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Q1. M/s Anuradha Ltd. has a long-term fund requirement of Rs. 45 lacs for putting up a new manufacturing unit.
The following options of funding are available.
a) It can raise a perpetual debt @ an interest rate of 9% p.a.
b) It can issue bonds of Rs. 100 each, at a discount of 10%. Coupon rate of 6%. Bonds have a term of 5 years.
c) Issue Preference shares at a discount of 5%, redeemable at par after 6 years. Rate of Dividend is 8%
d) Invest retained earnings to the extent of 50% and take a loan from the bank for the balance at 8.5% interest rate for a period of 4 years. Equity holders expect a return of 15% from the business.
Corporate Tax rate is 30%.
Which option would the firm choose? What should be some of the factors that a company should consider while raising Debt from the market (mention any 4 factors)
Q2. Calculate the Cash Cycle for M/s ABC Traders Ltd. which is in the business of buying and selling garments. The following information is available for the firm.
| Opening Balances | Amt. Rs. |
|---|---|
| Inventory | 10,000 |
| Debtors | 40,000 |
| Creditors | 10,000 |
| Closing Balances | Amt. Rs. |
| Inventory | 30,000 |
| Debtors | 60,000 |
| Creditors | 20,000 |
| Costs Incurred During the Year | |
| Total Purchases (50% on credit) | 12,00,000 |
| Selling Expenses | 80,000 |
| Administrative Expenses | 25,000 |
| Total Sales (80% on credit) | 15,00,000 |
Assume 360 days in a year.
The average cash cycle in the same industry is around 10 days. Comment on the cash cycle of M/S ABC Ltd. The Finance Manager is looking at the cash collection process critically and wants to reduce the Cash Cycle. What steps would you suggest her as her assistant?
Q3. a) Mr. Ramesh wants to plan to fund for his son’s education. He estimates that once his son is 21 years of age, he shall require to make a provision of about Rs. 5,00,000 for his college fees. His son is now 15 years of age. How much shall Mr. Ramesh invest today to make adequate provisions? He is also contemplating to make a fixed investment every year instead of a total investment today. How much should he invest each year to get the same amount of fees?
The current rate of interest is around an average of 8%.
b) Prepare cash budget of M/s Nirma Ltd. with the following information available.
| Jan. 23 | Feb. 23 | Mar. 23 | |
| Sales | 200,000 | 150,000 | 265,000 |
| Raw Materials Purchase | 160,000 | 135,000 | 190,000 |
| Manufacturing Expenses | 22,000 | 15,000 | 35,000 |
| Selling & Other Expenses | 10,000 | 9,000 | 10,000 |
Opening Cash balance was Rs. 15000 for Jan. 23. Opening Debtors were Rs. 52500. Sales are typically 75% in cash and 25% credit, which are received in next month. There was a scheduled loan repayment of Rs. 25000 in Feb. 23. All expenses are assumed to be paid for in cash.
Q1. The following is the summary of the receipts and issues of material in a factory during December 2007. Prepare Store Ledger according to First In First Out Method.
December 2007
• Opening balance 500 units @ Rs.25 per unit
• Issue 70 units
• Issue 100 units
• 8. Issue 80 units
• 13. Received from supplier 200 units @ Rs.24.50 per unit
• 14. Returned to store 15 units @ Rs.24 per unit
• 16. Issue 180 units.
• 20. Received from supplier 240 units @ Rs.24.75 per unit
• 24. Issue 304 units.
• 25. Received from supplier 320 units @ Rs.24.50 per unit
• 26. Issue 112 units
• 27. Returned to store 12 units @ Rs.24.50 per unit
• 28. Received from supplier 100 units @ Rs.25 per unit
It was revealed that on 15th there was a shortage of five units and another on 27th of 8 units.
Q2. The anticipated material expense for project D-2 totals Rs. 5,000, with an expected direct labor cost of Rs. 1,000. In the machine shop, it necessitates 20 hours of machining by Machine No. 8 and 6 hours by Machine No. 11. The machine hour rates for Machine No. 8 and Machine No. 11 stand at Rs. 10 and Rs. 15 respectively. Last fiscal year, direct wages summed up to Rs. 80,000, while factory overheads (excluding those associated with Machine No. 8 and 11) amounted to Rs. 48,000. Similarly, the collective factory cost of all projects last year equaled Rs. 2,50,000, with office expenses reaching Rs. 37,500. To incorporate a 20% profit margin on the selling price, a quotation statement needs to be prepared.
Q3. A) How can you install a system of costing in a biscuit producing factory? What are the possible difficulties in installing such system?
B) Financial Accounting procedures are generally designed to ascertain the periodic profit or loss, but there are important limitations and deficiencies in the system." Discuss.
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