets Rs. Equity share capital (Rs. 100 each)                    15,00,000                    Land and building 10,00,000 11% Pref. share capital      5,00,000                   Plant and machinery 7,00,000 General reserve                  3,00,000                    Furniture and fittings 2,00,000 Sundry creditors                 2,00,000                     Stock in trade 3,00,000                                                                                      Sundry debtors 2,00,000                                                                                  Cash in hand and at bank 1,00,000                                              25,00,000                                                            25,00,000 Y Co. Ltd. agreed to take over X Co. Ltd. on the following terms: (i) Each equity share in X Co. Ltd. for the purpose of absorption is to be valued at Rs. 80. (ii) Equity shares will be issued by Y Co. Ltd. by valuing its each equity share of Rs. 100 each at Rs. 120 per share. (iii) 11% Preference shareholders of X Co. Ltd. will be given 11% redeemable debentures of Y Co. Ltd. at equivalent value. (iv) All the Assets and Liabilities of X Co. Ltd. will be recorded at the same value in the books of Y Co. Ltd. (a) Calculate Purchase consideration. (b) Pass Journal entries in the books of Y Co. Ltd. for absorbing X Co. Ltd.