jmd tutorial prelims 10-11

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Deepak Fulwadhaya 9967008172 Prakash Fulwadhaya 98207977291

JMD TUTORIALS-Question bank

Concepts Sr. Pg. Sr. Pg. 1 Profit & Profitability 3 14 WACC 15 2 Social Wealth 3 15 Marginal WACC 15 3 GWC v. NWC 5 16 Debt Cheaper the Cost of Equity? 16 4 Operating Cycle 5 17 Equity is cost free 16 5 Types of Working Capital 5 18 Tax Shelter/ Tax shield 17 6 Core Current Assets and Non Core CA 8 19 ROI 17 7 5 Cs of credit standards 9 20 Trading on Equity 17 8 Types of Cost(Delinquency Cost is Imp) 10 21 Indifference Point and Financial BEP in

Capital structure 18

9 Control Mechanism of Receivable Mgt 10 22 Significance of leverages 19 10 Motives for holding cash 12 23 DOL v/s. DFL 20 11 Cash Management strategies 13 24 Traditional v/s. DCF technique 23 12 Marketable Security analysis 13 25 Investment Appraisal Techniques 22 13 Implicit Cost/ opportunity cost 15

Admission in Progress for TYBMS VI Sem:International Finance

Investment Analysis & Portfolio ManagementOperation Research

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9967008172/ 9820797729Numericals & cases Sum No.

1 Receivable Mgt 3,6,7,8,9,10,11,13,14,15 2 Cash management 2,4,6,7,8 + imp adjustments 3 Leverages 6,7,10,11 4 Capital Structure 1,2,3,4 5 Cost of Capital 3,4,6,7,8,11 6 Capital Budgeting 4,6,7,8,10,12,14,15,19,22 7 Working Capital 2,5,6,8,12,19,21

HIGH RISK HIGH RETURN

Learn and go this new formula of Cost of Equity:Ke = Rf + (Rm Rf)(NOTE: this is an alternative formula of cost of equity to be used when the following information is given)Where Rf = Risk free rate of return or return on govt securities or treasury bills = Beta which is a measure of riskRm = return on market portfolio or return on index like sensex or nifty(Rm Rf) = Market risk premium

Example: Return on government is 8%, Beta factor is 2.5, Market risk premium is 6%Ke = 8 + {2.5(6)}Ke = 21%Note: in this case DPS, growth rate etc..will not be given

Theory Questions 1 Objectives of Financial Management: Profit Maximization v. Wealth Maximisation. 1 2 Finance functions 3 3 Role of Finance Manager 3 4 What are the Determinants of Working Capital? 5 5 Steps in Credit Analysis 9 6 Determinants of Capital Structure 17

7 Types of Risks. 18 8 Features & Phases of Capital Budgeting 21 9 What are Long Term Sources of Finance? 24 10 What are Short Term Sources of Finance? 26


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Theory of Business RestructuringBusiness Restructuring: Profitable growth constitutes one of the prime objectives of most of the business firms. Itcan be achieved internally by developing new products or enlarging capacity of existing products. Alternatively itcan be facilitated externally by acquisitions of existing business firms. The acquisitions may be in the form of mergers, acquisitions, amalgamations, takeovers, absorption, consolidation and so on . All these terms areinterchangeably used to denote the process of corporate or business re-structuring. There is no common definitionof these terms. In general terms, the terms are explained below:

Merger: The term merger includes consolidation, amalgamation and absorption. It refers to a situation when two ormore existing firms combine together and form a new entity. Either a new company may be incorporated for thispurpose or one existing company (generally a bigger one) survives and another existing company (which is smaller)

is merged into it.If a new company is incorporated it is known as a case of consolidation/ amalgamation. However if an existing company is merged into another existing company, it is known as absorption .

