Financial Management — Winter 2024

Comment on the emerging role of the finance manager in India.

Aproject will cost ₹ 80,000. Its stream of earnings before depreciation, interest and taxes (EBDIT) during first year through five years is expected to be ₹ 20,000, ₹ 24,000, ₹ 28,000, ₹ 32,000 and ₹ 40,000. Assume a 50 per cent tax rate and depreciation on straight-line basis. Find the ARR from the given information.

Q .2 (b) You plan to go abroad for higher studies after working for the next five years and understand that an amount of ₹4,000,000 will be needed for this purpose at that time. You have decided to accumulate this amount by investing a fixed amount at end of each year in a safe scheme offering a rate of interest at 10 per cent. What amount should you invest every year to achieve the target amount?

Shiv & Co., has 20 per cent irredeemable debentures of ₹ 200 each of ₹ 20,00,000. The tax rate is 40 per cent. Determine debenture cost assuming it is issued at i) face value/par value ii) 10 per cent premium and iii) 10 per cent discount.

As finance manager of the XYZ Ltd., you expect that company will pay a ₹10 dividend next year, which is expected to grow at 6% yearly. Further, the required rate of return for the investor is 16%. So, what is the intrinsic value of the XYZ Ltd., stock?

The Capital Ltd., wishes to calculate its cost of capital using the Capital Asset Pricing Model [CAPM] approach. Company’s analyst found that its risk free rate of return equals 12 per cent, beta equals 1.7 and the return on market portfolio equals 14.5 per cent.

Afirm’s sales, variable costs and fixed cost amount to ₹37,50,000, ₹21,00,000 and ₹3,00,000 respectively. It has borrowed ₹ 22,50,000 at 9 per cent and its equity capital totals ₹27,50,000. What are the operating, financial and combined leverage of the firm?

Atrade-off between liquidity and profitability is essential for appropriate working capital management. Are you agreed with the statement? Support your argument. Q-4 (b) Afirm has 7 different items in its inventory. The average number of each of these items held, along with their units costs, is listed below. The firm wishes to introduce an ABC inventory system. Suggest a breakdown of the items into A,Band Cclassifications. Page 1 of Item number Average number of units in average cost per inventory unit (₹) Dinner Plates 2000 1200 Dinner spoon 1000 600 Dinner fork 3200 110 Dinner knife 200 100 Dessert Plate 600 300 Dessert spoon 400 400 Dessert fork 200 200

Explain the Short-term Sources of Finance for working capital.

Afirm inventory planning inventories is one year. Its inventory requirement for this period is 3,200 units. Assume that its acquisition costs are ₹ 100 per order. The carrying costs are expected to be ₹ 2 per unit per year for an item. Find the economic order quantity for the firm.

Case Study: Ahmedabad Co. Ltd. wishes to arrange overdraft facilities with its bankers from the period August to October 2023 when it will be manufacturing mostly for stock. Assume that you are financial manager of the company. Month Sales (₹) Purchases(₹) Wages(₹) Mfg. Office Selling Exp. (₹) Exp. (₹) Exp. (₹) June 1,80,000 1,24,800 12,000 3,000 2,000 2,000 July 1,92,000 1,44,000 14,000 4,000 1,000 4,000 August 1,08,000 2,43,000 11,000 3,000 1,500 2,000 September 1,74,000 2,46,000 12,000 4,500 2,000 5,000 October 1,26,000 2,68,000 15,000 5,000 2,500 4,000 November 1,40,000 2,80,000 17,000 5,500 3,000 4,500 December 1,60,000 3,00,000 18,000 6,000 3,000 5,000 Additional Information:

Cash on hand 1‐08‐2023: ₹ 25,000.

50% of credit sales are realized in the month following the sale and the remaining 50% in the second month following. Creditors are paid in the month following the month of purchase.

Lag in payment of manufacturing expenses half month.

Lag in payment of other expenses one month.

As a financial manager of the company explain what is budget and how it is useful for the company.

As you are financial manager of the Ahmedabad Co., Ltd prepare cash budget for August to October, 2023 and give insights to higher authority.

Assume that, there is 50% increase in Sales, Purchase, wages, Manufacturing expenses, Office expenses and Selling expenses. And prepare cash budget with 50% increment for August to October, 2023.

Company’s higher authority would like to know what is flexible budget and which advantages are associated with flexible budget. Explain it to your higher authority. Page 2 of