CMA Inter Suggested Answers | Jun 25 Paper 11 Financial Management and Business Data Analytics (FMDA)
Table of contents
CMA Inter Jun 25 Suggested Answer Other Subjects Blogs :
(i) Which of the following is not an unsystematic risk?
(A) Business risk
(B) Financial risk
(C) Default risk
(D) Market risk
Explanation:
Market risk is a systematic risk that impacts the entire market, such as changes in interest rates or economic downturns. Unsystematic risks like business, financial, and default risks are company-specific and can be reduced through diversification.
(ii) ___________ is a financial instrument whose value depends on the values of basic underlying variables.
(A) Derivatives
(B) GDR
(C) ECB
(D) FCCB
Explanation:
Derivatives are financial instruments whose value is derived from the value of underlying assets like stocks, bonds, interest rates, or currencies. They are used for hedging or speculation.
(iii) K Ltd.’s project with initial investment of ₹60 lakh and life of 10 years, generates CFAT of ₹12 lakh per annum. Calculate Payback Reciprocal of the K Ltd.’s project.
(A) 20%
(B) 25%
(C) 30%
(D) 40%
(iv) What is the key characteristic of commercial paper?
(A) Issued by individuals
(B) Unsecured, short-term debt instrument
(C) Backed by collateral
(D) Issued for more than 5 years
(v) A company has the following working capital details:
Inventory conversion period = 40 days
Receivable collection period = 30 days
Payable deferral period = 20 days
What is the Cash Conversion Cycle (CCC)?
(A) 40 days
(B) 50 days
(C) 60 days
(D) 70 days
Explanation:
Cash Conversion Cycle (CCC) = Inventory Conversion Period + Receivable Collection Period – Payable Deferral Period
= 40 + 30 – 20 = 50 days
It represents the time taken to convert investments in inventory and receivables into cash.
(vi) ABC Ltd. is selling its products at ₹2 per unit. The variable cost of manufacturing has been estimated at 35% while the fixed cost at the present sales level of 1,00,000 units comes to ₹1,00,000. The firm has issued 14% debentures of ₹26,000. Calculate the financial leverage for the firm.
(A) 1.34
(B) 1.24
(C) 1.14
(D) 1.04
Explanation:
Step 1: Calculate EBIT (Earnings Before Interest and Tax)
Step 2: Calculate Interest
Interest = 14% of ₹26,000 = ₹3,640
Step 3: Financial Leverage = EBIT / (EBIT – Interest)
= ₹30,000 / (₹30,000 – ₹3,640) = ₹30,000 / ₹26,360 ≈ 1.14
So, the correct answer is (C) 1.14.
(vii) Given, EPS = ₹10; Cost of capital = 16%; Internal rate of return = 20% and Retention ratio = 40%. Calculate the price per share as per Gordon’s Model.
(A) ₹60
(B) ₹75
(C) ₹90
(D) ₹105
(viii) Jai as an investor expects a perpetual sum of ₹10,000 annually from his investment.
What is the present value of perpetuity if interest rate is 15%?
(A) ₹66,667
(B) ₹76,667
(C) ₹66,676
(D) ₹76,676
(ix) P Ltd. has earned 9% return on total assets of ₹50,00,000 and has a net profit ratio of 5%. The sales of the firm is ____________.
(A) ₹4,00,000
(B) ₹2,50,000
(C) ₹90,00,000
(D) ₹83,33,333
(x) The MM model argues that dividend is irrelevant as
(A) the value of the firm depends upon earning power and not how the earnings are distributed.
(B) all investors buy shares to get capital gain only.
(C) dividend is payable only after deciding on the amount of retained earnings.
(D) the amount of dividend is only a small fraction of the market prices of shares.
Explanation:
According to the Modigliani-Miller (MM) model, dividend policy is irrelevant because the firm’s value is determined by its earning capacity and investment decisions, not by how earnings are split between dividends and retained earnings.
(xi) The benefit of trading on equity can be enjoyed by a firm if
(A) the rate of interest > the rate of return of the firm.
(B) the rate of interest = the rate of return of the firm.