Acquisition: It includes takeovers also . In general, acquisition refers to the acquiring of ownership right in theproperty and asset of other company. The other company of which the control is so acquired, remains a separatecompany and is not liquidated. E.g. AV Birla group had acquired Cement division of L & T ltd now known asGrasim Cements. Mahindra Tech took over Satyam ltd. Acquisition can be by purchase of shares wherein thepurchaser acquires the control and management of the target company or Acquisition can be by purchase of assetsand liabilities against which cash is paid to the target company. In this case the buyer cherry picks the assets he isinterested in and leave the rest, example: RIL acquiring shale gas assets in US.

Functional classification of Mergers and Acquisitions (M & A)Different types of merger and acquisitions can be classified on the basis of the functional relationship between twocompanies and the economic impact of the merger on their operations. The merger may take place in any of thefollowing situations.1. Horizontal Merger: It is a case of merger of two or more companies that compete in the same industry. It is a

merger with a direct competitor and hence expands the firms operations in the same industry. Horizontalmergers are designed to produce, primarily, substantial economies of scale and result in decrease in thenumber of competitors in the industry.

2. Vertical Merger: It is a merger which takes place upon the combination of two companies which are operatingin the same industry but at different stages of production or distribution system. It a company takes over itssupplier/producers of raw material, and then it may result in backward integration of its activities. On theother hand, forward integration may result if a company decides to take over the retailer or CustomerCompany. Vertical merger may result in many operating and financial economies. The transferee firm will get astronger position in the market as its production/ distribution chain will be more integrated than that of thecompetitors.

3. Conglomerate Merger: It is a merger of two or more firms operating in different and unrelated industries. It isan expansion of a company into areas unrelated to existing lines of business. In this case, the company may

not get the operating economies such as those which may arise in case of horizontal or vertical merger. This isa case of diversification.

De-merger: Demerger is a process where the part of the business is divided or the product line of the company isseparated. In case of multi product business, often the management thinks of division of different products intodifferent companies for several reasons like creating value to the shareholder, making business more transparent tothe stakeholders, family arrangement etc e.g. Ruias of ESSAR group is proposing to demerge their existing businessinto separate entities of shipping, logistics and oilfields. Bajaj auto demerged their business into separate entitiesfor manufacturing business and financial service in view of their family arrangement.Reverse Merger: It is a merger of a prosperous and profit-making company into a loss making company which isgenerally a sick company and having eroded a substantial portion of its networth. The motive mainly is to takesadvantage of the tax concessions which otherwise will be lost if loss making business operates separately.

Motives and reasons behind Mergers:1. Operating economies: When a firm having strength in one functional area acquires another firm with

strength in a different functional area, synergy may be gained by exploiting the strength in these areas.2. Diversification: Diversification into new areas and new products can also be a motive for a firm to merge

another with it.3. Financial Synergy: Financial synergy refers to increase in the value of the firm that accrues to the

combined firm from financial factors such as better use of cash slack or tax benefit, etc.a) Cash Slack: It is a situation in which the firm has excess cash than what is needed to finance firms

existing viable projects. It makes a sense for a company with excess cash and no investmentopportunities (known as cash slack) to takeover a cash poor firm with good investment opportunities orvice-versa.

b) Tax Benefits: Several tax benefits may accrue from take-overs. First if one of the firm has taxdeductions that it cannot use because it is incurring losses, whereas the other firm has profits on

which it pays taxes, combining the two firms can result in tax benefits.4. Corporate Control: There may be companys with good business models but poor management. In such a

case many hostile take-over bids are justified on the basis of existence of a value for corporate control.


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Code: PN - 246JMD TUTORIALS

TYBMS V SEM FINANCIAL MANAGEMENTPRELIMINARY EXAM - A - 2010-11

NB: All questions in Section I are compulsory.: Answer any three questions in Section II .

