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Q.1. The following figures relate to two companies. P LTD. Q LTD. (In Rs.

Lakhs) Sales #aria$le costs !! %!! '''' (ontri$ution *i+e, costs &!! 1 ! '''' 1 ! Interest ! '''' Profit $efore Ta+ 1!! '''' .ou are re/uire, to0 (i) (alculate the operating" financial an, com$ine, le1erages for the two companies2 an, (omment on the relati1e risk position of them 1"!!! &!! ''''''' )!! -!! ''''''' &!! 1!! ''''''' %!! '''''''

Q.%. $. The following items ha1e $een e+tracte, from the lia$ilities si,e of the $alance sheet of 3.4 (ompan5 as on &1 st Decem$er %!! . Pai, up capital0 -" !!"!!! e/uit5 shares of Rs each Loans0 167 non'con1erti$le ,e$entures 1%7 institutional loans %!" !!"!!! 6!" !!"!!! Rs. -!" !!"!!!

8ther information a$out the compan5 as rele1ant is gi1en $elow0 &1st Dec %!! Di1i,en, per share ).% earning per share 1!. ! a1erage market price per share 6

.ou are re/uire, to calculate the weighte, a1erage cost of capital" using $ook 1alues as weights an, earnings9price ratio as the $asis of cost of e/uit5. :ssume1;.%7 ta+ rate

Q. &. The preform of cost'sheet of <LL pro1i,es the following ,ata0 (ost (per unit)0 Raw materials Direct la$our 81erhea,s Total cost (per unit)0 Profit Selling price The following is the a,,itional information a1aila$le0 :1erage raw material in stock0 one month2 :1erage materials in process0 half month2 (re,it allowe, $5 suppliers0 one month2 (re,it allowe, to ,e$tors0 two months2 Time lag in pa5ment of wages0 one an, half weeks2 81erhea,s0 one month. 8ne'fourth of sales are on cash $asis. (ash $alance e+pecte, to $e Rs. 1%"!!!. .ou are re/uire, to prepare a statement showing the working capital nee,e, o finance a le1el of acti1it5 of )!"!!! units of output. .ou ma5 assume that pro,uction is carrie, on e1enl5 throughout the 5ear an, wages an, o1erhea,s accrue similarl5. Rs. %.! 1;. &;.! 11!. 1;. 1&!.!

CASE STUDY Brown Metals Ltd.

Please rea, the case stu,5 gi1en $elow an, answer the /uestions gi1en at the en,0 =rown >etals Lt,. is consi,ering the replacement of its e+isting machine which is o$solete an, una$le to meet the rapi,l5 rising ,eman, for its pro,uct. The compan5 is face, with two alternati1es0

a) To $u5 machine : which is similar to the e+isting machine 8r $) To go in for machine = which is more e+pensi1e an, has much greater capacit5. The cash flows at the present le1el of operations un,er the two alternati1es are as follows0 (ash flow (Rs in lakhs) at the en, of 5ear .rs. >achine : >achine = ! '% '-! 1 ' 1! 1% & %! 16 11) 11

The (ompan5?s cost of capital is 1!7. The *inance >anager tries to e1aluate the machines $5 calculating the followings for $oth the machines0

1. %. &. -.

@et Present #alue Profita$ilit5 In,e+ Pa5 =ack Perio, Discounte, Pa5$ack Perio,.

:t the en, of his calculations" howe1er" the finance manager is una$le to make up his min, as to which machine to recommen,. Q. .ou are re/uire, to make these calculations an, in the light thereof" a,1ise the finance manager a$out the suita$ilit5" or otherwise" of machine : or machine =.