(C) the rate of interest < the rate of return of the firm.
(D) None of the above
(xii) Which of the following does not help to increase current ratio?
(A) Issue of debentures to buy stock
(B) Issue of debentures to pay creditors
(C) Sale of investments to pay creditors
(D) Avail bank overdraft to buy machine
Explanation:
A bank overdraft increases current liabilities, and buying a machine adds to fixed assets (not current assets). This reduces the current ratio, not increases it.
(xiii) Algorithmic Trading is also known as(xiv) __________ is any procedure that organizes data into a meaningful order to make it simpler to comprehend, analysis and visualize.
(A) Data Aggregation
(B) Data Analysis
(C) Data Sorting
(D) Data Reporting
Explanation:
Data sorting is the process of arranging data in a specific order (e.g., ascending or descending), making it easier to understand, analyze, and visualize.
(xv) __________ classifies data points depending on their closeness to and correlation with other accessible data.
(A) ANN algorithm
(B) CNN algorithm
(C) DNA algorithm
(D) KNN algorithm
Distinguish between Primary Market and Secondary Market.
Explain the concept of Predictive Analytics. How does Predictive Analytics work? Give two examples of application of Predictive Analytics in specific industries.
Prescriptive analytics goes one step farther than descriptive and predictive analysis by advising the best potential business actions. This is the most sophisticated step of the business analytics process, needing significantly more specialised analytics expertise to execute; as a result, it is rarely utilised in daily company operations.
A multitude of approaches and tools – such as rules, statistics, and machine learning algorithms – may be used to accessible data, including internal data and external data, in order to produce predictions and recommendations. The capabilities of machine learning dwarf those of a human attempting to attain the same outcomes.
The widespread misconception is that predictive analytics and machine learning are same. While predictive analytics uses historical data and statistical techniques to make predictions about the future, machine learning, a subset of artificial intelligence, refers to a computer system’s ability to understand large and often enormous amounts of data without explicit instructions, and to adapt and become increasingly intelligent as a result.
Prescriptive analytics predicts future outcomes and, by doing so, enables decision-makers to assess the potential consequences for each future outcome before making a choice.
Effectively conducted prescriptive analytics may have a significant impact on corporate strategy and decision making to enhance production, customer experience, and business success.
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.
Calculate Cash Flow from Operating Activities from the following:
|
Particulars |
Amount (₹) |
|
Net Profit before tax |
3,40,000 |
|
Items considered in determining the above Net Profit: |
|
|
Add: Interest on long term borrowings |
40,000 |
|
Add: Depreciation |
85,000 |
|
Add: Amortization |
50,000 |
|
Less: Gain on sale of machinery |
30,000 |
Balances of Current Assets and Current Liabilities were as follows:
|
Particulars |
Opening Balance (₹) |
Closing Balance (₹) |
|
Trade Receivables |
2,75,000 |
2,40,000 |
|
Trade Payables |
1,90,000 |
2,00,000 |
|
Inventories |
1,40,000 |
1,60,000 |
|
Prepaid Expense |
20,000 |
25,000 |
|
Income received in advance |
5,000 |
15,000 |
Fill in the missing information in the following Comparative Statement of Profit or Loss.
|
Sl. No. |
Particulars |
2022-23 (₹) |
2023-24 (₹) |
Absolute Change (₹) |
% Change |
|
I. |
Revenue from operation |
|
|
|
|
|
II. |
Add: Other Income |
25,000 |
65,000 |
|
|
|
III. |
Total Revenue (I + II) |
|
|
|
|
|
IV. |
Expenses: |
|
|
|
|
|
|
a. COGS |
|
6,00,000 |
2,00,000 |
|
|
|
b. Other expenses |
25,000 |
|
|
60% |
|
|
Total expenses |
|
|
|
|
|
V. |
Profit before tax (III - IV) |
|
|
|
|
|
|
Less: Income Tax (30%) |
60,000 |
75,000 |
|
|
|
VI. |
Profit after tax |
|
|
|
|
The present capital structure of a company is as follows:
|
Particulars |
₹ (in lakh) |
|
Equity Shares (Face value = ₹ 10) |
240 |
|
Reserve and Surplus |
360 |
|
11% Preference Shares (Face value = ₹ 10) |
120 |
|
12% Debentures |
120 |
|
14% Term Loans |
360 |
|
Total |
1,200 |
Additionally, the following information is available:
The debentures are redeemable after 3 years and interest is paid annually. Ignoring flotation costs, calculate the company’s weighted average cost of capital using market value weights.
