SVKM’s NMIMS

Anil Surendra Modi School of Commerce

Programme: BSc. Finance Batch: 2020-23
Semester: II Academic year 2020-21
Subject: Corporate Finance – I Marks: 50
Final Examination Time: 2 hours
Instructions:
 All questions are compulsory
 All subparts of a question must be solved together
 Figures to the right indicate marks
 All types of calculators are allowed during the examination
 Necessary & appropriate assumptions may be made wherever required
 All workings must form part of the solution

I. Do as directed and choose the correct alternative which is closest to your answer based on your own
calculations: (15 x 2 marks each)

1. Vinsmoke Inc's purchases during the year were Rs. 1,00,000. The balance sheet shows an average
accounts payable balance of Rs. 12,000. Vinsmoke's payables payment period is closest to:
a) 37 days b) 44 days c) 52 days d) 48 days

2. If Nami Inc has sales of Rs. 1,00,000, average accounts payables of Rs. 30,000 and average accounts
receivables of Rs. 25,000, Nami's receivables turnover and average collection period are respectively
closest to:
a) 2.1 times and 174 days b) 3.3 times and 111 days c) 4 times and 91 days
d) Insufficient information

3. All other things held constant, which of the following transactions will increase a firm's current ratio,
if the ratio is greater than 1?
a) Accounts receivables are collected and the funds received are deposited in the firms cash account
b) Fixed assets are purchased from the cash account
c) Accounts payables are paid with funds from the cash account
d) None of these

4. Suhana needs Rs.12,00,000 after 8 years for her son’s higher education and Rs.10,00,000 after 6
years for her daughter’s higher education. Rate of return is 14% p.a. How much lump sum she should
invest now to meet both her financial goals of children’s higher education?
a) Rs. 7,93,257 b) Rs. 8,76,257 c) Rs. 8,87,386 d) Rs. 8,56,386

5. A person has Rs.2,50,000 in his savings account which he wishes to invest. In the first 2 years the
rate of return is 12% p.a., compounded annually. In the next 4 years the rate is 13% p.a. and the
compounding is done semi-annually. In the remaining period of 5 years the rate of return is 12% p.a.
and the compounding is done quarterly. Calculate the amount at the end of 11 years.
a) Rs. 9,19,006 b) Rs. 8,13,600 c) Rs. 9,37,383 d) 8,87,459

6. Rehan invested Rs.4,10,000 for 8 years @ 7% p.a. where it was compounded annually for the first 5
years and quarterly for the last three years. What did he get on maturity?
a) 7,01,456 b) Rs. 7,18,153 c) Rs. 7,25,496 d) Rs. 7,08,135

7. Mr.Sukhi aged 30 met a retirement planner for retirement planning and was told that if he saves Rs.
2,500 at the end of every month for 30 years (he will retire at the age of 60) he will be able to
accumulate sufficient money for his retirement needs. The average rate of return will be 12% p.a.
compounded monthly. What amount will he receive on this investment on his retirement?
a) Rs. 92,47,6280 b) Rs. 82,53,7540 c) Rs. 95,32,9870 d) Rs. 87,37,410
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 8. A company borrowed Rs.25,00,000 as loan from a bank @ 12.5% p.a for 5 years .The instalments
are paid yearly. What is the amount of interest paid till the end of fourth year?
a) Rs. 11,78,894 b) Rs. 9,32,661 c) Rs. 7,50,437 d) Rs. 12,50,000

9. The Universal Trading Company has obtained a license to introduce a new product for 6 years. The
product would be purchased from manufacturing company for Rs.10 per unit and sold to customers
for Rs.20 per unit. The estimated annual cash expenses to sell the new product would be Rs. 18,000.
Other information associated with the new product is as follows: Cost of required equipment: Rs.
30,000, Working capital required: Rs. 40,000, Repairs and maintenance of equipment required
after five years: Rs. 2,500. Residual value of equipment after six years will be Rs. 5,000. The
working capital would be released at the end of six year period. The expected annual sales are 5,000
units of product. The discount rate of the company is 16%. The NPV of this project will be:
a) Rs. 71,370 b) Rs. 60,370 c) Rs. 65,180 d) Rs. 70,370

10. Influencer Company Limited is considering the four different investment opportunities. The selected
information about each proposal is given below:
Amar: PV of cash inflows is Rs. 11,34,540 and PV of cash outflow is Rs. 9,60,000
Bobby: PV of cash inflows is Rs. 8,66,800 and PV of cash outflow is Rs. 7,20,000
Chapak: PV of cash inflows is Rs. 6,72,280 and PV of cash outflow is Rs. 5,40,000
Dostana: PV of cash inflows is Rs. 10,45,940 and PV of cash outflow is Rs. 9,00,000
Calculate the NPV and determine which project will be most desirable.
a) Bobby b) Chapak c) Dostana d) Amar

11. Determine internal rate of return with the help of given information for Companies ABC and PQR
respectively:

Expected cash flows NPV Present value of

Particulars per year (Rs.) (Rs.) Time period cash inflow (Rs.)
Company ABC 50, 000 60, 200 3 years 1,60,200
Company PQR 70, 000 40, 800 4 years 1,40,800

a) Company ABC : approximately 23%, Company PQR approximately 43%

b) Company ABC : approximately 23%, Company PQR approximately 48%
c) Company ABC : approximately 20%, Company PQR approximately 43%
d) Company ABC : approximately 20%, Company PQR approximately 48%

