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Roll No...290
Total No. of Questions- 11 Total No, of Printed P'ayes 12
Time Allowed3Hours Maximum Marks 100

FDG
Answers to questions are to be given only in English except in the case of candidates wh0
have opted for Hindi Medium. Ifa candidate who has not opted for lindi Medium,
his/her answers in Hindi willnot be valued.
SECTION - A 60 Marks

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Question No. Iis compulsory.

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Candidates are also required to answer any Four questions from the remaining
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Five questions.
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Working notes should form part of the respective answers.

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1. (a) Following information are given fora company: 5

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Earnings per share

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P/E ratio 12.5

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Rate of return on investment 12%

Market price per share as per Walter's model 130

You are rcquired to calculate :

(i) Dividend payout ratio.
(ii) Market price of share at optimum dividend payout ratio.
(ii) P/E ratio, at which the dividend policy will have no effect on the
price of share.
(iv) Market price of share at this P/E ratio.
(v) Market price of share using Dividend growth model.
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(2)
(3)
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(b) A company has current sale of 12 lakhs per year. The profit-volumes (ii) The Marks
company is certain about most likely result in first
ratio is 20% and post-tax cost of investment in receivables is I5%. The2.u2 -, but uncertain about remaining period. In two years,
current credit terms are 1/10, net 50days and average collection period calculate NPV expecting worst case scenario such a situation,
years and best case scenario in the during next two
is 40 days. 50% of customers in terms of sales revenue are availing remaining period.
cash discount and bad debt is 2o of sales. Years 2 4

In order to increase sales, the company want to liberalize its existing PVIFo.12.t 0.893 0.797 0.712 0.636 0.567
credit terms to 2/10, net 35 days. Due to which, expected sales will PVIFA0.12.t 0.893 1.690 2.402 3.038 3.605

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increase to 15 lakhs. Percentage of default in sales will remain same. (d) Following information is given for X Ltd. :

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customers >(2L
Average collection period will decrease by ro days. 80% of Total contribution ()
4.25.000
in terms of sales revenue are expected to avail
cash discount under this
Operating leverageo

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3.125
15% Preference shares ( 100
proposed policy. each)

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1,000
Tax rate is 30%.
Number of equity shares 2,500

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Tax rate
(Assume 360 50%
ADVISE, should the company change its credit terms. Calculate EPS of X Ltd.. if 40% decrease in sales
will result EPS to zero.

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days in a year.) 2
Following information and ratios are given in respect of AQUA Ltd. for

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the 10
year ended 31 t March, 2023 :
This requires an initial
A company wants to invest in a project.

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(c) |Current ratio 4.0
investment of 4,50,000. Salvage value after estimated useful life of Acid test ratio 2.5

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:
5 years is 50,000. Other details of project are as follows Inventory turnover ratio (based on sales) 6

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Worst case Most likely Best case Average collection period (days) 70

5,40,000
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6.31.250 Earnings per share 3.5
Contribution () 3,30,000 Current liabilities
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2.00,000 3.10.000
75,000 1,50,000
Fixed cost (excluding Total assets turnover ratio (based on sales) 0.96
depreciation) () Cash ratio 0.43
of project is 12%. Ignore tax Proprietary ratio
Tax rate is 40%%. Expected cost of capital 0.48
Total equity dividend Z1,75,000
on capital gain. Equity dividend coverage ratio 1.60
(i) Calculate NPV in each scenario. Assume 360 days in a year.
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(4)
(5)
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Marks FDG
You are required to complete Balance Sheet as on Marks
3 | March. 2023. You are informecd that Debt-equity ratio (Debt /
Balance Sheet as on 31" March, 2023 range of 50% to 80% will bring down the
Sharcholders fund) in the
Liabilities Assets
price-carnings ratio to 22
whereas; Debt-equity ratio over 80% will bring down the
Equity share capital XXX Fixed assets XXX ratio to 18.
price-carnings
( 10 per share)
Required:
Reserves & surplus Advise which option is most suitable to raise
XXX
Inventory XXX
additional capital so that the
Long-term debt XXX Debtors XXX Market Price per Share (MPS) is maximised.