ai & Karti Ltd. is considering three capital projects. The expected cash flows of the projects are as under:
|
Project |
Y0 (₹) |
Y1 (₹) |
Y2 (₹) |
Y3 (₹) |
|
Alfa |
(1,00,000) |
60,000 |
45,000 |
15,000 |
|
Beta |
(80,000) |
(20,000) |
60,000 |
70,000 |
|
Gamma |
(90,000) |
(40,000) |
80,000 |
86,000 |
* Amount in brackets represent cash outflows.
As a Cost and Management Accountant, you are required to calculate the NPV and PI of the above projects and suggest which project will be preferred by Jai & Karti Ltd., presuming a discount rate of 10% and present value of ₹1 at this rate being 0.909, 0.826 and 0.751 for the years 1, 2 and 3 respectively.
XYZ Ltd. is considering the introduction of a new product. It is estimated that profits before depreciation and tax would increase by ₹ 2,40,000 each year for first four years and ₹ 1,20,000 each for the remaining six years.
An advertisement cost of ₹ 40,000 is expected to be incurred in the first year, which is not included in the above estimate of profits. The cost will be allowed for tax purpose in the first year.
A new plant costing ₹ 4,00,000 will be installed for the production of the new product. The salvage value of the plant after its life of 10 years is estimated to be ₹ 80,000.
A working capital investment of ₹ 40,000 will be required in the year of installing the plant and a further ₹ 30,000 in the following year.
The company’s tax rate is 30% and it claims written down value depreciation at 331/3% p.a.
If the company’s required rate of return is 20%, suggest whether the company should introduce the new product or not. Ignore tax effect on profit/loss on sale of asset.
PVIF of Re. 1.00 @ 20% is given below:
|
Year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
PVIF |
0.833 |
0.694 |
0.579 |
0.482 |
0.402 |
0.335 |
0.279 |
0.233 |
0.194 |
0.162 |
From the following information, calculate the amount of Net Working Capital for P Ltd.
|
Amount blocked up for stock: |
Figures for the year (₹) |
|
Stock of finished product |
3,00,000 |
|
Stock of stores, materials, etc. |
5,00,000 |
|
Average credit given: |
|
|
Inland sales - 4 weeks credit |
2,60,00,000 |
|
Export sales - 1.5 weeks credit |
65,00,000 |
|
Lag in payment of wages and other inputs: |
|
|
Wages - 1.5 weeks |
24,00,000 |
|
Stock of materials, etc. - 1.5 months |
3,60,000 |
|
Rent, Royalties, etc. - 6 months |
80,000 |
|
Clerical staff - 1.5 months |
6,00,000 |
|
Manager - ½ month |
4,00,000 |
|
Miscellaneous expenses - 1.5 months |
3,60,000 |
|
Payment in advance: |
|
|
Sundry Expenses (paid quarterly in advance) |
6,00,000 |
H. Ltd. has a present annual sales level of 20,000 units at ₹ 300 per unit. The variable cost is ₹ 200 per unit and the fixed costs amount to ₹ 6,00,000 per annum. The present credit allowed by the company is one month. The company is considering a proposal to increase the credit period to two months and three months and has made the following estimates:
|
Credit Policy |
Existing 1 Month |
Proposed |
|
|
|
|
2 Months |
3 Months |
|
Increase in sales |
--- |
15% |
30% |
|
Bad debts |
1% |
3% |
5% |
There will be an increase in fixed cost by ₹ 1,00,000 on account of increase in sales beyond 15 per cent of present level. The company plans on a pre-tax return of 20 per cent on investment in receivables.
