ca inter suggested answers | Nov 23 FME Paper
Table of Content
Section - (A)
You are available with following information of Brave Ltd.
| Debtor’s velocity | 3 months |
| Stock velocity | 6 months |
| Creditor’s velocity | 2 months |
| Gross profit ratio | 20% |
The gross profit for the year ended 31st March, 2023 was ₹ 10,00,000. Stock for the same period was ₹ 40,000 more than what it was at the beginning of the year. Bills receivable were ₹ 1,20,000
From the above information, you are required to calculate :
(i) Sales
(i) Sundry debtors
(iii) Closing stock
Answer 1 : (A)
The following details of Shiva Ltd. for the year ended 31st March, 2023 are given below :
| Operating Leverage | 1.4 |
| Combified Leverage | 2.8 |
| Fixed Cost (Excluding Interest) | ₹ 2.04 lakhs |
| Sales | ₹ 30 lakhs |
| 12% Debentures of ₹ 10 each | ₹ 21.25 lakhs |
| Equity Share Capital of ₹ 10 each | ₹ 17.00 lakhs |
| Income Tax Rate | 30% |
Required :
(i) Calculate P/V ratio and Earning Per Share (EPS)
(ii) If the company belongs to an industry, whose assets turnover is 1.5, does it have a high or low assets turnover ?
(iii) Financial Leverage
Answer 1 : (B)
(i) EPS ofa company is ₹ 60 and Dividend payout ratio is 60%. Multiplier is 5. Determine price per share as per Graham & Dodd model.
(ii) Last year’s dividend is ₹ 6.34, adjustment factor is 45%, target payout ratio is 60% and current year’s EPS is ₹ 12. Compute current’s year’s dividend using Linter’s model.
Answer 1 : (C)
X Ltd. has furnished following cost sheet of per unit cost ;
| Raw material cost | ₹ 150 |
| Direct labour cost | ₹ 40 |
| Overhead cost | ₹ 60 |
| Total Cost | ₹ 250 |
| Profit | ₹ 50 |
| Selling Price | ₹ 300 |
The company keeps raw material in stock on an average for 2 months; work in progress on an average for 3 months and finished goods in stock on an average 1 month. The credit allowed by suppliers is 1.5 months and company allows 2 months credit to its debtors. The lag in payment of wages is 1 month and lag in payment of overhead expenses is 1.5 months. The company sells 25% of the output against cash and maintain cash in hand at bank put together at ₹ 1,50,000. Production is carried on evenly throughout the year and wages and overheads also similarly. Work in progress stock is 75% complete in all respects. Prepare statement showing estimate of working capital requirements to finance an activity level of 15,000 units of production,
Answer 1 : (D)
COMING SOON
The data of K Textiles Ltd. are given as follows :
| Particulars | Amount(₹) |
| Profit Before Interest and Tax | 50,00,000 |
| Less: Interest on debentures @ 10% | 10,00,000 |
| Profit before tax | 40,00,000 |
| Less: Income tax @ 50% | 20,00,000 |
| Profit after tax | 20,00,000 |
| No. of equity shares (₹ 10 each) | 10,00,000 |
| EPS | 2 |
| PE Ratio | 10 |
| Market price per share | 20 |
The Company is planning to start a new project needs to be having a total capital outlay of ₹ 40,00,000. You are informed that debt equity ratio [D/D+E] higher than 36% pushes the Ke (cost of equity) up to 12.5%, means reducing the PE ratio to 8 and rises the interest rate on additional amount borrowed to 12%. Retained earnings of the company is ₹ 1.4 crores. Find out the probable price of share if :
Answer 2 :
ABC Ltd. is considering to purchase a machine which is priced at ₹ 5,00,000.The estimated life of machine is 5 years and has an expected salvage value of ₹ 45,000 at the end of 5 years. It is expected to generate revenues of ₹ 1,50,000 per annum for five years. The annual operating cost of the machine is ₹ 28,125, Corporate Tax Rate is 20% and the cost of capital is 10%. You are required to analyse whether it would be profitable for the company to purchase the machine by using;
(i) Payback period Method
(ii) Net Present value method
(iii) Profitability Index Method
Answer 3 :
Z Ltd. wishes to raise additional fund of ₹ 25,00,000 for meeting its investment plan. It has ₹ 5,25,000 in the form of retained earnings available for investment purposes. Further details are as following :
| Combination of debt and equity | 2:3 |
| Cost of debt: | |
| Upto ₹ 2,50,000 | 8% (before tax) |
| Above ₹ 2,50,000 and to upto ₹ 5,00,000 | 10% (before tax) |
| Beyond ₹ 5,00,000 | 12% (after tax) |
| Earning of company | ₹ 50,00,000 |
| Retention Ratio | 40% |
| Expected growth of dividend | 15% |
| Market price per share | ₹ 500 |
| Number of outstanding equity shares | 1,00,000 |
| Tax Rate | 30% |
You are required to calculate :
i. Cost of debt
ii. Cost of retained earnings and cost of equity
iii. Weighted average cost of capital
Answer 4 :
COMING SOON
BSB Ltd. is considering its new project with the following details :
| Sr.No. | Particulars | Amount |
| 1 | Initial capital cost | 5,00,00,000 |
| 2 | Annual unit sales | 6,00,000 |
| 3 | Selling price per unit (in ₹) | 120 |
| 4 | Variable cost per unit (in ₹) | 80 |
| 5 | Fixed costs per year | 36,00,000 |
| 6 | Discount Rate | 10% |
Required :
a. To advise the company whether to invest in the new pfoject or not based on the NPV concept.
b.Compute the impact on the project’s NPV considering a 1% adverse variance in each variable. Which variable is having minimum effect ?
