LIFE B.Com.(Hons.

) Semester V
Financial Management Practical Questions using Excel Spreadsheet
(Prepared and Compiled by Ritika Seth)

Time Value of Money

Q.1. Find out the Present Value of ₹3,000 to be received after 5 years. Cost of capital is 10%.
Q.2. Find out the Future Value of ₹3,000 received today, after 5 years. Cost of capital is
10%.
Q.3. Find out the PV of an Annuity of ₹1,000 to be received at the end of each year till 5
years. Cost of Capital is 10%.
Q.4. Find out the PV of an Annuity Due involving the receipt of ₹1,000 each year for the
next 5 years. Cost of Capital is 10%.
Q.5. Find out the FV of an Annuity of ₹1,000 to be paid at the end of each year till 5 years.
Cost of Capital is 10%.
Q.6. Find out the FV of an Annuity Due involving the payment of ₹1,000 each year for the
next 5 years. Cost of Capital is 10%.
Q.7. A bank makes an offer to deposit with it a sum of ₹3,00,000 now and then receive a
return of ₹25,000 p.a. perpetually. Is this offer worth accepting by an investor with 12%
opportunity cost of capital?
Q.8. Find out the PV of five unequal sums of payments to be received at the end of each year
for the next five years.
At the end of Year Money received
(₹)
1 1000
2 500
3 600
4 800
5 1200
Cost of Capital is 10%.
Q.9. A Deep Discount Bond is issued for ₹50,000 today and will mature after 10 years for
₹1,80,000. Advise an investor whose opportunity rate of return is 12%.
Q.10. How much amount should be invested at the end of each year for the next five years @
10% p.a. in order to accumulate ₹1,00,000 at the end of five years.

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Q.11. How much amount is to be paid as instalments for five years for a loan of ₹1,00,000
borrowed today at a rate of interest of 10% p.a.?
Q.12. Mr. S wishes to open a Fixed Deposit account with a Bank. The interest rate offered by
the banks is 12% p.a. However, Bank A compounds Annually; Bank B compounds Semi-
Annually; Bank C compounds Quarterly; Bank D compounds Monthly and Bank E
compounds weekly. You are required to suggest Mr. S which Bank would be the best choice
in order to maximize the interest.
Q.13. A refrigerator can be purchased by paying ₹70,000 now or ₹22,000 each at the end of
each year for four years. However, to pay cash now, the buyer would have to withdraw the
money from an investment earning interest @8% p.a. compounded annually. Which option is
better and by how much in present value terms?
Q.14. A scholarship of ₹30,000 is to be instituted for a period of 10 years. The scholarship is
to be paid at the end of each year from now and thereafter the amount of scholarship is to
grow at the rate of 6% p.a. calculate the amount to be invested now for this purpose, given
the rate of interest is 10% p.a.
Q.15. Mr. A has received a sum of ₹50,00,000 upon his retirement from service. He intends
to deposit this lump sum with a pension fund to get a regular quarterly pension for a period of
15 years.
a) Determine the amount of quarterly pension he get;
b) How much pension, can he get for an infinite period by depositing this lump sum with the
pension fund.
The pension fund allows an interest @ 9% p.a. compounded quarterly for granting pension.

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Capital Budgeting
Q.1. The following are the cash flows associated with a project:
At the end of Year Cash Flow (₹)
0 -150000
1 38500
2 38500
3 38500
4 38500
5 38500
6 38500
7 2000
Calculate Payback period for this project? Would you like to invest in this project if required
payback period is 3 years?

Q.2. Assume the following cash flow of two projects

At the end of Year Project A (₹) Project B (₹)
0 -1000 -1000
1 500 100
2 400 300
3 300 400
4 100 600
Assuming that cash flows are occurring at the end of each year, find out the discounted
payback period for these projects, if the cost of capital is 10% for both the projects.