Analyse the proposed policies and identify the proposal to be selected.
Y Ltd. has 1,00,000 equity shares of ₹ 10 each fully paid. The company expects its earnings at ₹ 12,00,000 and Cost of Capital at 10% for the next financial year.
Using Walter’s Model, what dividend policy would you recommend when the Rate of Return on Investment of the company is estimated at 8% and 12%?
Provide appropriate argument in support of your suggestion in the light of Walter’s model.
What will be the price of equity share if your recommendations are accepted?
MJK Ltd. has the following summarized Balance Sheet and Income Statement:
Balance Sheet as on March 31, 2024
|
Liabilities |
₹ |
Assets |
₹ |
|
Equity Share Capital (₹10 per share) |
8,00,000 |
Net Fixed Assets |
10,00,000 |
|
10% Debentures |
6,00,000 |
Current Assets |
9,00,000 |
|
Retained Earnings |
3,50,000 |
|
|
|
Current Liabilities |
1,50,000 |
|
|
|
Total |
19,00,000 |
Total |
19,00,000 |
Income Statement for the year ending March 31, 2024
|
Particulars |
₹ |
|
Sales |
3,40,000 |
|
Less: Operating expenses (including ₹55,000 depreciation) |
1,20,000 |
|
EBIT |
2,20,000 |
|
Less: Interest |
60,000 |
|
Earnings Before Tax (EBT) |
1,60,000 |
|
Less: Taxes |
56,000 |
|
Net Earnings (EAT) |
1,04,000 |
You have to determine the degree of operating, financial and combined leverages at the current sales level, if all operating expenses, other than depreciation, are variable costs. If total assets remain at the same level, but sales (i) increase by 20% and (ii) decrease by 20%, what will be the earnings per share in the new situations?
(a) Calculation of Degree of Operating (DOL), Financial (DFL) and Combined leverages (DCL).
DOL = 3,40,000 - 60,000 / 2,20,000 = 1.27
DFL = 2,20,000 / 1,60,000 = 1.38
DCL = DOL x DFL = 1.27 x 1.38 = 1.75
(b) Earnings per share at the new sales level
| Increase by 20% | Decrease by 20% | |
| (₹) | (₹) | |
| Sales level | 4,08,000 | 2,72,000 |
| Less: Variable expenses | 72,000 | 48,000 |
| Less: Fixed cost | 60,000 | 60,000 |
| Earnings before interest and taxes | 2,76,000 | 1,64,000 |
| Less: Interest | 60,000 | 60,000 |
| Earnings before taxes | 2,16,000 | 1,04,000 |
| Less: Taxes | 75,600 | 36,400 |
| Earnings after taxes (EAT) | 1,40,400 | 67,600 |
| Number of equity shares | 80,000 | 80,000 |
| EPS | 1.76 | 0.85 |
Working Notes:
(i) Variable Costs = ₹ 60,000 (total cost − depreciation)
(ii) Variable Costs at:
(a) Sales level, ₹ 4,08,000 = ₹ 72,000 (increase by 20%)
(b) Sales level, ₹ 2,72,000 = ₹ 48,000 (decrease by 20%)
Describe the various phases of digitization process in an organisation.
Large institution takes up digitization projects with meticulous planning and execution.
The entire process of digitization may be segregated into six phases:
Phase 1: Justification of the proposed digitization project
At the very initiation of the digitization project, the accrual benefit of the project needs to be identified. Also need to compute the cost aspect of the project and the assessment of availability of resources. Risk assessment is an important part project assessment. For the resources that may be facing quick destruction may be required an early digitization. Most importantly, the expected value generation through digitization should be expressed in clear terms.
Phase 2: Assessment
In any institutions, all records are never digitized. The data that requires digitization is to be decided on the basis of content and context. Some data may be digitized in a consolidated format, and some in detailed format. The files, tables, documents, expected future use etc are to be accessed and evaluated for the assessment.The hardware and software requirements for digitization is also assessed at this stage. The human resource requirement for executing the digitization project is also planned. The risk assessment at this level e.g. possibilities of natural disasters, and/or cyber attacks etc also need to be completed.
