CMA Inter Suggested Answers | Dec 25 Paper 11 Financial Management and Business Data Analytics (FMDA)

Table of contents

1. MCQs
2. 2 (a) :
3. 2 (b) :
4. 3 (a) : 
5. 3 (b) : 
6. 4 (a) : 
7. 4 (b) : 
8. 5 (a) :
9. 5 (b) : 
10. 6 (a) : 
11. 6 (b) : 
12. 7 (a) : 
13. 7 (b) : 
14. 8 (a) : 
15. 8 (b) : 

CMA Inter Dec 25 Suggested Answer Other Subjects Blogs :

1. Suggested Answer Dec 25 Paper 5 : Business Laws and Ethics
2. Suggested Answer Dec 25 Paper 6 : Financial Accounting
3. Suggested Answer Dec 25 Paper 7 : Direct and Indirect Taxation
4. Suggested Answer Dec 25 Paper 8 : Cost Accounting (CA)
5. Suggested Answer Dec 25 Paper 9 : Operations Management and Strategic Management
6. Suggested Answer Dec 25 Paper 10 : Corporate Accounting and Auditing
7. Suggested Answer Dec 25 Paper 12 : Management Accounting
8. CMA Inter Syllabus (New Updates)
9. CMA Intermediate Online Classes

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Section A

MCQs

(i) “Shareholders’ wealth” of a company is represented by

1. the number of equity shares held by the shareholders of the company.
2. the number of equity shares owned multiplied by the current market price per equity share.
3. the amount of dividend paid to the shareholders.
4. the market price per share of the company on the last day of each month.

Solution:

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(ii) According to Horne and Wachowicz the greater the variability in returns, the security is said to be.

1. safe
2. liquid
3. riskier
4. default

Solution:

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(iii) If the nominal rate of interest is 12 per cent per annum and frequency of compounding is 4 i.e. quarterly compounding, the effective rate of interest will be ______.

1. 12.55% p.a.
2. 12.75% p.a.
3. 12.95% p.a.
4. 13.05% p.a.

Solution:

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(iv) ______ refers to the use of instruments under the control of central bank to regulate the availability, cost and use of money and credit.

1. Fiscal Policy
2. Monetary Policy
3. Credit Policy
4. Banking Regulation

Solution:

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(v) GDRs (Global Depository Receipts) are issued to

1. Foreign banks as a security to raise foreign currency loans.
2. persons of Indian origin residing in a foreign country.
3. Indian investors who want to subscribe the IPOs of foreign companies.
4. non-resident investors against publicly traded shares of the issuing companies and denominated in dollars.

Solution:

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(vi) A firm wants to increase its current ratio from 1.5:1 to 2:1. Which action would be most prudent from the viewpoint of a financial manager?

1. Delaying payment of wages and salaries
2. Charging depreciation at higher rates for plant and machinery
3. Making cash payment to creditors
4. Selling obsolete furniture and fixture of the firm at cash

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(vii) MJ Ltd. provides you the following information where you have to calculate interest coverage ratio. Net profit after interest and tax is ₹ 2,10,000, rate of income tax is 30% and there is 15% debentures of ₹ 3,00,000.

1. 8.03 times
2. 7.67 times
3. 9.55 times
4. 12.43 times

Solution:

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(viii) If risk free rate of return is 8%, return on market portfolio is 12%, beta = 1.5, then the expected rate of return according to CAPM is equal to ______.

1. 10%
2. 14%
3. 18%
4. 24%

Solution:

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(ix) Which of the following cost of capital require tax adjustment?

1. Cost of equity shares
2. Cost of preference shares
3. Cost of retained earnings
4. Cost of debentures

Solution:

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(x) Kartikay Ltd. provides you the following information:
Payback is 3.76 years, discounted payback period is 3.95, present value of cash inflow is ₹ 15,83,892 and present value of cash outflow is ₹ 14,00,000.
What is the profitability index of the project?

1. 1.13
2. 1.05
3. 1.83
4. 1.95

Solution:

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(xi) A project with an initial investment of ₹ 60,00,000 with life of 12 years, generates CFAT of ₹ 15,00,000 per annum. You have to calculate Payback reciprocal in percentage of the project

1. 18%
2. 21%
3. 22%
4. 25%

Solution:

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(xii) In ______ records are maintained by the controlling department which reflects the physical movements of stocks and their current balance.