Q.3. Compute both the traditional payback period and the discounted payback period for a
project that cost ₹2,70,000 and it is expected to generate ₹75,000 per year for 5 years? The
firm’s required rate of return is 11%? Should the project be accepted?
Ans traditional pbp= 3.6 , discounted pbp= 4.84

Q.4. The ABC Ltd is in the process of selecting a capital project. The details of two Capital
projects A and B identified by the company are provided below:
Project A Project B
Rate of Interest 12% 12%

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 Cost of Project -500000 -550000
Cash Inflows Year 1 400000 20000
Year 2 60000 500000
Year 3 50000 60000
Year 4 70000 70000
Year 5 80000 80000
You are required to
1. Evaluate the above capital budgeting projects and recommend the project to be
implemented so that the company earns maximum profit on the basis of:
a. IRR Method
b. NPV Method using 12% Interest Rate
2. Calculate the value of NPV of “Project A” at the rate of interest of 10% to 15%
3. Calculate the Profitability Index for both Project A and B.

Q.5. A business firm is in the process of selecting a capital project. The details of 2 Capital
projects A and B identified by the company are provided below:
Project A Project B
Rate of Interest 12% 12%
Cost of Project -150000 -300000
Cash Inflows Year 1 40000 80000
Year 2 56000 112000
Year 3 60000 120000
Year 4 45000 90000
Year 5 65000 130000
You are required to
1. Evaluate the above capital budgeting projects and recommend the project to be
implemented so that the company earns maximum profit on the basis of:
a. IRR Method
b. NPV Method
c. Payback period
d. Discounted payback period
e. Profitability Index
2. Calculate the value of NPV of “Project A” at the rate of interest of 9% to 14%.

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Q.6. Find out the IRR of the following proposal having non-annual cash flows:
Cash Flows Date
(₹)
1 -40000 Feb 8, 2017
2 11000 April 8, 2017
3 17000 December 8, 2017
4 13000 March 22, 2018
5 11000 May 8, 2018
Also, find out the NPV if rate of discount is 9% p.a.

Q.7. A Ltd. is planning to buy a machine to augment the company’s installed capacity. There
are three options available for the company to choose from. The relevant details including
yearly expenditure and sales are given below. Tax rate is 30%. Find out the most profitable
investment based upon Pay Back Period Method.

  Machine 1 Machine 2 Machine 3

Initial Investment required 3,00,000 3,00,000 3,00,000
Estimated Annual Sales 5,00,000 4,00,000 4,50,000
Estimated cost of production      
Direct Materials 40,000 50,000 48,000
Direct Labour 50,000 30,000 36,000
Factory Overheads 60,000 50,000 58,000
Administration Cost 20,000 10,000 15,000
Selling and Distribution Cost 10,000 10,000 10,000
Economic Life 2 Years 3 Years 3 Years
Scrap Value 40,000 25,000 30,000

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Cost of Capital
Q.1. ABC Ltd. has the following capital structure as on December 31st 2017:
Equity share capital
(7000 shares of ₹100 each) 700000
7% Preference Share Capital 300000
12% Debentures 500000
The equity shares of the company are quoted at ₹102 and the company is expected to declare
a dividend of ₹7 per share for the next year. The company has 5% growth rate in dividends,
which is expected to be maintained. Tax rate is 30%. Find out Weighted Average Cost of
Capital (WACC).
Also, calculate the Revised WACC if the company can raise additional loan of ₹500000 at
10% p.a. for 5 years to finance its expansion program. However, there is additional risk
associated with this expansion that is going to bring down the price of equity share to ₹96 per
share.

Q.2. The balance sheet of Alpha Ltd. is as follows:

Liabilities Amount Assets Amount
Equity Capital
180000 Fixed Assets 450000
(Rs 10 per share)
Retained Earnings  60000 Current Assets 150000
10% Debt 240000    
Current    
120000
Liabilities
     
  600000   600000
The company has an Asset Turnover ratio of 3, its fixed operating cost is ₹300000 and its
variable operating ratio is 50%. Tax rate is 50%. Find out:
a) All three types of Leverages
b) EBIT if EPS is (i) 0; (ii) 1 and (iii) 2.

Q.3. From the following information available in respect of four companies, calculate EBIT,
EPS, Operating and Financial Leverage for all the firms:
  Firm A Firm B Firm C Firm D
Sales (in Units) 20000 25000 30000 40000
Selling Price (per unit) 15 20 25 30
Variable Cost (per unit) 10 15 20 25
Fixed Cost 15000 40000 50000 60000
Interest 30000 25000 35000 40000
Tax Rate (%) 30 30 30 30
No. of Equity Shares 5000 9000 10000 12000