FINANCIAL MANAGEMENT – PRACTICAL QUESTIONS FOR EXCEL

Time Value of Money

Ques :
Mr. X has invested Rs. 10,000 now for 3 years at the interest rate of 10% p.a compounded semi – annually. Find out
amount he will get after 3 years. Also, calculate the future value if compounding is done :
i. Quarterly
ii. Monthly
Ques:
Mr. X has invested Rs. 10,000 now for 3 years at the interest rate of 10% p.a compounded semi – annually.
Find out amount he will get after 3 years. Also, calculate the future value if compounding is done :
iii. Quarterly
iv. Monthly
v. Yearly
Capital Budgeting
Ques :
SR Ltd. is considering an investment proposal requiring initial investment of Rs. 50,000. The estimated life of the
project is 5 years and no salvage value. The company uses SLM of depreciation and same is allowed for tax purpose.
The corporate tax rate is 35%. The estimated profit before depreciation and tax (PBDT) from the investment proposal
are as follows:

Year 1 2 3 4 5
PBDT (Rs.) 11,000 20,000 18,000 15,000 12,000
Calculate the following:
a) Payback period
b) Average Rate of Return
c) NPV at 10% discount rate
d) Profitability Index at 10% discount rate
e) IRR

Ques : RS Ltd is planning to buy a machine for Rs. 1,00,000. The cash flows after tax from this machine in the next 5
years will be as follows:

year 1 2 3 4 5

CFAT (Rs.) 26,000 29,000 32,000 35,000 38,000

Using NPV Method, and Profitability Index( PI) method give your advice whether a machine should be purchased or
not, keeping cost of capital as 10%.

Ques :
Nita Project Ltd. Is evaluation 2 mutually exclusive investment projects X & Y. The company,s required rate of return
from such projects is 10%. The pattern of cash flows for both proposals is as follows:
Years Projects 0 1 2 3

CFAT (Rs.) Project X -60,000 50,000 25,000 5,000

CFAT (Rs.) Project Y -60,000 5,000 30,000 55,000

Calculate the proposal as per NPV & IRR method.
Cost of Capital

Ques : A company issues Rs. 10,00,000 12% debentures of Rs. 100 each. The debentures are redeemable after the
expiry period of 7 years. The company is having tax bracket of 35%
Required:
a) Calculate the cost of debt after tax, if debenture are issued at:
(i) par (ii) 10% discount (iii) 10% Premium.
b) If brokerage is paid at 2%, what will be the cost of debentures, if issue is at par?

Ques : The following information has been extracted from the balance sheet of Fashion Ltd.
Rs.(in lacs)
Equity share capital (Rs. 100 per share) 400
12% Debentures 400
18% term loan 1200
Total 2000
Determine the WACC of the company. It had been paying dividend at a consistent rate of 20% p.a. shares and
debentures are being traded at par. Tax rate is 30%.
Leverage

Ques : The following are the operating results if a firm:

Particulars Rs.
Sales (units) 25,000
Interest p.a 30,000
Selling price per units 24
Tax rate 50%
Variable cost per unit 16
No. of equity shares 10,000
Fixed cost per annum 80,000
Compute :
a) EBIT
b) EPS
c) All three leverages
Ques : The following are the operating results if a firm:

Particulars Rs.
Sales (units) 25,000
Interest p.a 30,000
Selling price per units 24
Tax rate 50%
Variable cost per unit 16
No. of equity shares 10,000
Fixed cost per annum 80,000
Compute :
a) EBIT
b) EPS
c) All three leverages
 Working Capital Management

Ques : The cost sheet of PQR Ltd. provides the following data:
Particulars Cost per unit (Rs.)
Raw material 50
Direct labour 20
Overheads (including depreciation of Rs.10) 40
Total cost 110
Profit 20
Selling price 130
Average raw material in stock is for 1 month. Average material in work in progress is for half month. Credit allowed
to supplier: 1 month and credit allowed to debtors: 1 month. Average time lag in payment of wages is 10 days.
Average time lag in payment of overheads is 30 days. 25% of sales are on cash basis. Cash balance is expected to
be Rs.1,00,000. Finished goods lie in warehouse for 1 month.
You are required to make a statement of working capital needed to finance a level of the activity of 54,000 units
of output. Production is carried on evenly throughout the year and wages and overheads accrue similarly.

Ques : A company provide you the following facts. Estimate the net working capital requirement for the project:

Cost element Amount per cost (Rs.)

Raw material 80
Direct labour 30
Overheads (including depreciation of Rs.10 per unit) 70
180
Additional information:
a) Selling price : Rs.200 per unit
b) Level of activity: 1,56,000 units of production per annum
c) Raw material in stock: Average 4 weeks
d) WIP [Assume 50% completion state in respect of conversion costs and 100% in respect of material]
Average 2 weeks
e) Finished Goods In Stock Average 4 weeks
f) Credit allowed by supplier Average 4 weeks
g) Credit allowed to Debtors Average 8 weeks
h) Lag in payment of wages Average 1.5 weeks
i) Cash at bank is expected to be Rs.25,000

You may assume that production is carried out evenly during the year. All sales are on credit basis.

Dividend Decision

Ques : Determine the market value of the shares of the company from the following information:

Earning of the company Rs 5, 00,000

Dividend paid Rs 3, 00,000
Number of shares outstanding Rs 1, 00,000
Price-earnings ratio 8
Return on investment 15%
Are you satisfied with the current dividend policy of the firm? If not, what should be the optimal dividend
payout ratio? Use Walter model?
Ques : From the following information supplied to you, ascertain whether the firm is following an optimal dividend
policy as per Walter’s model.

Total earnings Rs. 2,00,000

Number of Equity shares (Rs. 100 Each) 20,000
Dividend paid 1,50,000
P/E Ratio 12.5
The firm is expected to maintain its rate of return on fresh investment. Also find out what should be the P/E ratio
at which the dividend policy will have no effect on the value of the shares.

Capital Structure
Ques : A company has EBIT of Rs.4,00,000. The capital structure of the company is having debt of Rs.5,00,000
borrowed at the rate of 8%. Cost of equity capital is 12%. Find.
i) Total value of the firm and the overall cost of capital using NI approach.
ii) Value when debts is increased by Rs.2,00,000
iii) Value when debt is decreased by Rs.2,00,000