Consider Life of the project as 3 years.
| Year | 1 | 2 | 3 |
| PVF @ 10% | 0.909 | 0.826 | 0.751 |
| PVF @ 11% | 0.901 | 0.812 | 0.731 |
Answer 5 : (A)
COMING SOON
INFO Ltd is a listed corpany having share capital of ₹ 2400 Crores of ₹ 5 each.
During the year 2022-23
| Dividend distributed | 1000% |
| Expected Annual growth rate in dividend | 14% |
| Expected rate of return on its equity capital | 18% |
Required:
(a) Calculate price of share applying Gordon’s growth Model.
(b) What will be the price of share if the Annual growth rate in dividend is only 10% ?
(c) According to Gordon’s growth Model, if Internal Rate of Return is 25%, than what should be the optimum dividend payout ratio in case of growing stage of company ? Comment.
Answer 5 : (B)
Write the main features of Bulldog Bond.
Answer 6 : (A)
What do you understand by Spontaneous Sources of finance and explain its sources of finance ?
Answer 6 : (B)
What are the causes of over-capitalization ?
Answer 6 : (C)
OR
What are disadvantages of Profit Maximization ?
Answer 6 : (C)
Section - B
Following information relating to a particular financial year is given below :
| Particulars | Amount (₹ in Crore) |
| Gross Domestic Product at Market Price (GDPMP) | 3,500 |
| Gross National Product at Market Price (GNPMP) | 3,200 |
| Gross Domestic Product at Factor Cost (GDPFC) | 3,000 |
| Net National Product at Market Price (NNPMP) | 2,800 |
| Indirect Tax | 700 |
You are required to calculate :
(i) Net Factor Income from Abroad (NFIA).
(ii) Consumption of fixed capital. .
(iii) Amount of subsidies.
Answer 7 : (A)
COMING SOON
Discuss with example direct quote and indirect quote.
Answer 7 : (B)
COMING SOON
Explain the three aspects of fiscal function in an economy.
Answer 7 : (C)
COMING SOON
Compute NM1 and NM2 from the following data relating to 31 March 2023:
| Particulars | ₹ in Crores |
| Currency with the public | 1,000 |
| Demand deposits with the banking system | 2,235 |
| Other deposits with the RBI | 1,139 |
| Short term time deposits of residents | 276 |
Answer 7 : (D)
COMING SOON
(i) "Tariffs are price related instruments of trade policy that governments use to restrict imports and/or encourage exports,” Explain.
(ii) Calculate Sales from the following data :
| Particulars | ₹ in Lakhs |
| Closing stock | 500 |
| Opening stock | 200 |
| Subsidies | 180 |
| Intermediate consumption | 1,500 |
| Consumption of fixed capital | 350 |
| Net value added at factor cost | 2000 |
Answer 8 : (A)
COMING SOON
(i) 1. ‘The balanced budget multiplier is always equal to 1' Give Public finance your comments. Assume that MPC is equal to 0.8, answer the following :
2. What s the value of spending multiplier ?
3. What is the value of tax multiplier ?
(ii) How does the Reserve Bank of India control liquidity through Open Market Operations (OMO) ?
Answer 8 : (B)
COMING SOON
(i) “Cash Reserve Ratio (CRR) has to be maintained by banks as cash with the RBI, while Statutory Liquidity Ratio (SLR) requires holding assets by the bank itself.” Do you agree with this statement ? Explain.
(ii) The table below shows Nominal GDP and Real GDP of the country in 2 financial years.
| Amount(₹ in Crores) |
||
| Financial Years (FY) | Nominal GDP | Real GDP |
| 2020-21 | 1550 | 1190 |
| 2021-22 | 1700 | 1240 |
Calculate Inflation rate (upto two decimal) in FY 2021-2022.
Answer 9 : (A)
COMING SOON
(i) List the problems involved in administrating an efficient pollution tax.
(ii) Briefly discuss the National Treatment Principle (NTP) as one of the major guiding principles of WTO.
Answer 9 : (B)
COMING SOON
(i) The table shows the number of labour hours required to produce Intemationalirade Shirt and Trouser in two Countries X and Y.
| Country | 1 Unit of Shirt | 1 unit of Trouser |
| X | 3.5 Hours | 5 Hours |
| Y | 4 Hours | 8 Hours |
In the absence of trade :
1.Compute the Opportunity cost in respect of both commodities in both countries.
2.Which country has comparative advantage in producing Shirts ?
3. Which country has comparative advantage in producing Trousers ?
(ii) Explain the Transactions Motive for holding cash.
Answer 10 : (A)
COMING SOON
(i) Calculate NNPFC by expenditure method with the help of the following information :
| Item | ₹ in crores |
| Private final consumption expenditure | 12 |
| Net Import | 19 |
| Public final consumption expenditure | 06 |
| Gross Domestic Fixed Capital Formation | 360 |
| Depreciation | 35 |
| Subsidy | 120 |
| Income Paid to Abroad | 17 |
| Change in Stock | 40 |
| Net Acquisition of Valuables | 15 |
(ii) Discuss briefly the concept of Common Access Resources.
Answer 10 : (B)
COMING SOON
(i) “Dumping is an international price discrimination favouring buyers of exports against which the domestic government levies a protectionist tariff.” Analyse and explain the statement.
(ii) Compute credit multiplier if the required reserve ratio is 12% and 15% for every % 1,50,000 deposited in the banking system. What will be the total credit money created by the banking system in each case ?
Answer 11 : (A)
COMING SOON
(i) What are the main components of equilibrium income in a four sector model ?
(ii) Define the term market failure and name ‘the four reasons for market failure situation. OR
(ii) Briefly state the different modes of Foreign Direct Investment (FDI).
Answer 11 : (B)
COMING SOON
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