Q1. The Royal Corporation manufactures only one product: Yewa.

The single raw material used it Yewa is the larg. For each Yewa manufactured, 12 largs are required. Assume that the company manufactures 150,000 Yewas per year, that demand for largs is perfectly steady throughout the year, that it consts Rs. 200 each time largs are ordered, and the carrying costs are Rs. 8 per larg per year. (a) Determine the economic order quantity (EOQ) of largs. (7) (b) What are total inventory costs for Royal (total carrying costs plus total ordering costs)? (7) (c) How many times per year would inventory be ordered? (7)

Q2.Assuming that current ratio is 2. State in each of the following cases, whether the ratio will improve, or decline, or have no change: (i) Payment of current liabilities (ii) Purchase of fixed assets (iii) Cash collected from customers (iv) Issue of new shares (c) A corporation has total assets of Rs. 500,000 and its equity is Rs. 200,000. what is the Company¶s debt-to-total asset ratio? Q3. The following data apply to A.L. Kaiser & Company (millions of dollars) Cash and marketable securities $100.00 Fixed assets $283.50 Sales $1000.00 Net income $50.00 Quick ration 2.0 X Current ratio 3.0 X Average collection period 40 days Return on equity 12% Kaiser has no preferred stock ± only common stock equity, current liabilities and long term debt. Required: Find Kaiser¶s 1. Account receivable (A/R) 2. Current liabilities 3. Current assets 4. Total assets 5. Return on assets (ROA) 6. Common stock equity and 7. Long term debt

Q4. Star corporation is considering a project with a cost of Rs. 40,000/= net investment and net
operating cash inflows of Rs. 11,652/= each year for the next five years. The firm uses 10% discount rate for projects with similar risks. (a) What is projects net present value? (7) (b) What is its initial rate of return? (7) (c) Should the project be accepted assuming that funds are available? (6 Q5. Royal corporation current assets inventories and current liabilities for four year period are as follows: Item 2000 2001 2002 2003 Current assets Rs. 20,000 Rs. 22,400 Rs. 25,600 Rs. 28,100 Inventories Rs. 8,200 Rs. 10,000 Rs. 12,500 Rs. 14,000

It is agreed that the payment will be made in four installments.Current liabilities Rs. Calculate the firm¶s current and quick ratios for each year.7%______ 9.4% Return on investment (ROI) ___ 12.800 The adjusting entries must have included these Items: Give reasons regarding how and why: (a) A 300 debit to prepaid insurance. The big star co. The following information has been taken from Mirza Co¶s unadjusted and adjusted Trail balances: Unadjusted Adjusted Debit Credit Debit Credit Prepaid Insurance 6.200 .2x _______ 2.8% _______ 2.5x Average collective period _____33 days _____ 36 days ___ 49 days Total asset turnover _________ 3.7% ______ 5.200 Rs.700 Rs.7x _______ 5. Selected financial ratios for XYZ Co.5.1400 Office supplies 900 -.21000 three years later. Q7.6 Debt-to-total assets _________ 23% _______ 33% ______ 47% Inventory Turnover __________ 8. and 100 credit to office supplies.000 Rs.4x ______ 3. _________________________19 x 1 ______ 19 x 2 _____19 x 3 Current ration ______________ 4.1 ________ 1. Discuss the firm¶s liquidity position over the four year period of time.the star limited purchase machinery from high the corp.. a 1400 debit to salaries expense and a 100 debit to office supplies expense.18000 two years later and Rs.1% ______ 6. (10) Q6.0 ______ .5% ______ 1. a 1400 credit to salaries payable and a 100 credit to office supplies. a 1400 credit to salaries payable. from the time of purchase.9% Net profit margin ___________ 3.2 ________ 2. are as follows.. (c) A 300 debit to insurance expense. paid Rs. and a 100 debit to office supplies OR Adjust in your own understanding? Q8.5% ______ 2.15000 after one year.8% Return on Equity (ROE) _______ 15.4% (a) Why did return on investment decline? (b) Was the increase in debt a result of greater current liabilities or of greater long-term? Explain.6x ______ 1. What will be the present value of receipt from the sale if the Hi Tech uses a discount rate of 5 percent? .000 a. (10) b..10000 at the time of purchase and will pay Rs. The company will pay Rs. 10. (b) A 300 credit to prepaid insurance.7 Acid test ration _____________ 2. (d) A 300 insurance expense. 10. a 1400 debit to salaries payable.6 _______ 1. 10. 11.900 Salaries Payable .