SECTION I (MARKS 30)Q1)a) Concept Testing

1. Ploughing back of profits

2. Marginal WACC3. Types of Risk4. Emerging Role of Finance Manager5. Demerger

Q 1)b) Attempt any 2i) Charlie Company Ltd. wishes to buy a machine costing Rs. 2,00,000. The life of the machine is 10 years

and its scrap value would be 5,000. The following details are provided:Average Annual NPBT Rs. 20,000

Tax Rate 35%Depreciation (already charged) SLM basisCalculate:

i)

Payback Period.ii) Payback Profitabilityiii) A.R.R. (Accounting Rate of Return Method)

ii) If the combined leverage and operating leverage of a company are 2.5 and 1.25 respectively, find thefinancial leverage and P/V ratio given that the equity dividend per share is Rs 2, interest payable per year isRs. 1 lakh, total fixed cost Rs. 0.5 lakh and sales Rs. 10 lakhs .

iii) Motives of Holding Cash.

Q 2. Deva Ltd. and Asura Ltd. carrying on similar business agreed to amalgamate by transferring their undertaking to anew company Devasura Ltd.

The Balance of the companies as on date of transfer were as follows :Liabilities Deva Ltd.

Rs.Asura Ltd.

Rs.Assets Deva Ltd.

Rs.Asura Ltd.

Rs.Share Capital :Equity Shares of Rs. 100each6% Pref. Shares of Rs. 100 each5% DebenturesGeneral ReservesProfit & Loss A/cSundry Creditors

5,00,000

5,00,000-

2,00,0001,15,000

75,000

3,00,000

2,50,00040,00070,00055,00035,000

Land & BuildingPlant & MachineryFurniture & FittingStockDebtorsCash at BankCash at handPreliminary Expenses

4,65,0005,60,000

79,00081,50056,00087,000

6,40055,100

2,55,0003,58,000

34,00052,00024,60022,500

3,900

13,90,000 7,50,000 13,90,000 7,50,000 The terms of agreement were as follows :(a) The purchase consideration consisted of

(1) The assumption of liabilities of both the companies,(2) The discharge of the debentures of Asura Ltd. at a premium of 5% by the issue of 7% debentures in Devasuar

Ltd.(3) The issue of 10 equity shares of Rs. 10 each at a premium of Rs. 2 per share for each preference share held in

both the companies.(4) The issue of 10 equity shares of Rs. 10 each at a premium of Rs. 2 per share and Rs. 22 in cash for each

equity share in Deva Ltd. and 5 equity shares of Rs. 10 each at a premium of Rs. 2 per share and Rs. 80 incash for every equity share in Asura Ltd.

(b) All the assets and liabilities of the two companies were taken over at their book value except that a provision at 5% was to be raised on debtors.

(c) In order to raise working capital and to pay the purchase consideration Devasura Ltd. decided to issue 30,000 equityshares of Rs. 10 each at a premium of Rs 2.50 per share.

(d) Formation Expenses Rs.5000You are required to(a) Prepare Purchase Consideration and(b) Show the opening balance sheet of Devasura Ltd.


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SECTION II (MARKS 30)

Q 3 ) Briefly explain Long term & Short-term sources of finance

Q 4) Following is the cost sheet of JMD-TISCO Ltd. for the year ended 31st December 2001 (units produced 10,000).Particulars Per unit (Rs.)Raw MaterialWagesOverheads

Total costProfitSelling price

5.002.501.008.501.50

10.00Following additional information is given for the year 2002

1. Production will increase by 20% (compared to 2001)2. Raw materials and labour cost will Increase by 10% (compared to 2001)3. Overheads in 2002 will increase by Rs.2,000.4. Selling price in 2002 will be 15% higher than the price in 2001.5. Raw materials remain in store for 2 months.6. Processing period is one month.7. Finished goods remain in store for 2-months.8. All sales will be on credit and credit allowed to customers will be as follows:

Acceptance of Bills of Exchange for three months against 60% of Sales, 40% of Sales on one month's credit,

