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JMD TUTORIAL’S-Question bank

Theory Questions Pg.

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
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 C’s 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 18
Capital structure
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 Management
Operation Research
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Numericals & 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 + β (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
Β = Beta which is a measure of risk
Rm = 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

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Theory of Business Restructuring
Business Restructuring: Profitable growth constitutes one of the prime objectives of most of the business firms. It
can be achieved internally by developing new products or enlarging capacity of existing products. Alternatively it
can 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 are
interchangeably used to denote the process of corporate or business re-structuring. There is no common definition
of 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 or
more existing firms combine together and form a new entity. Either a new company may be incorporated for this
purpose 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 the
property and asset of other company. The other company of which the control is so acquired, remains a separate
company and is not liquidated. E.g. AV Birla group had acquired Cement division of L & T ltd now known as
Grasim Cements. Mahindra Tech took over Satyam ltd. Acquisition can be by purchase of shares wherein the
purchaser acquires the control and management of the target company or Acquisition can be by purchase of assets
and liabilities against which cash is paid to the target company. In this case the buyer cherry picks the assets he is
interested 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 two
companies and the economic impact of the merger on their operations. The merger may take place in any of the
following 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. Horizontal
mergers are designed to produce, primarily, substantial economies of scale and result in decrease in the
number of competitors in the industry.
2. Vertical Merger: It is a merger which takes place upon the combination of two companies which are operating
in the same industry but at different stages of production or distribution system. It a company takes over its
supplier/producers of raw material, and then it may result in backward integration of its activities. On the
other hand, forward integration may result if a company decides to take over the retailer or Customer
Company. Vertical merger may result in many operating and financial economies. The transferee firm will get a
stronger position in the market as its production/ distribution chain will be more integrated than that of the
competitors.
3. Conglomerate Merger: It is a merger of two or more firms operating in different and unrelated industries. It is
an 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 is
a case of diversification.
De-merger: Demerger is a process where the part of the business is divided or the product line of the company is
separated. In case of multi product business, often the management thinks of division of different products into
different companies for several reasons like creating value to the shareholder, making business more transparent to
the stakeholders, family arrangement etc e.g. Ruias of ESSAR group is proposing to demerge their existing business
into separate entities of shipping, logistics and oilfields. Bajaj auto demerged their business into separate entities
for 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 is
generally a sick company and having eroded a substantial portion of its networth. The motive mainly is to takes
advantage 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 firm’s
existing viable projects. It makes a sense for a company with excess cash and no investment
opportunities (known as cash slack) to takeover a cash poor firm with good investment opportunities or
vice-versa.
b) Tax Benefits: Several tax benefits may accrue from take-overs. First if one of the firm has tax
deductions 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 company’s 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 - 246
JMD TUTORIAL’S
TYBMS – V SEM – FINANCIAL MANAGEMENT
PRELIMINARY 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 WACC
3. Types of Risk
4. Emerging Role of Finance Manager
5. Demerger

Q 1)
b) Attempt any 2
i) 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 basis
Calculate:
i) Payback Period.
ii) Payback Profitability
iii) 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 the
financial leverage and P/V ratio given that the equity dividend per share is Rs 2, interest payable per year is
Rs. 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 a
new company Devasura Ltd.
The Balance of the companies as on date of transfer were as follows :
Liabilities Deva Ltd. Asura Ltd. Assets Deva Ltd. Asura Ltd.
Rs. Rs. Rs. Rs.
Share Capital : Land & Building 4,65,000 2,55,000
Equity Shares of Rs. 100 Plant & Machinery 5,60,000 3,58,000
each 5,00,000 3,00,000 Furniture & Fitting 79,000 34,000
6% Pref. Shares of Stock 81,500 52,000
Rs. 100 each 5,00,000 2,50,000 Debtors 56,000 24,600
5% Debentures - 40,000 Cash at Bank 87,000 22,500
General Reserves 2,00,000 70,000 Cash at hand 6,400 3,900
Profit & Loss A/c 1,15,000 55,000 Preliminary Expenses 55,100
Sundry Creditors 75,000 35,000

