CMA Inter FMDA Important Question | Dec 25

Table of Content

Financial Management

1. Fundamentals of Financial Management 
2. Institutions and Instruments in Financial Markets 
3. Tools for Financial Analyses 
4. Sources of Finance and Cost of Capita
5. Capital Budgeting 
6. Working Capital Management
7. Financing Decision of a Firm 

Business Data Analytics

1. Introduction to Data Science for Business Decision-making 
2. Data Processing, Organisation, Cleaning and Validation 
3. Data Presentation: Visualisation and Graphical Presentation 
4. Data Analysis and Modelling 

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Financial Management

Fundamentals of Financial Management

Question 1:

Mr. X is planning to buy a machine for his firm. He has two options. He can either purchase it by making cash payment of ₹. 5 lakhs or ₹. 6,15,000 is to be paid in six equal annual instalments. Which option do you suggest to the doctor, assuming the rate of return is 12%?

Solution:

Question 2:

Briefly describe the primary functions of commercial banks in India.

Solution:

Question 3:

Question 4:

Your client holds the following securities:

Particulars of Securities	Cost (₹)	Dividends (₹)	Market Price (₹)	BETA
Equity Shares:
Co. A	8,000	800	8,200	0.8
Co. B	10,000	800	10,500	0.7
Co. C	16,000	800	22,000	0.5
Co. D	34,000	3,400	32,300	0.2

Assuming a Risk-free rate of 6%, calculate the expected rate of return in each, using the Capital Asset Pricing Model (CAPM).  Asset Pricing Model (CAPM). Assume equal proportion of securities for market portfolio as also for the client. Calculations should be presented up to two decimal places.

Solution:

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Institutions and Instruments in Financial Markets

Question 5:

Discuss the concept of Hedge Fund with its benefits. Also explain the Hedging strategies adopted in case of Hedge Funds.

Solution:

Question 6:

Distinguish between Primary Market and Secondary Market. 

Solution:

Question 7:

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Tools for Financial Analyses

Question 8:

VW Ltd. gives you the following information for the year ended 31st March, 2024: 

(i) Sales for the year totalled ₹ 96,00,000. The company sells goods for cash only.

(ii) Cost of goods sold was 60% of sales. Closing inventory was higher than opening inventory by ₹ 20,000.

(iii) Tax paid amounted to ₹ 7,00,000. Other expenses totalled ₹ 21,45,000. Outstanding expenses on 31st March, 2023 and 31st March, 2024, totalled ₹ 82,000 and ₹ 91,000 respectively.

(iv) New machinery and furniture costing ₹ 10,50,000 in all were purchased. One equipment was sold for ₹ 20,000.

(v) A right issue was made of 50,000 shares of ₹ 10 each at a premium of ₹ 3 per share. The entire money was received with application. 

(vi) Dividends totalling ₹ 4,00,000 were distributed among the shareholders. 

(vii) Cash in hand and at Bank as at 31st March, 2023 and 31st March, 2024 totalled ₹ 2,10,000 and ₹ 4,14,000 respectively. 

You are required to prepare cash flow statement as per CAS3 for the year ended 31 March, 2024 using the direct method.

Solution:

Question 9:

Prepare a Common-size Income Statement from the following income statements and interpret the same.

Income Statement

Particulars	31st March 2023 ₹	31st March 2024 ₹
Gross Sales	10,30,000	12,42,000
Less: Sales Returns	30,000	42,000
Net Sales	10,00,000	12,00,000
Less: Cost of Goods Sold	6,00,000	6,60,000
Gross Profit	4,00,000	5,40,000
Less: Operating Expenses:
Administrative Expenses	85,000	1,14,000
Selling Expenses	2,00,000	1,93,000
Total Operating Expenses	2,85,000	3,07,000
Income from Operations	1,15,000	2,32,800
Add: Non-operating Income	24,000	34,200
Total Income	1,39,000	2,67,000
Less: Non-operating Expenses	36,000	53,280
Net Profit	1,03,000	2,13,720

Solution:

Question 10:

Question 11:

M Ltd. has the following earnings for the year ending on 31.03.2025.

