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Anil Surendra Modi School of Commerce )f'Y!.QJlffi^rptT:,''
Programme: BSc Finance Batch: 2022 - 2025 Semester € i ,.-, ` I: -,
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Academic Year: 2022 - 2023
Subject Name: Corporate Finance I Marks: 5
Date: 25 L5£S:-ii"-a;;;'=iso
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Final Examinatio] __ _ _ DN:ra#°Fq:9-e3Fis

1. All questions are compulsory

2. Figures to the right indicate full tharks.
3. Scientific and ordinary calculators allowed
4. Make suitable assumptions wherever necessary

Question 1 ............................................................................................. (15 Marks) (CL02)

VR World Ltd. is considering a new irmovative project for manufacture of Virtual reality experience gadget
involvingacapitalexpenditureofRs.1000LakhsandworkingcapitalofRs.1501akhs.Thecapacityoftheplants
foranannulproductionof3lalchunitsandcapacityutilizationduring5-yearlifeoftheprojectisexpectedtobe
as indicated below:

TheaveragepriceperunitofproductisexpectedtoRs.600nettingacontributionof60percent.Thearmualfixed
costs, excluding depreciation, are estimated to be Rs.500 Latch per armun from the third year onwards. For the
first and second year, it would be Rs. 2001akb and Rs. 350 lakhs respectively.

Scrap value of the capital asset at the end of 5th year is Rs.200 Lakhs. Depreciation on capital asset is provided
on written down value basis @ 40% p.a. for income tax purpose. The rate of income tax may be taken at 30%.
The cost of capital is 12%. At end of the third year an additional investment of Rs. 200 lalchs would be required
for working capital.

ComputetheNPVoftheproject.VRworldLtd.,isabouttomakeapresentationtoSecureVentureCapitalFirm.
SecureVentureCapitalFirmswillinvestinanyprojectifthenetadditiontoshareholderwealthfromtheproject
is above Rsl00 Crores. Is it possible for VR world Ltd., to get funding from Secure Venture Capital Firm.

• Question 2 ............................................................................................. (10 Marks) (CL03)

Balaji Wafers Ltd. is presently operating at 50 % level producing 48,000 packets of potato chips and proposes
toincreasecapacityutilizationinthe`comingyearby50%overtheexistinglevelofproduction.
Thefollowingda.tahasbeenprovidedregardingunitcoststructureoftheproductatcurrentlevel:

Rs.
Raw Material 6
Wages rvariable) 3
Variable Overheads 3
Fixed Overhead 1.5

(i) Raw materials will remain in stores for 1 month before being issued for production.
(ii)Materialwillremaininprocessforfurther1month.Wagesandoverheadswillbeinprocessforhalfa
month in average.
(hi) Suppliers grant 3 months credit to the company.
(i`-) Finished goods remain in warehouse for 2 months.
(v) Profit is expected at 20% on selling price & Debtors are allowed credit for 2 months.
(`i) 10% of the sales is on cash basis and debtors ae to be calculated on selling price.
1
 (vii)Laginwag,esandoverheadpaymentsis1monthandtheseexpensesaccrueevenlythroughoutthe
productich cycle.

Prepareaprojectedworkingcapitalrequirementatthenewlevel,assumingthataminimuncashbalanceof Rs.
75,500 has to be maintained.

Question3.............................................................................................(10Marks)(CL02)

SugarCosmeticsLtd.manufacturersbeautyproductsandsellsthemoncreditbasisthroughanetworkofdealers.

a) Its present sale is Rs. 75,00,000/-per annum with 20 days credit period.
b)Thecompanyiscontemplatinganincreaseinthecreditperiodwithaviewtoincreasingsales.
c)Presentvariablecostsare60%ofsalesandthetotalfixedcostsRs.14,00,000/-perarmun.
d)IncasesalesismorethanRs.100,00,000/-perannunthenfixedcostp.a.increasesby20%.
e) Existing bad debts is 3°/o of credit sales.
I) The company expects pre-tax refum on investment @ 20%.
Some other details are given as under:

Average Collection Periodd Bad debts(o/oofsales Expected Amual Sales

Proposed CreditPolicyI
(ays 30
5%6% 80,00,00095,00,000120,00,000,135,00,000

11 45
60 80/o
Ill
75 10%
IV

Required:Whichcreditpolicyshouldthecompanyadopt?Assume360-daysayear.

Question4...........................................................................................(10Marks)(CL03)

AmobilemanufacturingcompanyinNoidapurchases45,000unitsofrawmaterialperannunatcostRs.30/-
perunit.OrderingcostperorderisRs.150/-andthecarryingcostis5percentperyearoftheperunit
inventory cost. You are required:

(i) Calculate the Economic order Quantity a30Q).

(ii) Curently company is purchasing in lots of 10,000 units with offer of 5 per cent quantity discount ty
the supplier
(iii) There is an offer of 10 per cent quantity discount by the supplier for purchases in lots of 15,000 units
or more.

Evaluntethecostforauthreeapproachesandexplainwhethercompanyshouldaccepttheproposal?

Questions.........................................................................................(5Marks)(CL01)

YoucaninvestinrecurringdepositRs.12,000ayearfor4years,andRI.15,000ayearfor6yearsthereafter.
Allamountsareinvestedattheendoftheyear.Whatwillthesesavingscunulatetoattheendof10years,if
the rate of interest is i 5 % pa?