1. ABC analysis
2. economic order quantity
3. FSN analysis
4. perpetual inventory system

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(xiii) X Ltd. distributes its products to more than 500 retailers. The company’s collection period is 35 days and it keeps its inventory for 15 days. The operating cycle would be ______.

1. 50 days
2. 35 days
3. 20 days
4. 15 days

Solution:

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(xiv) The probability density function describes

1. the characteristics of a random variable.
2. the characteristics of a non-random variable.
3. the characteristics of a random constant.
4. the characteristics of a non-random constant.

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(xv) ______ is neither an IT nor a business skill set but exists as a separate field of expertise.

1. Data visualization
2. Data presentation architecture
3. Data mining
4. Data analytics

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Section B

Question 2 (A):

What do you mean by the term ‘Repo’? Discuss its features

Solution:

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Question 2 (B):

Briefly discuss the process of data mining.

Solution:

Data mining typically involves four steps: establishing objectives, acquiring and preparing data, implementing data mining techniques, and assessing outcomes.

(i) Setting the business objective:

This might be the most difficult element in the data mining process, yet many organisations spend inadequate effort on it. Together, data scientists and business stakeholders must identify the business challenge, which informs the data queries and parameters for a specific project. Analysts may also need to conduct further study to adequately comprehend the company environment.

(ii) Preparation of data:

Once the scale of the problem has been established, it is simpler for data scientists to determine which collection of data will assist the company in answering crucial questions. Once the pertinent data has been collected, it will be cleansed by eliminating any noise, such as repetitions, missing numbers, and outliers. Based on the dataset, an extra step may be done to minimise the number of dimensions, as an excessive amount of features might slow down any further calculation. Data scientists seek to maintain the most essential predictors to guarantee optimal model accuracy.

(iii) Model building and pattern mining:

Data scientists may study any intriguing relationship between the data, such as frequent patterns, clustering algorithms, or correlations, depending on the sort of research. While high frequency patterns have larger applicability, data variations can often be more fascinating, exposing possible fraud areas.Depending on the available data, deep learning algorithms may also be utilised to categorise or cluster a data collection.

(iv) Result evaluation and implementation of knowledge:

After aggregating the data, the findings must be analysed and understood. When completing results, they must be valid, original, practical, and comprehensible.

When this criterion is satisfied, companies can execute new strategies based on this understanding, therefore attaining their intended goals.

Techniques of data mining are as follows:

(i) Association rules:

An association rule is a rule-based technique for discovering associations between variables inside a given dataset. These methodologies are commonly employed for market basket analysis, enabling businesses to better comprehend the linkages between various items. Understanding client consumption patterns helps organisations to create more effective cross-selling tactics and recommendation engines.

(ii) Neural Networks:

Primarily utilised for deep learning algorithms, neural networks replicate the interconnection of the human brain through layers of nodes to process training data. Every node has inputs, weights, a bias (or threshold), as well as an output. If the output value exceeds a predetermined threshold, the node “fires” and passes data to the subsequent network layer.

(iii) Decision tree:

Using classification or regression algorithms, this data mining methodology classifies or predicts likely outcomes based on a collection of decisions. As its name implies, it employs a tree-like representation to depict the potential results of these actions.

(iv) K-nearest neighbour:

K-nearest neighbour, often known as the KNN algorithm, classifies data points depending on their closeness to and correlation with other accessible data. This technique assumes that comparable data points exist in close proximity to one another. Consequently, it attempts to measure the distance between data points, often by Euclidean distance, and then assigns some on the most common category or average.

Question 3 (A):

Venus Co., listed in National Stock Exchange, provides the following information as extracted from its financial statements for the year 2024–25. A financial institution is interested in investing in the shares of the company and requires some ratios to be calculated.

Dividend per share = ₹ 0.40

Market price per share = ₹ 10.00

Annual earning after interest and tax = ₹ 2,00,000

Number of equity shares = 4,00,000

Book Value per equity share = ₹ 30

Face Value of each equity share = ₹ 2

Number of Debentures = 1,00,000

Face Value of each Debenture = ₹ 8

Calculate:

(i) Dividend yield;

(ii) Earnings Per Share (EPS);

(iii) Price–Earnings (P/E) ratio;

(iv) Payout Ratio;

(v) Valuation Ratio;

(vi) Return on Capital Employed (ROCE);

(vii) Debt–Equity Ratio.