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Current liabilities 3.10.000 Loans & advances XXX

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Cash & bank XXX
Capital structure of DLtd. as on 31 March, 2023 is given below
Total XXX Total Particulars

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XXX

Equity share capital ( 10 each ) 30,00,000

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3 The following information pertains to CIZA Ltd. : 8% Preference share capital ( |00 each)

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10 10,00,000
Capital Structure : 12% Debentures ( 100 each) 10,00,000

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Equity share capital (Z10 each) 8.00.000 Current market price of equity share is 80 per share. The company

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Retained earnings 20.00.000 has paid dividend of 14.07 per share. Seven years ayo, it paid

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9% Preference share capital (Z| 00 each) 12,00,000 dividend of ? 10 per share. Expected dividend is 16 per share.

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12% Long-term loan 10.00.000 8% Preference shares are redeemable at 6% premium after five years.
Interest coverage ratio Current market price per preference share is 104.

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Income tax rate 12% debentures are redeemable at 20% premium after 10 years.
30%
Price earnings ratio 25
w Flotation cost is 5 per debenture.
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The company is proposed to take up an expansion plan, which The company is in 40% tax bracket.
requires an
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additional investment of 34.50,000. Due to this proposed expansion. In order to finance an expansion plan, the company intends to borrow
earnings before interest and taxes of the company will increase by 15% Long-term loan of 30,00,000 from bank. This financial decision
is expected to increase dividend on equity share from | 6 per share to
Z6,15.000 per annum. The additional fund can be raised in following manner
By issue of equity shares at present market price. or Z 18 per share. However, the market price of equity share is expected
to decline from 80 to 2 72 per share. because investors' required rate
By borrowing 16% Long-term loans from bank.
of return is based on current market conditions.

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(6) (7)
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Required Additional working capital of 2.50,000 is required at the beginning

Determtne the existing Weighted Average Cost of Capital (WACC) of year one and 3,00,000 at the beginning of year three. Working
tak1ng book value weights capital at the end of year four will be nil.
() Compute Weghted Average Cost of Capital (WACC) after the Tax rate is 30%o.
Cxpanston plan tak1ng book value weights. Ignore tax on capital gain.
Interest Rate 29% 3% 4% 5% 6% 7% Z Ltd. will not make any additional investment, if it yields less than
12%.
FVIF, 1.051 1.104 L.159 1.217 L.276 L338 1.403

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Advice, whether existing machine shouldbe replaced or not.
FVIF 1.062 1.126 1.194 1.265 1.340 1.419 1.501

FVIF, L.072 1.149 1.230 I.316 |.407 1.504 1.606 Year 2 3 4

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PVIFo.12t

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0.893 0.797 0.712 0.636 0.567

Four ycars ago, Z Lid. had purchased a machine of 4,80,000 havino

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10 6 (a) List out the conditions. framed by SEBI. which a company needs to 4
estimated useful life of 8 years with zero salvage value. Depreciation is 2,40,00o

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fulfil in order to issue of bonus shares.
charged using SLM method over the useful life. The company wvant to 1, 42,

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replace this machine with a new machine. Details of new machine are as 1,S3,Gbo (b) "Permanent working capital and fluctuating (temporary) working
below: SS560o 4

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Cost of new machine is 12,00,000. Vendor of this machine is agreed 1,084o 1,22,89o capital, both are necessary to facilitate production and sales through
the operating cycle." - Describe.

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Lo take old machine at a value of 2 2,40,000. Cost of
dismantling and
removal of old machine will be ? 40,000. 80% of net purchase
price

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will be paid on spot and remaining will be paid at the end of one year. (c) Briefly explain concept of "Trading on Equity" in financial leverage 2

Depreciation will be charged (a 20% p.a. under WDV method.

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Estimated useful life of new mnachine is four years and it has salvage OR
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value of 2 1.00,000 at the end of year four. Discuss features of Secured Premium Notes. 2

Incremental annual sales revenue is 12,25,000.

Contribution margin is 50%.
Incremental indirect cost (excluding depreciation) is I,18,750 per
ycar

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(9)
Marks
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(8) Marks 3
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(a) () Following information is related to an economy :
40 Marks Autonomous consumption 1,000 crore
SECTION - B 0.8
Marginal propensity to consume
{ 10,000 crore
Question No. 7 is
compulsory. Equilibriunm levelof income expenditure and
You are required to calculate the investment
questions from the rest.
Answer any Three consumption expenditure of the economy.
2
of the respective answerS. (ii) Explain the govermment interventions for
combating the market
Working notes should form part
failures due to information problem.