9. Cash float required Rs.5,000.10. 60% of Raw Materials requirements will be obtained from the suppliers from Japan by making three months

advance payments,

11. Add contingency 10%.Prepare a statement of working capital requirement for the year 2002.

Q.5) JMD ltd. specializes in manufacture of computer component. The component is currently sold for Rs. 1,000/- andits variable cost is 80%. Fixed cost is 10% of the sales at current level. For the year-ended the company sold on anaverage 400 components per month. At present the company grants one-month credit to its customers. The company isthinking of extending the same to two months on accounts of which the following is expected: Increase in Sales 25 %;Increase in Working Capital Rs. 2,00,000You are required: To advise the company on whether or not extended the credit terms. The Company expects a minimumreturn of 40% on the investment .

Q.6) M/s. Albert and Co. has the following capital structure as on 31st December 1998.10% Debentures Rs. 60000012% Preference Share Capital Rs. 400000Equity-10000 shares of Rs. 100 each Rs. 1000000

Rs. 2000000 The equity shares of the company are quoted at Rs. 110 and the company is expected to declare a dividend of Rs. 10 pershare for 1998. The company has registered a dividend growth rate of 6%, which is expected to be maintained.

1. Assuming the tax rate applicable to the company at 35%. Calculate the weighted average cost of capital. State your assumptions, if any.

2. Assuming in the above exercise that the company can raise additional term loan at 12% for Rs. 1000000 tofinance an expansion, calculate the revised weighted cost of capital. The company assessment is that it will be ina position to increase the dividend from Rs. 10 per share to Rs. 12 per share but the business risk associated

with new financing may bring own the market price from Rs. 110 to Rs. 105 per share.

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Code: KM - 007JMD TUTORIALS

TYBMS V SEM FINANCIAL MANAGEMENTPRELIMINARY EXAM- B-2010-11

NB : All questions in Section I are compulsory.: Answer any three questions in Section II .

SECTION I (MARKS 30)

Q1) a) Concept Testing1. Types of Cost in Receivable Management.2. Cost of Debt is cheaper than Cost of Equity. Comment3. Trading on Equity4. Commercial Paper5. Financial Synergy

Q 1) b) Attempt any 2i) A company is considering to raising of funds of about Rs. 100 lakhs by one of the two alternative methods viz. 14%

institutional term loan and 13% non-convertible debentures. The term loan option would attract no major incidental cost. The debentures would have to be issued at a discount of 2.5% and would involve cost of issue of Rs. 1 lakh. Advice thecompany as to the better option based on the effective cost of capital. Assume tax rate of 35%.

ii) ) A firm uses continuous billing system that results in an average daily receipts of 40,00,000. It wants to useconcentration banking, which would reduce ACP by 2 days. Concentration Banking would cost 75000 p.a Alternatively

lock box system would reduce ACP by 4 days and cost annually 1,20,000. Cost of capital is 8%. Calculate: 1) How muchcash releases in both plans. 2) Net savings under both plans. The Manager is confused, advice him as to which system heshould adopt based on the above information

iii ) Enumerate the determinants of Capital Structure

Q2) Following are the Balance Sheet of Bold Limited and Beautiful Limited as on 31st March 2006.Liabilities Bold

Ltd. Rs.Beautiful

Ltd. Rs.Assets Bold

Ltd. Rs.BeautifulLtd. Rs.