Profit before tax	₹ 24,46,000
Tax rate	60%
Dividend for equity shareholders	20%

The capital structure of M Ltd. is as under:

(i) Equity Shares: 30,000 shares of ₹ 100 each	₹ 30 lakh
(ii) 9% Preference Shares: 10,000 shares of ₹ 100 each	₹ 10 lakh
(iii) Reserve and Surplus as on 01.04.2024	₹ 22 lakh

From the above information you have to calculate:

(i) Earnings per share

(ii) Book value per share

(iii) Dividend payout ratio

(iv) Price earnings ratio

The current market price of the M Ltd.’s equity share is ₹ 200.

Solution:

Question 12:

Based on the following particulars SHOW various assets and liabilities of Raina Ltd. 

Fixed assets turnover ratio (Based on Cost of sales)	10 times
Capital turnover ratio  (Based on Cost of sales)	3 times
Inventory Turnover	10 times
Receivable turnover	5 times
Payable turnover	5 times
GP Ratio	40%

Gross profit during the year amounts to Rs.15,00,000. There is no long-term loan or overdraft. Reserve and surplus amount to Rs.5,00,000. Ending inventory of the year is Rs. 40,000 above the beginning inventory. 

Solution:

Question 13:

The Balance Sheets of A, B, & C Co. Ltd. as at the end of 2023 and 2024are given below:

Liabilities	2023 (₹)	2024 (₹)	Assets	2023 (₹)	2024 (₹)
Share Capital	1,00,000	1,50,000	Freehold land	1,00,000	1,00,000
Share Premium		5,000	Furniture at cost	7,000	9,000
General Reserve	50,000	60,000	Investments	60,000	80,000
Profit & Loss Account	10,000	17,000	Debtors	30,000	70,000
6% Debentures	70,000	50,000	Stock	60,000	65,000
Provision for Depreciation on	50,000	56,000	Cash	30,000	45,000
Plant
Provision for Dep. on Furniture	5,000	6,000
Provision for taxation	20,000	30,000
Sundry Creditors	86,000	95,000
	3,91,000	4,69,000		3,91,000	4,69,000

A Plant purchased for ₹4,000 (Depreciation ₹2,000) was sold for Cash for ₹800 on September.  30, 2024. On June 30, 2024 an item of furniture was purchased for ₹2,000. These were the only transactions concerning fixed assets during 2024.
A dividend of 22½% on original shares was paid. You are required to prepare Funds Flow Statement and verify the results by preparing a schedule of changes in Working Capital.

Solution:

Sources of Finance and Cost of Capital

Question 14:

The current Capital Structure of a firm is given as follows:

	Amount (₹ in lakh)
Equity Share Capital (₹100 each)	400
Retained earnings	200
12% debentures (₹100 each)	400
	1,000

You are given the following further information:

(i) Current market value per share is ₹. 300

Dividend paid per share in the last year was ₹. 45

Growth rate in dividend is 10%

(ii) The market value of debenture is ₹. 110 per debenture

(iii) Corporate tax rate is 40%

Using market values as weights, find out the average Cost of Capital of the firma

Solution:

Question 15:

PQR Ltd., has the following book value capital structure:

Particulars	₹in crore
Equity capital (₹ 10 each fully paid)	15.00
11% Preference capital (₹ 100 each fully paid)	1.00
Retained earnings	20.00
13.5% Debentures (₹ 100 each)	10.00
15% Term loans	12.50

Additional Information: 

(i) Expected equity dividend per share is ₹ 3.60. The dividend per share is expected to grow at the rate of 7 per cent. The market price per share is ₹ 40.

(ii) 11 % Preference shares are redeemable after ten years at par. The current market price is ₹ 75 per share.

(iii) 13.5% Debentures are redeemable after six years at par. Current market price is ₹ 80 per debenture. Only interest is tax deductible. 

(iv) The income-tax rate for the company is 40 per cent.

You are required to calculate the weighted average cost of capital using (i) Book value weights; and (ii) Market value weights

Solution:

Question 16:

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Capital Budgeting

Question 17:

From the following information, calculate Net Present Value of the following business proposal and suggest whether the proposal should be accepted or rejected:

Initial Investment in Fixed Assets: ₹ 5,00,000

Initial Investment in Working Capital: ₹ 1,00,000

Salvage Value of Fixed Assets after 3 years: ₹ 2,00,000

Annual Cash inflows before tax: ₹ 3,00,000

Income tax rate (on profit as well as capital gain): 30%

Cost of capital: 18%

Depreciation is to be charged under WDV method @40%.