Solution:

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Question 3 (B):

The following informations are extracted from the financial statements of X Ltd. for the years ended on 31st December, 2024 and 2025.

Additional information is available as follows:

•Depreciation charged on furniture during the year 2025 was ₹ 10,000.

•Depreciation charged on building was ₹ 20,000.

•Depreciation on machinery charged during the year 2025 was ₹ 25,000.

•Machinery, the book value of which was ₹ 80,000, was sold for ₹ 75,000 in 2025.

•Land was sold at a profit of ₹ 90,000 in 2025.

Calculate the net cash flow from investing activities in 2025. Show necessary workings.  

Solution:

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Question 4 (A):

Complete the following Trend Analysis Statement of D Ltd.

Solution:

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Question 4 (B):

Jai Ltd., having an ambitious plan for further expansion, is currently considering the possibility of raising ₹ 25,00,000 by issuing Equity Shares, Preference Shares and Debentures. The Book Value and Market Value of the sources are as follows:

Jai Ltd. provides you further information regarding the costs which are expected to be incurred on the above-mentioned issues of capital:

(i) The equity share of the company is currently selling for ₹ 150. It is expected that the company will pay a dividend of ₹ 12 per share at the end of next year which is expected to grow at a rate of 7%. The company has to incur ₹ 2 per share as floatation cost.

(ii) The 11%, ₹ 100 face value Preference share will be sold for ₹ 120. However, the company will have to pay ₹ 4 per share as underwriting commission.

(iii) The company can sell a 10-year, ₹ 500 face value Debenture with a 9% rate of interest. An underwriting fee of 2% on issue price would be incurred on issue. Only interest is tax deductible.

(iv) Corporate tax rate is 35%.

As a Cost and Management Accountant, you have to calculate the weighted average cost of capital using Book Value Weights and Market Value Weights.

Solution:

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Question 5 (A):

Five Projects A, B, C, D and E are available to a company for consideration. The investment required for each project and the cash flows it yields are tabulated below. Projects B and E are mutually exclusive. Taking the cost of capital @ 10%, advise which combination of projects should be taken up for a total capital outlay not exceeding ₹ 3 lakhs on the basis of NPV. Assume that the projects are not divisible. 

Solution:

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Question 5 (B):

Following data has been available for a capital project:

Annual cash inflows	₹ 1,00,000
Useful life	4 years
Salvage value	0
Internal rate of return	12%
Profitability index	1.064

You are required to calculate the following for this project:

i. Cost of project

ii. Cost of capital

iii. Net present value

iv. Payback period

PV factors at different rates are given below:

Solution:

(i) Cost of the Project

At 12% internal rate of return (IRR), the sum of total cash inflows = cost of the project i.e initial cash outlay

Annual cash inflows = ₹1,00,000

Useful life = 4 years

Considering the discount factor table @ 12%, cumulative present value of cash inflows for 4 years is 3.038 (0.893 + 0.797 + 0.712 + 0.636)

Hence, Total Cash inflows for 4 years for the Project is

₹1,00,000 x 3.038 = ₹3,03,800

Hence, Cost of the Project = ₹3,03,800

(ii) Cost of Capital

Profitability index = (sum of discounted cash in flows/ Cost of the project) 

1.064 = (sum of discounted cash in flows/ 3,03,800)

∴ Sum of Discounted Cash inflows = ₹3,23,243.20

Since, Annual Cash Inflows = ₹1,00,000

Hence, cumulative discount factor for 4 years = ₹3,23,243.20 / ₹1,00,000 = 3.232

From the discount factor table, at discount rate of 9%, the cumulative discount factor for 4 years is 3.239 (0.917 + 0.842 + 0.772 + 0.708)

Hence, Cost of Capital = 9% (approx.)