Equity share capital(Rs.10 each)General reserveProfit and loss A/cCapital Reserve

12% DebentureCurrent liabilities

5,50,000

4,00,0001,00,000

50,000

-3,00,000

2,00,000

2,50,00048,000

-

1,00,0001,52,000

Land and buildingPlant and MachineryFurniture and FixtureInvestment(Market Value Rs. 125,000)

Current AssetsPreliminary Expenses

2,00,0003,00,000

50,000

1,00,000

7,40,00010,000

2,60,00030,000

4,55,0005,000

14,00,000 7,50,000 14,00,000 7,50,000 The two companies agreed to amalgamate and form a new company called Bold Limited and Beautiful Ltd.With an authorized capital of Rs.20,00,000 consisting of 2,00,000 equity shares of Rs.10/ each the terms of agreement were as undera) All the assets and liabilities of both companies were taken over at their book value except Land and

Building at book value plus 10% Plant and Machinery at book value less 5% and investment at its Marketvalue.

b) Both the companies received 5% of the net valuation of their respective business as Goodwill.c) The entire purchase consideration was paid in the form of equity shares of Rs.10/ each fully paid at a

premium of Rs. 5/ per share.d) 12% Debenture were redeemed at par by issue of equity shares of Rs. 10/ each fully paid by the

amalgamated company at par.You are required to:i) Prepare a statement of computation of purchase consideration as per AS-13.ii) Prepare a Balance Sheet of Bold & Beautiful Limited after amalgamation in the nature of Purchase

method.

SECTION II (MARKS 30)Q.3) Determinants of Working Capital.

Q.4) The Balance Sheet of Well established Company is as follows:LIABILITIES Rs. ASSETS Rs.Equity Capital (Rs 10/- per share) 60,000 Net Fixed Assets 1,50,00010% Long term debt 80,000 Current Assets 50,000Retained earnings 20,000


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Current Liabilities 40,0002,00,000 2,00,000

The Companys total assets turnover ratio is 3, its fixed operating costs are Rs 1,00,000/- and its variableoperating cost ratio is 40%. The income-tax rate is 50%.

(1) Calculate for the Company the different types of leverages(2) Determine the likely level of EBIT if EPS is

(a) Re. 1 (b) Rs. 3 (c) Rs. 0

Q.5) After conducting a survey that costs Rs. 2,00,000; Zeal Ltd. decided to undertake a project for putting anew product in the market. The company's cut off rate is 12%. It was estimated that the project would havea life of 5 years. The project would cost Rs. 40 lakhs in plant and machinery in addition to working capitalof Rs. 10 lakhs. The scrap value of plant and machinery at the end of 5 years is estimated at Rs. 5,00,000.After providing depreciation on straight-line basis, profits after tax were estimated as follows:

Year Rs.1 3,00,0002 8,00,0003 13,00,0004 5,00,0005 4,00,000

Ascertain the net present value of the project.

Q.6) Prepare Cash Budget for three months ended in December 2006, from the following information:1. The estimated sales expenses are as follows:

Particulars September2006 October2006 November2006 December2006Gross SalesPurchasesWages and SalariesMiscellaneous ExpensesInterest ReceivedSale of shares

25,00010,000

9,0003,000

--------

25,00010,000

9,0003,5001,000

-----

30,00012,50010,000

3,500----

10,000

32,50014,00011,000

3,5001,000

----2. 20% of the sales is on cash.3. 1% of the credit sales are returned by customers and Bad Debts for October, November and December

2006 are Rs. 800, Rs. 760 and Rs. 740 respectively.4. 50% of the Good accounts are collected in the month of sale and the rest in the next month.5. Time lag in the payment of Miscellaneous Expenses and Purchases is one month.6. Wages and salaries are paid fortnightly on 1 st and the 15 th of each month7. The opening cash Balance is Rs, 25,000.

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ADMISSION IN PROGRESS FOR TYBMS VI SEM:INTERNATIONAL FINANCE

INVESTMENT ANALYSIS AND PORTFOLIO MANGEMENT - IAPM

OPERATION RESEARCHJMD has been teaching IAPM in TYBBI since last 6 years and

has vast experience in this newly introduced subject for TYBMS.University toppers in all the attempts at TYBBI.

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Code: NN - 007

JMD TUTORIALSTYBMS V SEM FINANCIAL MANAGEMENT

PRELIMINARY EXAM- B-2006-07

NB : All questions in Section I are compulsory.: Answer any three questions in Section II .