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3
particular financial year of a to 3
The following
information relating to a (b) (i) Compute MI and M4 from the following data relating
7 (a) (R in crore)
country is given below : 31 March, 2023 :

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Amount 3,01,78.670
Particulars Notes in circulation
(7 in crore)

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6,48,902
1620 Circulation of rupee coins 1,41,31,650
expenditure
Private finalconsumption Demand deposits with banks

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expenditure 750 31,24,276
Government final consumption

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500
Time Deposits with Banks
Net domestic fixed investment Cash in hand with banks
7,64,130
400 3,98,048

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Export 440 Other Deposits with RBI
Import 2,02,684
20 Post Office Savings Deposits
Abroad 820

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Net Factor Income from Office National Savings Certificates (NSCs)
100 Post the 2
Net Indirect Taxes
rate regime that is commonly used by
National Income of the country by (ii) Describe the exchange

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You are required to compute the countries in real world.
using Expenditure Method.

(b) Compute the Reserve Money from the

following data relating to .c 2
(a) () Two Countries G and H are producing Sugar and Steel. The
table 3
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31 March, 2023 :
in crore)
given below shows the number of labour hours required to
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Particulars produce Sugar and Steel :
Currency in Circulation 28637 Country G Country H
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Commodity
Bank Deposits with RBI 5673 2.0
One Unit of Sugar 6.0
Post Office Deposits 400
One Unit of Steel 2.5 5.0
Other Deposits with RBI 210
Investment (FDI) and 3 (A) Compute the Productivity of labour in both countries in
(c) Explain the differences between Foreign Direct respect of both commodities.
Foreign Portfolio lnvestment (FPI).
(B) Which country has absolute advantage of production of Steel ?
for
Describe the name and salient features of the fiscal policy
2
(d) (C) Which country has absolute advantage of production of Sugar ?
combating inflationary pressures in the economy.
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FDG (11)

(ii) In an economy investments have been increased by 5,000 crore. 2 FDG Marks

The Marginal Propensity to Consume (MPC) is 0.82. (b) () 0s World Trade Organisation (WTO) better than General
You are required to compute the total increase in income and Agreement onTarifts and Trade (GATT)" Explain with reasons.
saving in the economy.
(ii) Write down the name of the terms uscd in the analysis of the
3
(b) (i) Discuss the similarities between Fisher's Transaction approach eftect of extermalities in the follow ing conditions:
and Cambridge Cash Balance approach (A) The change in the cost to parties other than the poducer or buver of
(i) Explain the folowing terms: 2
a good or service due to an add1tional unit of the good or serv ice.
Stagflation

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Contagion Effect (B) The change in society's total benefits associated with an
additional unit of good or service.

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(C) The change n the bencfit to parties other than the producer
10. (a) (i) Following information relating to a developing country is

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available to you : or buyer of agood or service due to an add1tional unit of the

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Investment (1) 7 140crore good or servic.

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Government Expenditure (G) Z 90 crore (D) The change in society's total cost brought about by an
Export (X) 100 crore add1tional unit of a good or servicc.

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Consumption Function (C) = 80 + 0.8 Yd(Disposable Income)
Import (M) = 50 + 0.09Y(Income) 11. (a) () Suppose in an economy. government expenditure is ncrcased by

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Tax (T) 0.2 Y (Income) R10crore and taxes increased by &Scrore Spending multplier

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You are required to: of the economy Is 5. What impact would such increase have on
(A) Find out equilibrium level of income (Y). GDP?
(B) Calculate foreign trade multiplier.
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(C) Calculate net export if investment is increased by 30 (1) Calculate the arbitrage for £2.00,000 from the follow ing details
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crore. £l =100
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US S 1= Z80
(ii) A customer of a bank deposits 50.000 in his bank. The bank is 2
£1=US S 1.30 in UK
required to keep a cash reserve of 20 percent to meet the demand
for cash by its depositors. (b) (i) Repo injects liquidity into the system whereas the reverse repo
Calculate the amount of bank deposits the banking system as a whole absorbs the liquidity from the system In the Iight of this
would generate on the basis of such deposit by the customer. statement brieflv state the impact of high repo and reverse repo
FDG rate on a developing economy
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(12)
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(i) What steps are to be taken by the Government as instruments of 2

trade policy in the following cases ?

(A) There is severe shortage of an essential product X in Indian
domestic market due to its less production.
(B) The export of product Y is decreasing continuously due to
cost and competition in the international market.
OR
2
Describe any two reasons for leakages which are responsible for
decline in income.

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