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 in
cash 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 equity
shares of Rs. 10 each at a premium of Rs 2.50 per share.
(d) Formation Expenses Rs.5000
You 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 Material 5.00
Wages 2.50
Overheads 1.00
Total cost 8.50
Profit 1.50
Selling price 10.00
Following 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/- and
its variable cost is 80%. Fixed cost is 10% of the sales at current level. For the year-ended the company sold on an
average 400 components per month. At present the company grants one-month credit to its customers. The company is
thinking of extending the same to two months on accounts of which the following is expected: Increase in Sales 25 %;
Increase in Working Capital Rs. 2,00,000
You are required: To advise the company on whether or not extended the credit terms. The Company expects a minimum
return 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. 600000
12% Preference Share Capital Rs. 400000
Equity-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 per
share 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 to
finance an expansion, calculate the revised weighted cost of capital. The company assessment is that it will be in
a 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 - 007
JMD TUTORIAL’S
TYBMS – V SEM – FINANCIAL MANAGEMENT
PRELIMINARY 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 Testing

1. Types of Cost in Receivable Management.
2. Cost of Debt is cheaper than Cost of Equity. Comment
3. Trading on Equity
4. Commercial Paper
5. Financial Synergy

Q 1) b) Attempt any 2
i) 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 the
company 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 use
concentration 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 much
cash releases in both plans. 2) Net savings under both plans. The Manager is confused, advice him as to which system he
should 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 Beautiful Assets Bold Beautiful
Ltd. Rs. Ltd. Rs. Ltd. Rs. Ltd. Rs.
Equity share capital 5,50,000 2,00,000 Land and building 2,00,000
(Rs.10 each) Plant and Machinery 3,00,000 2,60,000
General reserve 4,00,000 2,50,000 Furniture and Fixture 50,000 30,000
Profit and loss A/c 1,00,000 48,000 Investment
Capital Reserve 50,000 - (Market Value –Rs. 125,000) 1,00,000
12% Debenture - 1,00,000 Current Assets 7,40,000 4,55,000
Current liabilities 3,00,000 1,52,000 Preliminary Expenses 10,000 5,000
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 under
a) 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 Market
value.
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 1,50,000
10% Long term debt 80,000 Current Assets 50,000
Retained earnings 20,000
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Current Liabilities 40,000
2,00,000 2,00,000
The Company’s total assets turnover ratio is 3, its fixed operating costs are Rs 1,00,000/- and its variable
operating 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 a
new product in the market. The company's cut off rate is 12%. It was estimated that the project would have
a life of 5 years. The project would cost Rs. 40 lakhs in plant and machinery in addition to working capital
of 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 3,00,000
2 8,00,000
3 13,00,000
4 5,00,000
5 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 September October November December
2006 2006 2006 2006
Gross Sales 25,000 25,000 30,000 32,500
Purchases 10,000 10,000 12,500 14,000
Wages and Salaries 9,000 9,000 10,000 11,000
Miscellaneous Expenses 3,000 3,500 3,500 3,500
Interest Received ---- 1,000 ---- 1,000
Sale of shares ---- ----- 10,000 ----
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 1st and the 15th of each month
7. 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 RESEARCH

JMD 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.
‘Don’t take chances – think wise’
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Code: NN - 007
JMD TUTORIAL’S
TYBMS – 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. ICD
2. Significance of Leverages
3. Enumerate Motives of Merger
4. GWC v/s NWC
5. 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 paid
up for every 3 shares in the Y Ltd, the vendor company(old company). Findout the number of shares to
be issued by the purchasing company (new company) if the vendor company has Rs.300000 paid-up
capital of Rs.100 each, Rs.50 paid-up
b) A purchasing company agrees to issue two shares of Rs.100 each Rs.75 paid up (quoted in the
market at Rs.120) for every three shares held in the vendor company(old company). Find the number
and amount of shares to be issued by the purchasing company(new company) if the vendor company
has 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 a
product is as follows:
Raw Material 60%
Labour 15%
Overheads 10%
85%
Profit 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 ½ months credit.
7. Time lag in payment of overhead is 1/2 month
8. 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 lacs
Variable Cost Rs. 7 lacs
Degree 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 and
has a book value of Rs 4 lakh. A new machine costing Rs 20 lakh is available. Though its capacity is the same
as that of the old machine it will mean saving of variable costs to the extent of Rs 7 lakh per annum. The life
of the machine will be 5 years at the end of which its scrap value will be Rs. 2 lakh. Additional Working
capital 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 the
5th 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 and
0.95 respectively.
Cost of capital = 10%. Proportion of sales on which customers currently take discount is 0.50
P. Co. is considering relaxing discount terms to 2/10 net 30. Such relaxation is expected to increase sales by
5 lakhs. Reduce ACP to 14 days & proportion of discount to sales 0.8.