SECTION I (MARKS 30)

Q1)a) Concept Testing

1. ICD2. Significance of Leverages3. Enumerate Motives of Merger4. GWC v/s NWC5. Five examples of Marketable Securities

Q 1)b) Attempt any 2

i) Calculate the cost of debt for each of the following situation:(a) Debentures are sold at par and flotation costs are 5%.(b) Debentures are sold at premium of 10 % and flotation costs are 5% of issue price.(c) Debentures are sold at discount of 5% and flotation costs are 5% of issue price.

Assume: i) Coupon rate of interest on debentures is 10 percent; ii) face value of debentures is Rs. 100; iii)maturity period is 10 years; and iv) tax rate is 35 %.

ii) ) X Ltd the purchasing company(new company) agrees to issue two shares of Rs.100 each, Rs.80 paidup for every 3 shares in the Y Ltd, the vendor company(old company). Findout the number of shares tobe issued by the purchasing company (new company) if the vendor company has Rs.300000 paid-upcapital of Rs.100 each, Rs.50 paid-upb) A purchasing company agrees to issue two shares of Rs.100 each Rs.75 paid up (quoted in themarket at Rs.120) for every three shares held in the vendor company(old company). Find the numberand amount of shares to be issued by the purchasing company(new company) if the vendor companyhas Rs.300000 paid up capital of Rs.100 each , Rs.50 paid up(quoted in the market at Rs.50).

iii ) Steps in Credit Analysis

Q.2) A factory produces 96,000 units during the year and sells them Rs 50 per unit. Cost structure of aproduct is as follows:

Raw MaterialLabourOverheads

60%15%10%

Profit85%15%

Selling Price 100% The following additional information is available:1. The activities of purchasing, producing and selling occur evenly throughout the year.2. Raw materials equivalent to 1 months supply is stored in godown.3. The production process takes 1 month.4. Finished goods equal to three month's production are carried in stock.5. Debtors get 2 months credit.6. Creditors allow months credit.7. Time lag in payment of overhead is 1/2 month8. Wages for a month are paid at the end of the month.9. Cash and bank balance is to be maintained at 10% of the working capital.10. 10% of the sales are made at 10% above the normal selling price.Draw a forecast of working capital requirement of the factory.

SECTION II (MARKS 30)

Q.3) Explain Profit Maximisation and Wealth maximization as a objective of financial management

Q.4) AD Ltd. desires to plan its capital structure involving investment of Rs. 1 million.


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Tax rate is applicable @ 35%.Sales Rs. 10 lacsVariable Cost Rs. 7 lacsDegree of Operating Leverage = 1.5.

The Company has following alternative plans for capital structure:I II III

11% Debt 70% 40% 50%Equity Capital ( Rs. 100 each) 30% 60% 50%

100% 100% 100%P/E ratio 3 7 4.5

a) You are required to evaluate each alternative on the basis of:i) EPS, ii) MPS.b) You are required to suggest alternative, which would maximise shareholders worth from different criteria.

Q.5)JMD-Mital-Arcelor ltd. has a machine having an additional life of 5 years, which costs Rs. 10 lakh andhas a book value of Rs 4 lakh. A new machine costing Rs 20 lakh is available. Though its capacity is the sameas that of the old machine it will mean saving of variable costs to the extent of Rs 7 lakh per annum. The lifeof the machine will be 5 years at the end of which its scrap value will be Rs. 2 lakh. Additional Workingcapital required for the new machine will be Rs. 5 lakh. The rate of income tax is 46%. The old machine, if sold at the end of the fifth year will have nil scrap but if sold today will fetch Rs.1 lakh. Advise JMD Ltd.

whether or not the old machine should be replaced. Capital Gains tax rate is 20%. The cost of capital is 12%.(Present value of Re. 1 receivable annually for 5 years @ 12% = 3.605, PV of Re. 1 receivable at the end of the5 th year @ 12% p.a. = 0.567).