Present Values of Re. 1.00 at 18% are as follows:

Year	1	2	3
PVIF	0.8475	0.7182	0.6086

Solution:

Question 18:

Dharma Ltd, an existing profit-making company, is planning to introduce a new product with a projected life of 8 years. Initial equipment cost will be ₹ 240 lakhs and additional equipment costing ₹ 26 lakhs will be needed at the beginning of third year. At the end of 8 years, the original equipment will have resale value equivalent to the cost of removal, but the additional equipment would be sold for ₹ 2 lakhs. Working Capital of ₹ 25 lakhs will be needed at the beginning of the operations. The 100% capacity of the plant is of 4,00,000 units per annum, but the production and sales volume expected are as under:

Year	Capacity (%)
1	20
230	30
3-5	75
6-8	50

A sale price of ₹ 100 per unit with a profit volume ratio (contribution/sales) of 60% is likely to be obtained. Fixed operating cash cost are likely to be ₹ 16 lakhs per annum. In addition to this the advertisement expenditure will have to be incurred as under:

Year	1	2	3-5	6-8
Expenditure (₹ Lakhs each year)	30	15	10	4

The company is subjected to 50% tax rate and considers 12% to be an appropriate cost of capital. Straight line method of depreciation is followed by the company. ADVISE the management on the desirability of the project.

Solution:

Question 19:

Manoranjan Ltd is a News broadcasting channel having its broadcasting Centre in Mumbai. There are total 200 employees in the organisation including top management. As a part of employee benefit expenses, the company serves tea or coffee to its employees, which is outsourced from a third-party. The company offers tea or coffee three times a day to each of its employees. 120 employees prefer tea all three times, 40 employees prefer coffee all three times and remaining prefer tea only once in a day. The third-party charges ₹ 10 for each cup of tea and ₹ 15 for each cup of coffee. The company works for 200 days in a year.

Looking at the substantial amount of expenditure on tea and coffee, the finance department has proposed to the management an installation of a master tea and coffee vending machine which will cost ₹ 10,00,000 with a useful life of five years. Upon purchasing the machine, the company will have to enter into an annual maintenance contract with the vendor, which will require a payment of ₹ 75,000 every year. The machine would require electricity consumption of 500 units p.m. and current incremental cost of electricity for the company is ₹ 12 per unit. Apart from these running costs, the company will have to incur the following consumables expenditure also:

(1) Packets of Coffee beans at a cost of ₹ 90 per packet.

(2) Packet of tea powder at a cost of ₹ 70 per packet.

(3) Sugar at a cost of ₹ 50 per Kg.

(4) Milk at a cost of ₹ 50 per litre.

(5) Paper cup at a cost of 20 paise per cup.

Each packet of coffee beans would produce 200 cups of coffee and same goes for tea powder packet. Each cup of tea or coffee would consist of 10g of sugar on an average and 100 ml of milk.

The company anticipate that due to ready availability of tea and coffee through vending machines its employees would end up consuming more tea and coffee.

It estimates that the consumption will increase by on an average 20% for all class of employees. Also, the paper cups consumption will be 10% more than the actual cups served due to leakages in them.

The company is in the 25% tax bracket and has a current cost of capital at 12% per annum. Straight line method of depreciation is allowed for the purpose of taxation. You as a financial consultant is required to ADVISE on the feasibility of acquiring the vending machine. PV factors @ 12%:

Year	1	2	3	4	5
PVF	0.8929	0.7972	0.7118	0.6355	0.5674

Solution:

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Working Capital Management

Question 20:

Question 21:

XYZ Ltd. is examining the question of relaxing its credit policy. It sells at present 40,000 units at a price of ₹. 100 per unit, the variable cost per unit is ₹. 88 and average cost per unit at the current sales volume is ₹. 92. All the sales are on credit, the average collection period being 36 days. A relaxed credit policy is expected to increase sales by 10% and the average age of receivables to 60 days. Assuming 15% return, should the firm relax its credit policy? Assume 360 days in a year.