(iii) Net Present Value (NPV)

NPV = Sum of Present Values of Cash inflows – Cost of the Project

= ₹3,23,243.20 - ₹3,03,800 = ₹19,443.20

Net Present Value = ₹19,443.20

(iv) Payback Period

Payback period = (Cost of the project/ Annual cash in flows) = ₹3,03,800 / ₹1,00,000 = 3.038 years

Question 6 (A):

MJK Ltd. provides you the following information and you are required to prepare a statement showing Working Capital Requirements:

Estimates for the next year:

Additional Information:

• Inventory norms: Raw Materials – 2 months, Work-in-progress – 3 weeks, Finished goods – 1 month

• 50% of the sales is for cash; for the remaining, 2 weeks credit is normal

• The company enjoys 4 weeks credit facilities on only 30% of the purchases and lag in payment of overheads is one month

• Lag in payment of wages is half month

• Cash is to be held to the extent of 50% of current liabilities

There is a regular production and sales cycle and wages and overheads accrue evenly.

Material is introduced in the beginning of the production cycle.

Solution:

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Question 6 (B):

Mritunjay Ltd. requires 90,000 units of a certain item annually.

The cost per unit is ₹ 3, the cost per purchase order is ₹ 300 and the inventory carrying cost is ₹ 6 per unit per year.

What is the Economic Order Quantity? Examine what will Mritunjay Ltd.’s decision regarding the optimal quantity if the supplier, Anjali Ltd., offers discount as below:

For Order Quantity 4500–5999 units, discount is 2%; and

For Order Quantity 6000 units and above, discount is 3%.

Solution:

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Question 7 (A):

Apex Ltd. provides you the following information:

Net operating income	₹ 75,000
Total investment	₹ 5,00,000
Cost of equity:
If the firm uses no debt	15%
If the firm uses ₹ 2,00,000 debentures	18%
If the firm uses ₹ 3,00,000 debentures	20%

Assume that ₹ 2,00,000 debentures can be raised at 10% rate of interest ₹ 3,00,000 debentures can be raised at 12% rate of interest You are required to calculate the market value of the firm and the overall Cost of Capital using Traditional Approach. Which debt-equity mix should the company select?

Solution:

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Question 7 (B):

Modern Chemicals Ltd. requires ₹ 25,00,000 for a new plant. This plant is expected to yield earnings before interest and taxes of ₹ 5,00,000. While deciding about the financial plan, the company considers the objective of maximizing earnings per share. It has three alternatives to finance the project—by raising debt of ₹ 2,50,000 or ₹ 10,00,000 or ₹ 15,00,000 and the balance, in each case, by issuing equity shares. Company’s shares are currently selling at ₹ 150, but it is expected to decline to ₹ 125 in case the funds are borrowed in excess of ₹ 10,00,000. The funds can be borrowed at the rate of 10% up to ₹ 2,50,000, at 15% for ₹ 2,50,001 up to ₹ 10,00,000 and at 20% for amount over ₹ 10,00,000. The tax rate applicable to the company is 50%. Analyse the EPS and advise which form of financing the company should choose.

Solution:

Question 8 (A):

Discuss the core steps to be followed in transforming data into decision relevant information.

Solution:

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Question 8 (B):

What do you mean by data analytics? Briefly discuss its steps.

Solution:

Data analytics is the science of evaluating unprocessed datasets to draw conclusions about the information they contain. It helps us to identify patterns in the raw data and extract useful information from them.

Applications containing machine learning algorithms, simulation, and automated systems may be utilised by data analytics procedures and methodologies. For human usage, the systems and algorithms process unstructured data. These data are evaluated and used to assist firms in gaining a deeper understanding of their customers, analysing their promotional activities, customising their content, developing content strategies, and creating new products. Data analytics enables businesses to boost market efficiency and increase profits.

Following are the steps for data analytics:

~ Step 1: Criteria for grouping data
Data may be segmented by a variety of parameters, including age, population, income, and sex. The data values might be either numeric or category.

~ Step 2: Collecting the data
Data may be gathered from several sources, including internet sources, computers, personnel, and community sources.

~ Step 3: Organizing the data
After collecting the data, it must be arranged so that it can be analysed. Statistical data can be organised on a spreadsheet or other programme capable of handling statistical data.

~ Step 4: Cleaning the data
The data is initially cleansed to verify that there are no duplicates or errors. The document is then examined to ensure that it is comprehensive. Before data is sent to a data analyst for analysis, it is beneficial to rectify or eliminate any errors by cleaning the data.

~ Step 5: Adopt the right type of data analytics process:
There are four types of data analytics process:
(i) Descriptive analytics
(ii) Diagnostics analytics
(iii) Predictive analytics
(iv) Prescriptive analytics