Phase 3: Planning
Successful execution of digitization project needs meticulous planning. There are several stages for planning e.g. selection of digitization approach, Project documentation, Resources management, Technical specifications, and Risk management. The institution may decide to complete the digitization in-house or alternatively by an outsourced agency. It may also be done on-demand or in batches.
Phase 4: Digitization activities
Upon the completion of assessment and planning phase, the digitization activities start. The Wisconsin Historical Society developed a six-phase process viz. Planning, Capture, Primary quality control, Editing, Secondary quality control, and storage and management.The planning schedule is prepared at the fist stage, calibration of hardware/software and scanning etc is done next. A primary quality check is done on the output to check the reliability. Cropping, colour correction, assigning Metadata etc is done at the editing stage. A final check of quality is done on randomly selected samples. And finally, user copies are created, and uploaded to dedicated storage space, after doing file validation.
Phase 5: Processes in the care of records
Once the digitization of records is complete, there are few additional requirements arise which may be linked to administration of records. The permission for accession of data, intellectual control (over data), classification , and upkeeping and maintenance of data are few additional requirements for data management.
Phase 6: Evaluation
Once the digitization project is updated and implemented, the final phase should be a systematic determination of the project’s merit, worth and significant using objective criteria. The primary purpose is to enable reflection and assist identify changes that would improve future digitization processes.
In the context of data processing, briefly explain the following steps:
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
Ruchika Ma'am has been a meritorious student throughout her student life. She is one of those who did not study from exam point of view or out of fear but because of the fact that she JUST LOVED STUDYING. When she says - love what you study, it has a deeper meaning.
She believes - "When you study, you get wise, you obtain knowledge. A knowledge that helps you in real life, in solving problems, finding opportunities. Implement what you study". She has a huge affinity for the Law Subject in particular and always encourages student to - "STUDY FROM THE BARE ACT, MAKE YOUR OWN INTERPRETATIONS". A rare practice that you will find in her video lectures as well.
She specializes in theory subjects - Law and Auditing.
Yashvardhan Saboo
A Story teller, passionate for simplifying complexities, techie. Perfectionist by heart, he is the founder of - Konceptca.
Yash Sir (As students call him fondly) is not a teacher per se. He is a story teller who specializes in simplifying things, connecting the dots and building a story behind everything he teaches. A firm believer of Real Teaching, according to him - "Real Teaching is not teaching standard methods but giving the power to students to develop his own methods".
He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
He specializes in practical subjects – Accounting, Costing, Taxation, Financial Management. With over 12 years of teaching experience (Online as well as Offline), he SURELY KNOWS IT ALL.
"Koncept perfectly justifies what it sounds, i.e, your concepts are meant to be cleared if you are a Konceptian. My experience with Koncept was amazing. The most striking experience that I went through was the the way Yash sir and Ruchika ma'am taught us in the lectures, making it very interesting and lucid. Another great feature of Koncept is that you get mentor calls which I think drives you to stay motivated and be disciplined. And of course it goes without saying that Yash sir has always been like a friend to me, giving me genuine guidance whenever I was in need. So once again I want to thank Koncept Education for all their efforts."
"Hello everyone, I am Kaushik Prajapati. I recently passed my CA Foundation Dec 23 exam in first attempt, That's possible only of proper guidance given by Yash sir and Ruchika ma'am. Koncept App provide me a video lectures, Notes and best thing about it is question bank. It contains PYP, RTP, MTP with soloution that help me easily score better marks in my exam. I really appericiate to Koncept team and I thankful to Koncept team."
"Hi. My name is Arka Das. I have cleared my CMA Foundation Exam. I cleared my 12th Board Exam from Bengali Medium and I had a very big language problem. Koncept Education has helped me a lot to overcome my language barrier. Their live sessions are really helpful. They have cleared my basic concepts. I think its a phenomenal app."
"I cleared my foundation examination in very first attempt with good marks in practical subject as well as theoretical subject this can be possible only because of koncept Education and the guidance that Yash sir has provide me, Thank you."