12. A company is considering a proposal to replace one of its plants costing Rs. 60,000, having a written
down value of Rs. 24,000. The remaining economic life of the plant is 4 years after which it will
have no salvage value. However, if sold today, it has a salvage value of Rs. 20,000. The new
machine costing Rs. 1,30,000 is also expected to have a life of 4 years with a scrap value of Rs.
18,000. The new machine, due to its technological superiority, is expected to contribute additional
annual benefit (before depreciation and tax) of Rs. 60,000. Determine the amount of present value of
incremental cash inflow associated with this decision at the end of the third year, given that the tax
rate applicable to the firm is 40% and the cost of capital being 15%. (The capital gain or loss may be
taken as not subject to tax)
a) Rs. 44,800 b) Rs. 41,292 c) Rs. 29,457 d) Rs. 35,906

13. From the following information of ADIAS ltd, estimate the value for Work-in-process stock as part
of working capital projection: Production - 30,000 units for the year, Selling price per unit - Rs. 10,
Raw material - 60% of selling price, Direct wages - 1/6 of raw material, Overheads - Twice of direct
wages, Material in hand - 2 months requirement, Production time - 1 month, Finished goods in store
- 3 months
a) Rs. 22,500 b) Rs. 18,750 c) Rs. 21,250 d) Rs. 18,570

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 14. TMT Ltd. is required to prepare a working capital statement for seeking short term finance from
Bank. With the help of following information, calculate estimated Debtors (at sale price) as part of
the statement: Raw material – Rs. 40 per unit, Direct Labour – Rs. 15 per unit, Overheads – Rs. 30
per unit, Profit on sale is 15%, Activity Level is 96,000 units per annum, Credit allowed to debtors is
2 months, Credit allowed by creditors is 1 month
a) Rs. 13,60,000 b) Rs. 16,00,000 c) Rs. 8,00,000 d) Rs. 13,00,000

15. From the following figures, estimate the value of finished goods stock: Production - 60,000 units for
the year, Selling price per unit - Rs. 10, Raw material - 70% of selling price, Direct wages - 1/7 of
raw material, Overheads - same as direct wages, Finished goods in store - 3 months.
a) Rs. 1,80,000 b) Rs. 1,50,000 c) Rs. 1,35,000 d) Rs. 1,30,000

II. Roronoa Inc would like to set up a new plant for expansion purposes. Currently Roronoa has an
option to buy existing building at a cost of Rs 24,000 and necessary equipment for the plant will cost
Rs. 16,000, including installation costs. The equipment has life of 5 years and pre-tax depreciation as
given below. The building has life of 39 years and pre-tax depreciation as given below. The project
would require an initial investment of Rs. 12,000 in Net Working Capital. The initial working capital
will be made at the time of purchase of building and equipment.
The projects economic life is 4 years. At the end of that time, the building is expected to have a
market value of Rs. 15,000 and a book value of Rs. 21,816, whereas the equipment is expected to
have a market value of Rs. 4,000 and a book value of Rs. 2,720.
Annual Sales volume is 4,000 at a price of Rs 20 per unit. Cost per unit is Rs. 12. Fixed overhead
costs excluding depreciation will be Rs 10,000 a year.
Roronoa falls into 40% tax bracket. Its Cost of Capital/Discount rate/ Required rate of return is 12%
and for capital budgeting purposes, the company’s policy is to assume that operating cash flow occur
at the end of the year. The plant will begin operations immediately after the investment is made, and
the first operating cash flow will occur exactly one year later.
The pre-tax depreciation for the building and equipment is given below:
Year 1: Rs. 3,512, Year 2: Rs. 5,744, Year 3: Rs. 3,664, Year 4: Rs. 2,544, Year 5: Rs. 2,106 and
Year 6: Rs. 1,958
Compute the initial investment outlay, operating cash flow over the projects life and the terminal
year cash flows for Roronoa’s expansion project. Then determine whether the project should be
accepted using NPV analysis, also determine the profitability index of the project (10 marks)

III. With the help of following information complete the given Balance sheet of XYZ Limited:

Gross Profit Rs.54,000

Shareholder's Funds Rs.6,00,000
Gross Profit Margin 20%
Credit sale to Total Sales 80%
Total Assets turnover 0.3 times
Inventory Turnover 4 times
Average collection period 20 days
Current ratio 1.8
Long term debt to Equity 40%
(5 marks)
Balance Sheet of XYZ Limited

Liabilities Amount Assets Amount

Shareholder's funds …......... Fixed assets ….........
Long-term debt …......... Inventory ….........
Creditors …......... Debtors ….........
Cash ….........
Total Total
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 IV. From the following details, prepare an estimate of working capital required for FY 21-22:

Sr. No. Particulars

1 Production 60,000 units for the year
2 Selling price per unit Rs. 10
3 Cost of Raw material 60% of selling price
4 Direct wages 1/6th of raw material cost
5 Overheads Twice the direct wages
6 Material in hand 2 months requirement
7 Production time 1 month
8 Finished goods in store 3 months
9 Credit for allowed by suppliers 2 months
10 Credit allowed to customers 3 months
11 Average cash balance required Rs.50,000

Wages and overheads are paid in the beginning of next month. In production process, all the
materials are charged in the initial stage and wages and overheads accrue evenly. (5 marks)

**********************All the best**************************

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