Q.6) The present terms of P. Co. is (1/10 net 30)Annual Sales 80L. Average collection period 20 days. Variable Cost & avg. total cost to sales = 0.85 and0.95 respectively.Cost of capital = 10%. Proportion of sales on which customers currently take discount is 0.50P. Co. is considering relaxing discount terms to 2/10 net 30. Such relaxation is expected to increase sales by5 lakhs. Reduce ACP to 14 days & proportion of discount to sales 0.8.


INVESTMENT ANALYSIS AND PORTFOLIO MANGEMENT - IAPM

OPERATION RESEARCH

JMD has been teach IAPM in TYBBI since last 6 years and hasvast experience in this newly introduced subject for TYBMS.

University toppers in all the attempts at TYBBI.Dont take chances think wise


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3000 => x15000 Equity shares *10 =150000+Security Premium=15000*2 =30000 Rs. 180000

+ Cash1=>803000=> x Rs.240000

Rs.720000 Discharge of Purchase ConsiderationEquity Share Capita l(250000+150000) Rs.400000Cash Rs.240000

Security Premium(50000+30000) Rs.80000Rs 720000

In calculation of Purchase consideration Adjustment for debentures will not be included. The adjustment plays a role only at the timeof preparing the new balancesheet where debentures would be shown under the head secured loans as 7% Debentures at takeovervalue which is 5% above Rs 40000 i.e Rs 42000.Liabilities Rs Assets RsShare Capital Fixed AssetsAuthorised ? Land & Building 720000Issued & Paid up Plant & Machinery 918000170000 shares of Rs.10 each 1700000 Furniture & Fixtures 113000

Goodwill 101130Reserves & SurplusShare Premium 355000 Investments Nil

Secured Loans Current Assets Loans & Advances7 % Debentures 42000 Stock 133500

Debtors 76570Unsecured Loans Nil Bank Balances 109500

Cash in Hand 30300Current Liabilities (6400+3900+375000-110000-240000-5000)Sundry creditors 110000

Formation Expenses 50002207000 2207000

Note: of the above equity share capital 140000 shares have been issued for consideration other than cashWorking Note for CashCash of Deva taken over: Rs 6400+Cash of Asura taken over Rs 3900

+Amt recvd on public issue Rs 375000- paid to Deva Rs 110000-Paid to Asura Rs 240000-paid for formation exp Rs 50000Final Cash balance Rs 30300

www.jmdtutorials.comQ.3)Refer JMD Tutorials Theory Notes Pg 24Q.4)Working CapitalParticulars Last year Increase Decrease 2002Raw material 5p.u 10%= Rs 0.50 5.50 per unit

Wages 2.5p.u 10%= Rs 0.25 2.75 per unitOverheads 10000 per annum Rs 2000 Rs.12000Selling Price 10 p.u 15%= Rs 1.50 Rs 11.50 per unit

Units 10000 20% = 2000 units 12000 units

No of Units= 12000/12 = 1000 units pmParticulars Rs RsSales(1000*11.50) 11500Less: Raw Material(1000*5.50) 5500

Labour (1000*2.75) 2750Overheads(12000/12) 1000 9250

Profit 2250


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Particulars Working Notes Rs Rs.