ADMISSION IN PROGRESS FOR TYBMS VI SEM:

INTERNATIONAL FINANCE
INVESTMENT ANALYSIS AND PORTFOLIO MANGEMENT - IAPM
OPERATION RESEARCH

JMD has been teach 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.
‘Don’t take chances – think wise’
www.jmdtutorials.com

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Code: KM - 007
Solution to Paper 1
Q1)
a) Concept Testing
1. Ploughing back of profits- Refer JMD Tutorials Theory Notes Pg 15
2. Marginal WACC – Refer JMD Tutorials Theory Notes Pg 15
3. Types of Risk- Refer JMD Tutorials Theory Notes Pg 18
4. Emerging Role of Finance Manager -Refer JMD Tutorials Theory Notes Pg 3
5. Financial synergy- Refer JMD Tutorials Theory Notes mailed
Q 1)
b) Attempt any 2
i)
Particulars Rs
Average NPBT 20000
Less: Tax 7000
Average NPAT 13000
Add: Depreciation(200000-5000/10) 19500
CFAT 32500

Payback Period=200000/32500 = 6.15 years

Payback Profitability= (10*32500)- 200000+5000 = Rs.130000.
ARR(Original Investment)=13000/200000*100 =6.5%
ARR(Average Investment)=13000/102500*100 = 12.68%

ii) Refer JMD - leverages

iii) Motives of Holding Cash= Refer JMD Tutorials Theory Notes Pg 12

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Q.2)
For Deva Ltd
Calculation of Purchase Consideration:
a) For Preference Shareholders:
1: 10
5000: x
50000 Equity shares *10 =500000
+Security Premium=50000*2 =100000 Rs. 600000

b)For Equityshareholders
1: 10
5000: x
50000 Equity shares *10 =500000
+Security Premium=50000*2 =100000 Rs. 600000

+ Cash

1 => 22
5000 => ? Rs.110000
Rs.1310000
Discharge of Purchase Consideration
Equity Share Capital(500000+500000) Rs.1000000
Cash Rs.110000
Security Premium(100000+100000) Rs.200000
Rs 1310000
For Asura Ltd
Calculation of Purchase Consideration:
a) For Preference Shareholders:
1 => 10
2500=> x
25000 Equity shares *10 =250000
+Security Premium=25000*2 =50000 Rs.300000

b)For Equityshareholders
1=> 5

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

+ Cash
1=>80
3000=> x Rs.240000
Rs.720000
Discharge of Purchase Consideration
Equity Share Capita l(250000+150000) Rs.400000
Cash Rs.240000
Security Premium(50000+30000) Rs.80000
Rs 720000
In calculation of Purchase consideration Adjustment for debentures will not be included. The adjustment plays a role only at the time
of preparing the new balancesheet where debentures would be shown under the head secured loans as 7% Debentures at takeover
value which is 5% above Rs 40000 i.e Rs 42000.
Liabilities Rs Assets Rs
Share Capital Fixed Assets
Authorised ? Land & Building 720000
Issued & Paid up Plant & Machinery 918000
170000 shares of Rs.10 each 1700000 Furniture & Fixtures 113000
Goodwill 101130
Reserves & Surplus
Share Premium 355000 Investments Nil

Secured Loans Current Assets Loans & Advances

7 % Debentures 42000 Stock 133500
Debtors 76570
Unsecured Loans Nil Bank Balances 109500
Cash in Hand 30300
Current Liabilities (6400+3900+375000-110000-240000-5000)
Sundry creditors 110000
Formation Expenses 5000
2207000 2207000
Note: of the above equity share capital 140000 shares have been issued for consideration other than cash
Working Note for Cash
Cash 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 50000
Final Cash balance Rs 30300