(2) Expand its existing cooker line to include several new sizes. the investment . Chips are ordered in lot sizes of 1000 and each order costs Rs. (b) Calculate the amount in inventory.000 185. interest (opportunity rate) is compounded quarterly. (a) What is optimal order quantity with respect to so many lot sizes (that is. 10.000 B $ 125.6 million.000 chips. what multiple of 1000 units should be ordered)? (b) What would be the optimal order quantity if the carrying costs were cut in half to Rs.10 as carrying cost for each chip. General Electric Company has annual sales (all on credit) of $ 1. straight ±line depreciation and no salvage value for either machine. If your opportunity is 10%. for ease of collection.05 a chip per month? (c) What would be the optimal order quantity if the carrying costs were reduced to Rs. instead of compounding annually.000 3 270.000 2 115.00 per month? Q10. there will be no economies.000 If projects 1 and 2 are jointly undertaken. (10+10) Q12.200.000 4 years $ 56. The firm¶s tax rate is 40 percent and its required rate of return is 16 percent. for ease of calculation. 0. A or B. (b) Calculate the NPV of each machine and which would you select and why? Q13. What is present value of this amount assuming the interest (opportunity rate) is compounded annually? (b) If. the respective costs and benefits of each are listed below: Machine Cost Life of Machine Savings for Company A $ 100.290. 100. Assume. a 360 day year: (a) Calculate the company¶s accounts receivable. ABC works out Rs.000 5 years $ 60.Q9.000 at the end of 10 years. (a) Suppose you were to receive Rs. 0. Their gross profit margin is 20 percent. (3) Develop a new higher-quality line of cookers. ABC Company deals in computer chips and buys these chips from several manufacturers. Their average collection period is 40 days and they typically have an inventory turnover of 8. 40. A company is evaluating the following three investment proposals: (1) Produce a new line of aluminium trays.000 400.00 to place. Cavalier Construction Company is considering buying one of two machines. Assume. the expected present values and the amounts of investment required are: Project Investment Required Present Value of Future Cash Flows 1 Rs.000 Rs. what will be the present value? Q11. Monthly demand is expected to be 20.000 (a) Calculate the after-tax cash flow for each machine. If only the project in question is undertaken.

000 extension on the plant will be necessary. what is the indifference point mathematically between debt and common? (iii) Which alternative do you prefer? How much would EBIT need to increase before the next alternative would be best? Q15.000. Which project or projects should be chosen? Q14.620. how much would you accumulate at the end of 10 years? a) $15.00 e) none ii)If you invest $ 600 every six months at 8% compounded semi annually. How large are the monthly payments? a) $425. The market price of this stock is $ 48. a Rs.20 b) $ 16.440.5 million. The annual interest rate on the loan is 12% of the unpaid balance. (i) If earnings before interest and taxes are presently Rs.1. preferred stock with a 12 percent dividend.250 for three years to by a car.82 c)$ 17.4 million expansion program and is considering three alternatives: additional debt at 14 percent interest. If all three projects are undertaken simultaneously.67 c) $375.45 e) None iii) A commercial bank will loan you $ 12. there are economies to be achieved in marketing and producing the products but not in investment.82 b) $ 361.16 per share. What is the rate of return you would expect to make on this perpetuity? . with a stated rate of 6% compounded monthly for 7 years. The company presently has 800. What are the approximate indifference points? To check one of these points.5 d) $ 325. or indifference chart for these alternatives. DP Company presently has Rs.09 d) $406. However.625. what would be earnings per share for the three alternatives. What is your monthly payment? a) $ 262. The loan must be repaid in 36 equal monthly payments.85 d) $ 18.shorts questions i) You wish to borrow $ 8000 to be repaid in 24 monthly installments at an annual interest rate of 8%.3 million in debt outstanding bearing an interest rate of 12 percent. economies are possible in investment because one of the machines acquired can be used in both production processes. It wishes to finance a Rs. 866.000 shares of common stock outstanding and is in a 40 percent tax bracket. With projects 1 and 3. assuming no immediate increase in profitability? (ii) Develop a break-even.25 per share.000.required and present values will simply be the sum of the parts. the economies noted will still hold.82 c) $ 150. as space is not available for all three projects. The expected present value of future cash flows for projects 2 and 3 is Rs. The total investment required for projects 1 and 3 combined is Rs. If projects 2 and 3 are undertaken.00 b) $350. a) 700 b) 730 c)760 d)790 e) none v) You are considering investing in a preferred stock that has a dividend of $ 3.88 e)none iv) What is the future value of $500 investment.125.233.926.883. and the sale of common stock at Rs.

68% b) 6.a) 6.28% e) none .24% c) 6.05% d) 6.

Sign up to vote on this title
UsefulNot useful