Current AssetsStock of Raw material 5500*2 11000Stock of WIP 5500+1375+500 7375Stock of Finished Goods 9250*2 18500Bills Receivables 11500*60%*3 20700Sundry Debtors 11500*40%*1 4600Cash Balance 5000Advance to Supplier 5500*60%*3 9900Gross Working Capital 77075LessCurrent Liabilities NilNet Working Capital 77075Add:Contigency 7708Working Capital Required 84783Q.5) Refer JMD Tutorials Practical NotesQ.6) Refer JMD Tutorials Practical Notes

www.jmdtutorials.comSolution Paper II

Q1) a)Concept Testing1 Refer JMD Tutorials Theory Notes Pg 102 Refer JMD Tutorials Theory Notes Pg 163 Refer JMD Tutorials Theory Notes Pg 174 Refer JMD Tutorials Theory Notes Pg 255 Refer JMD Tutorials Theory Notes Pg 26

Q 1) b) Attempt any 2i) Refer JMD Tutorials Practical Notes

ii) ) Refer JMD Tutorials Practical Notesiii) Refer JMD Tutorials Theory Notes Pg 17

Q.2) Refer JMD Tutorials Practical NotesQ.3) Refer JMD Tutorials Theory NotesQ.4) Refer JMD Tutorials Practical NotesQ.5) Refer JMD Tutorials Practical NotesQ.6) Solution to Cash Budget

Particulars Oct Nov DecOpening Balance 25000 28400 42400Receipts:Cash SalesCollection from Debtors (w.n)Interest ReceivedSale of shares

5000194001000-

600021000-10000

6500240001000-

25400 37000 31500Payments:Creditors for purchasesMisc ExpensesWages & Salaries

1000030009000

1000035009500

12500350010500

22000 23000 26500Closing balance 28400 42400 47400

Working notes: Collection from Debtors:Particulars Sept Oct Nov DecGross Sales 25000 25000 30000 32500Less: Cash sales 20% 5000 5000 6000 6500Gross Credit Sales 20000 20000 24000 26000Less: Returns 200 200 240 260Net Credit Sales 19800 19800 23760 25740Less: Bad Debts 0 800 760 740Good Debtors 19800 19000 23000 2500050% same month 9900 9500 11500 1250050% next month 9900 9500 11500Total 19400 21000 24000


12/12


k l dh k h l dh

Months Wages same month next month TotalSept 9000 4500Oct 9000 4500 4500 9000Nov 10000 5000 4500 9500Dec 11000 5500 5000 10500

Solution to Paper IIIQ1b) i) Refer COC chapter Q.1

Q1b) Solution to ii (a) For Equity shareholders:No of shares of Vendor (OLD company) = Amount of equity share cap/ paid up value per share = 300000/ 50 = 6000 shares

For 3 shares = we will get 2 sharesTherefore 6000 share = ??? = 4000 shares

Therefore amount of PC = number of shares to be issued by new company X paid up value per equity share of new company=4000 X 80 = Rs 320000

Q1b) Solution to ii (b) For Equity shareholders:No of shares of Vendor (OLD company) = Amount of equity share cap/ paid up value per share = 300000/ 50 = 6000 shares

For 3 shares = we will get 2 sharesTherefore 6000 share = ??? = 4000 shares

Therefore amount of PC = number of shares to be issued by new company X paid up value per equity share of new company=4000 X 75 = Rs 300000

Market Price has to be completely ignored in both the cases.

Q.4)Contribution = 300000

DOL = C/ EBIT1.5 = 300000/ EBITTherefore EBIT = 200000Calculation of EPS and MPSParticulars Plan A Plan B Plan C

EBIT 2 2 2Less: Interest 0.77 0.44 0.55EBT 1.23 1.56 4.45Less: Tax 0.4305 0.546 1.558EAT 0.7995 1.014 2.892Less: Preference Dividend 0 0 0Earnings for equity shares 0.7995 1.014 2.892 Number of equity shares 0.03 0.06 0.05EPS 26.65 16.9 57.84P/E ratio (given) 3 7 4.5MPS 79.95 118.3 260.28If Profit maximization is the objective then Plan C is the best as EPS is highest i.e. Rs. 57.84If wealth maximization is the objective then again Plan C is the best as MPS is highest i.e Rs. 260.28Q5) Refer JMD -WC sum no. 6Q6) Refer Capital Budgeting case studiesQ7) Refer JMD- Receivable management


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