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Q.3)Refer JMD Tutorials Theory Notes Pg 24
Q.4)
Working Capital
Particulars Last year Increase Decrease 2002
Raw material 5p.u 10%= Rs 0.50 5.50 per unit
Wages 2.5p.u 10%= Rs 0.25 2.75 per unit
Overheads 10000 per annum Rs 2000 Rs.12000
Selling 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 pm

Particulars Rs Rs
Sales(1000*11.50) 11500
Less: Raw Material(1000*5.50) 5500
Labour (1000*2.75) 2750
Overheads(12000/12) 1000 9250
Profit 2250

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Particulars Working Notes Rs Rs.

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

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Solution Paper II
Q1) a)Concept Testing
1 Refer JMD Tutorials Theory Notes Pg 10
2 Refer JMD Tutorials Theory Notes Pg 16
3 Refer JMD Tutorials Theory Notes Pg 17
4 Refer JMD Tutorials Theory Notes Pg 25
5 Refer JMD Tutorials Theory Notes Pg 26
Q 1) b) Attempt any 2
i) Refer JMD Tutorials Practical Notes
ii) ) Refer JMD Tutorials Practical Notes
iii) Refer JMD Tutorials Theory Notes Pg 17

Q.2) Refer JMD Tutorials Practical Notes

Q.3) Refer JMD Tutorials Theory Notes
Q.4) Refer JMD Tutorials Practical Notes
Q.5) Refer JMD Tutorials Practical Notes
Q.6) Solution to Cash Budget
Particulars Oct Nov Dec
Opening Balance 25000 28400 42400
Receipts:
Cash Sales 5000 6000 6500
Collection from Debtors (w.n) 19400 21000 24000
Interest Received 1000 - 1000
Sale of shares - 10000 -
25400 37000 31500
Payments:
Creditors for purchases 10000 10000 12500
Misc Expenses 3000 3500 3500
Wages & Salaries 9000 9500 10500
22000 23000 26500
Closing balance 28400 42400 47400

Working notes: Collection from Debtors:

Particulars Sept Oct Nov Dec
Gross Sales 25000 25000 30000 32500
Less: Cash sales – 20% 5000 5000 6000 6500
Gross Credit Sales 20000 20000 24000 26000
Less: Returns 200 200 240 260
Net Credit Sales 19800 19800 23760 25740
Less: Bad Debts 0 800 760 740
Good Debtors 19800 19000 23000 25000
50% same month 9900 9500 11500 12500
50% next month 9900 9500 11500
Total 19400 21000 24000
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Months Wages ½ same month ½ next month Total

Sept 9000 4500
Oct 9000 4500 4500 9000
Nov 10000 5000 4500 9500
Dec 11000 5500 5000 10500

Solution to Paper III

Q1b) 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 shares

Therefore 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 shares

Therefore 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/ EBIT
1.5 = 300000/ EBIT
Therefore EBIT = 200000
Calculation of EPS and MPS
Particulars Plan A Plan B Plan C
EBIT 2 2 2
Less: Interest 0.77 0.44 0.55
EBT 1.23 1.56 4.45
Less: Tax 0.4305 0.546 1.558
EAT 0.7995 1.014 2.892
Less: Preference Dividend 0 0 0
Earnings for equity shares 0.7995 1.014 2.892
÷ Number of equity shares 0.03 0.06 0.05
EPS 26.65 16.9 57.84
P/E ratio (given) 3 7 4.5
MPS 79.95 118.3 260.28
If Profit maximization is the objective then Plan C is the best as EPS is highest i.e. Rs. 57.84
If wealth maximization is the objective then again Plan C is the best as MPS is highest i.e Rs. 260.28
Q5) Refer JMD -WC sum no. 6
Q6) Refer Capital Budgeting case studies
Q7) Refer JMD- Receivable management
ADMISSION IN PROGRESS FOR TYBMS VI SEM:
INTERNATIONAL FINANCE
INVESTMENT ANALYSIS AND PORTFOLIO MANGEMENT - IAPM
OPERATION RESEARCH
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