Solution:

Question 22:

The management of Camellia Ltd. has called for a statement showing the working capital needed to finance a level of activity of 3,00,000 units of output for the year ended March 31, 2024. The cost structure for the company's product, for the above mentioned activity level, is detailed below: 

	Cost per unit (₹)
Raw materials	20
Direct labour	5
Overheads	15
Total cost	40
Profit	10
Selling price	50

Past trends indicate that the raw materials are held in stock, on an average, for two months. Work-in-process (50 per cent complete) will approximate to ½ month's production. Finished goods remain in warehouse, on an average, for 1 month. Suppliers of materials extend 1 month's credit. Two months’ credit is normally allowed to debtors. A minimum cash balance of ` 25,000 is expected to be maintained. The production pattern is assumed to be even during the year (12 months). 

Required:

Prepare a statement of Working Capital determination

Solution:

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Financing Decision of a Firm

Question 23:

The following estimates of the cost of debt and cost of equity capital have been made at various level of the debt-equity mix for ABC Ltd.

% of Debt	Cost of Debt	Cost of Equity
0	5.0%	12.0%
10	5.0%	12.0%
20	5.0%	12.5%
30	5.5%	13.0%
40	6.0%	14.0%
50	6.5%	16.0%
60	7.0%	20.0%

Assuming no tax, determine the optimal debt equity ratio for the company on the basis of the overall cost of capital, WACC.

Solution:

Question 24:

Question 25:

J Ltd. currently has an equity share capital of ₹ 40 Lakh consisting of 40,000 equity shares of ₹ 100 each. The management is planning to raise another ₹ 30 Lakh to finance a major programme of expansion through one of the four possible financing plans. The options are: 

A. Entirely through equity shares. 

B. 15 lakh in equity shares of ₹100 each and the balance through 8% Debentures. 

C. ₹ 10 lakh in equity shares of ₹ 100 each and the balance through long-term borrowing at 9% interest p.a. 

D. 15 lakh in equity shares of ₹ 100 each and the balance through preference shares with 5% dividend. 

The company’s expected earnings before interest and taxes (EBIT) will be ₹ 15 lakh. Assuming corporate tax rate of 50%, as a Cost and Management Accountant you are required to analyze the EPS and financial leverage that will be authorized under each of the above schemes of financing and comment on the best plan to be selected.

Solution:

Question 26:

Debu Ltd. currently has an equity share capital of ₹ 1,30,00,000 consisting of 13,00,000 Equity shares. The company is going through a major expansion plan requiring to raise funds to the tune of ₹ 78,00,000. To finance the expansion the management has following plans:

Plan-I : Issue 7,80,000 Equity shares of ₹ 10 each.

Plan-II : Issue 5,20,000 Equity shares of ₹ 10 each and the balance through long-term borrowing at 12% interest p.a.

Plan-III : Issue 3,90,000 Equity shares of ₹ 10 each and 39,000, 9% Debentures of ₹ 100 each.

Plan-IV : Issue 3,90,000 Equity shares of ₹ 10 each and the balance through 6% preference shares.

EBIT of the company is expected to be ₹ 52,00,000 p.a.

Considering corporate tax rate @ 40%, you are required to-

(i) CALCULATE EPS in each of the above plans.

(ii) ASCERTAIN financial leverage in each plan and comment.

Solution:

Question 27:

Question 28:

EXPLAIN the disadvantages of the stock dividend.

Solution:

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Business Data Analytics

Introduction to Data Science for Business Decision-making

Question 29:

Question 30:

Discuss the five basic principles of data ethics that a business organization should follow

Solution:

Question 31:

What do you mean by Data Ethics? Discuss the five basic principles of Data Ethics that a business organisation should follow.

Solution:

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Data Processing, Organisation, Cleaning and Validation

Question 32:

Explain the steps of data cleaning.

Solution:

Question 33:

Discuss the benefits of ‘data cleaning’. 

Solution:

Question 34:

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Data Presentation: Visualisation and Graphical Presentation

Question 35:

Question 36:

Discuss the ways in which the finance professionals may be helped by data Visualisation in analysing and reporting information.

Solution:

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Data Analysis and Modelling

Question 37:

Explain the concept of Predictive Analytics. How does Predictive Analytics work? Give two examples of application of Predictive Analytics in specific industries.

Solution:

Question 38:

Following are the benefits of data analytics:

1. Improves decision making process
2. Increase in efficiency of operations
3. Improved service to stakeholders
4. All of the above

Solution:

Question 39:

What is diagnostic analytics?

Solution: