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Question Paper

FM & SM Duration: 180

Details: FULL TEST 2 MARKS: 100

Instructions:

 All the questions are compulsory

 Properly mention test number and page number on your answer sheet, Try to upload sheets
in arranged manner.
 In case of multiple choice questions, mention option number only Working notes are
compulsory wherever required in support of your solution
 Do not copy any solution from any material. Attempt as much as you know to fairly judge
your performance.

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 SECTION –A (FM)

Case study 1

Alpha Ltd. is a company operating in a specific industry, and we have access to its financial
statements and various financial ratios for the year ending 31.3.2023. The industry norms
for key ratios are also provided for comparison.

Alpha Ltd. Balance Sheet as at 31.3.2023

Liabilities (Rs.) Assets (Rs.)

Equity Share Capital 48,00,000 Fixed Assets 24,20,000

10% Debentures 9,20,000 Cash 8,80,000

Sundry Creditors 6,60,000 Sundry debtors 11,00,000

Bills Payable 8,80,000 Stock 33,00,000-

Other current Liabilities 4,40,000

Total 77,00,000 Total 77,00,000

Statement of Profitability For the year ending 31.3.2023

Particulars (Rs.) (Rs.)

Sales 1,10,00,000

Less: Cost of goods sold:

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Material 41,80,000

Wages 26,40,000

Factory Overhead 12,98,000 81,18,000

Gross Profit 28,82,000

Less: Selling and Distribution Cost 11,00,000

Administrative Cost 12,28,000 23,28,000

Earnings before Interest and Taxes 5,54,000

Less: Interest Charges 92,000

Earning before Tax 4,62,000

Less: Taxes @ 50% 2,31,000

Net Profit (PAT) 2,31,000

Industry Norms

Ratios Norm

Current Ratio 2.5

Receivables Turnover Ratio 8.0

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Inventory Turnover Ratio (based on Sales) 9.0

Total Assets Turnover Ratio 2.0

Net Profit Ratio 3.5%

Return on Total Assets (on EBIT) 7.0%

Return on Net worth (Based on Net profit) 10.5%

Total Debt/Total Assets 60.0%

Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1.1 to 1.5 below:-

1.1 What is Alpha Ltd.'s Return on Net Worth?

a) 5.0%

b) 3.0%

c) 4.81%

d) 6.0%

1.2 What is Alpha Ltd.'s Net Profit Ratio?

a) 1.8%
b) 2.1%
c) 2.5%
d) 3.0%

1.3 What is Alpha Ltd.'s total debt to total assets ratio?

a) 40.0%

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b) 50.0%
c) 37.66%
d) 25.0%

1.4 What is Alpha Ltd.'s Current Ratio?

a) 2.67
b) 3.50
c) 2.00
d) 1.75

1.5 What is Alpha Ltd.'s Return on Total Assets?

a) 10.0%
b) 7.19%
c) 7.5%
d) 15.0%

(5×2 = 10 MARKS)

Q2. A firm has sales of ₹ 75,00,000, variable cost of ₹ 42,00,000 and fixed cost of ₹ 6,00,000.
It has a debt of ₹ 45,00,000 at 9% and equity of ₹ 55,00,000. At what level of sales the EBT
of the firm will be equal to zero?

(A) ₹ 22,84,091 (B) ₹ 10,05,000

(C) ₹ 22,48,910 (D) ₹ 10,50,000

(2 MARKS)

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Q3. Raj and Neha are evaluating two different investment proposals for their business.
Proposal X has an initial cash outlay of ₹1,500,000 and is expected to generate discounted
cash inflows with a present value of ₹1,800,000. Proposal Y has an initial cash outlay of
₹2,000,000 and is expected to generate discounted cash inflows with a present value of
₹2,400,000. Calculate the Profitability Index (PI) for both proposals and choose the correct
option:

A) Proposal X: 1.20, Proposal Y: 1.25 B) Proposal X: 0.75, Proposal Y: 0.80

C) Proposal X: 1.50, Proposal Y: 1.20 D) Proposal X: 0.90, Proposal Y: 1.10

(2 MARKS)

Q4. A Chemical company belongs to a risk class for which P / E Ratio is 10. It currently has
50,000 equity shares selling at ₹ 200 each. The firm is contemplating the declaration of
dividend of ₹ 16 per share at the current fiscal year which has just started. Given the
assumption of Modigliani-Miller, what will be the price of share at the end of the year if
dividend is declared?

(A) ₹ 205 (B) ₹ 208

(C) ₹ 204 (D) ₹ 225

(1 MARK)

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 Question 1 is compulsory

Attempt any 2 questions from the remaining questions

Descriptive Questions

Q1 (a). Following are the details regarding three companies P Ltd, Q Ltd. and R Ltd.

P Ltd. Q Ltd R Ltd

r 15% r 5% r 10%

Ke 10% Ke 10% Ke 10%

E Rs 8 E Rs 8 E Rs8

Calculate the value of equity share of each of the company applying Walter’s model, when
dividend payout ratio is: (a) 50%, (b) 75% and (c) 25%. You are required to offer your
comments on the result and explain the Gordon Growth Valuation Model.

(5 MARKS)

Q1 (b). The current credit sales of a firm is Rs. 15 lakhs and the firm still has an unutilized
capacity. In order to boost its sales, the firm is willing to relax its credit policy.

The firm proposes a new credit policy of 2/10 net 60 days as against the present policy of
1/10 net 45 days. The firm expects an increase in the sales by 12%. However, it is also
expected that bad debts will go upto 2% of sales from 1.5%.

The contribution to sales ratio of the firm is 28%. The firm's tax rate is 30% and firm requires
an after tax return of 15% on its investment.

Should the firm change the credit policy?

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 (5 MARKS)

Q1 (c). Deepa Ltd. currently has an equity share capital of Rs. 10,00,000 consisting of
1,00,000 Equity share of Rs. 10 each. The company is going through a major expansion plan
requiring to raise funds to the tune of Rs. 6,00,000. To finance the expansion the
management has following plans:

Plan I: Issue 60,000 Equity shares of Rs 10 each.

Plan II: Issue 40,000 Equity shares of Rs 10 each and the balance through long- term
borrowing at 12% interest p.a.

Plan III: Issue 30,000 Equity shares of Rs 10 each and 3,000, 9% Debentures of Rs 100 each.

Plan IV: Issue 30,000 Equity shares of Rs 10 each and the balance through 6% preference
shares

The EBIT of the company is expected to be Rs 4, 00,000 p.a. assume corporate tax rate of
40%.

Required: Ascertain financial leverage in each plan.

(5 MARKS)

Q2 (a). A multinational company is planning to set up a subsidiary company in India (where

hitherto it was exporting) in view of growing demand for its product and competition from
other MNCs. The initial project cost (consisting of Plant and Machinery including installation)
is estimated to be US $ 500 million. The net working capital requirements are estimated at
US $ 50 million. The company follows straight line method of depreciation. Presently, the
company is exporting two million units every year at a unit price of US $ 80, its variable cost
per unit being US $ 40.

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The Chief Financial Officer has estimated the following operating cost and other data in
respect of proposed project:

i. Variable operating cost will be US $ 20 per unit of production;

ii. Additional cash fixed cost will be US $ 30 million p.a. and project's share of allocated fixed
cost will be US $ 3 million p.a. based on principle of ability to share;

iii. Production capacity of the proposed project in India will be 5 million units;

iv. Expected useful life of the proposed plant is five years with no salvage value;

v. Existing working capital investment for production & sale of two million units through
exports was US $ 15 million;

vi. Export of the product in the coming year will decrease to 1.5 million units in case the
company does not open subsidiary company in India, in view of the presence of competing
MNCs that are in the process of setting up their subsidiaries in India.

vii. Applicable Corporate Income Tax rate is 35%, and

viii. Required rate of return for such project is 12%.

Calculate the Net Present Value (NPV) of the proposed project in India, assuming that:

a. there will be no variation in the exchange rate of two currencies and

b. all profits will be repatriated, as there will be no withholding tax.

Present Value Interest Factors (PVIF) @ 12% for five years is as below:

Year 1 2 3 4 5

PVIF 0.8929 0.7972 0.7118 0.6355 0.5674

(7 MARKS)

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Q2(b). Explain the significance of the dividend irrelevance theory proposed by Modigliani
and Miller (MM) and its key assumptions.

(3 MARKS)

Q3 (a). XYZ Ltd. has the following book value capital structure:

Equity Capital ( in shares of Rs. 10 each, fully paid up- at par) Rs. 15 crores

11% Preference Capital (in shares of Rs. 100 each, fully paid up- at par) Rs. 1 crores

Retained Earnings Rs. 20 crores

13.5% Debentures (of Rs. 100 each) Rs. 10 crores

15% Term Loans Rs. 12.5 crores

The next expected dividend on equity shares per share is Rs. 3.60; the dividend per share is
expected to grow at the rate of 7%. The market price per share is Rs. 40.

Preference Stock, redeemable after ten years, is currently selling at Rs. 75 per share.
Debentures, redeemable after six years, are selling at Rs. 80 per debenture.

The income tax rate for the company is 40%.

I. Required
Calculate the current weighted average cost of capital using:
a) Book value proportions; and
b) Market value proportions.
II. Define the weighted marginal cost of capital schedule for the company, if it raises Rs. 10
crores next year, given the following information:
a) The amount will be raised by equity and debt in equal proportions;
b) The company expects to retain Rs. 1.5 crores earnings next year;

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c) The additional issue of equity shares will result in the net price per share being fixed at
Rs. 32;
d) The debt capital raised by way of term loans will cost 15% for the first Rs. 2.5 crores and
16% for the next Rs. 2.5 crores.

(7 MARKS)

Q3(b) Explain the concept of Working Capital Management and its significance. Discuss the
major factors that influence the determination of working capital requirements for a firm.

(3 MARKS)

Q4(a): what is Debt Securitization? Explain the basis of debt Securitization process?

(4 MARKS)

Q4(b). “Financial management is concerned with acquisition & financing of short term &
long term credit”. ELABORATE.

(4 MARKS)

Q4(c). Distinguish between Financial Lease and Operating Lease.

OR

Explain the Net Income (NI) Approach to capital structure theory in brief.

(2 MARKS)

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 SECTION –B (SM)

Question 1 is compulsory

Attempt any 2 questions from the remaining questions

CASE STUDY BASED MCQ’S

Techno Corp is a leading technology company headquartered in Bengaluru that

manufactures computers, laptops, tablets, smartphones and other electronic devices. It was
founded in 1995 by Ravi Shetty and has grown to become one of the top tech companies in
India with revenues of over Rs 20,000 crores.

Key Stakeholders: Techno Corp has identified its key stakeholders as follows using the
Mendelow matrix:

Keep Satisfied: Large institutional investors like mutual funds, private equity firms, venture
capitalists. They have high power due to large shareholding but moderate interest.

Key Players: Founders, CEO, Top management team. They have high power and high
interest.

Low Priority: Small individual investors. They have low power due to small shareholding and
low interest.

Keep Informed: Employees, customers, suppliers, retailers. They have low power but high
interest.

Strategic Drivers:

Industry and Markets: Techno Corp operates in the highly competitive electronics and
technology products industry in India which is projected to reach $400 billion by 2025. It
faces competition from brands like Samsung, LG, Xiaomi, Apple etc. Techno Corp has 12%
market share in smartphones, 8% in laptops and 10% in tablets.

Customers: It targets upper middle class and affluent consumers in metros and tier-1 cities
who seek advanced tech products. The marketing is focused on early tech adopters.

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Products: It manufactures smartphones, laptops, tablets and wearables. The products are
known for advanced specs, innovative designs and value pricing. The R&D team
continuously works on product improvements and new models are launched frequently.

Channels: Products are sold through exclusive brand stores in malls, large format retailers
like Croma, online platforms like Amazon and Flipkart as well as its website. Service centers
are present in major cities.

Resources and Capabilities: Techno Corp has built core competency in:

Design and innovation - bringing cutting edge products with latest tech to customers

Cost efficient manufacturing - scales of economy, good supplier network

Robust distribution network - omni channel presence

These core strengths differentiate it from competition.

SWOT Analysis: SWOT analysis is the analysis of a business’s strengths, weaknesses,

opportunities and threats. The primary objective of a SWOT analysis is to help organizations
develop a full awareness of all the factors (external as well as internal), involved in making a
business decision. SWOT analysis shall be implemented before all company actions, whether
it is exploring new initiatives, revamping internal policies, considering opportunities to grow
or alter a plan midway. One shall also us SWOT analysis to discover recommendations and
strategies, with a focus on leveraging strengths and opportunities to overcome weaknesses
and threats. Since its creation, SWOT has been the most widely used tools for business
owners to grow their companies. Sometimes it’s wise to perform SWOT analysis just to
check on the current landscape of your business to improve business operations as needed.
The analysis can show areas where an organization is performing well, as well as areas that
need improvement.

Competitive Advantage: Techno Corp follows a hybrid strategy combining cost leadership in
manufacturing with differentiation in product design and features. This "best cost provider"
strategy has allowed it to offer advanced tech products at affordable price points. The core
competencies in design, manufacturing and distribution act as competitive advantages
against rivals.

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MCQs:

1. As per Mendelow's matrix, employees and customers are considered as:

a) Key Players

b) Keep Informed

c) Keep Satisfied

d) Low Priority

2. Which of the following is NOT a core competency of Techno Corp?

a) Procurement

b) Manufacturing

c) Design

d) Distribution

3. Techno Corp follows which of Porter's generic strategies?

a) Cost leadership

b) Differentiation

c) Best cost provider

d) Focused differentiation

4. Which of the following is a weakness for Techno Corp?

a) Strong brand equity

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b) Robust distribution

c) Lagging in software capabilities

d) Loyal customer base

5. How does SWOT analysis integrate internal and external analysis?

a) By combining internal strengths with external opportunities

b) By matching internal weaknesses with external threats

c) By comparing internal capabilities to market challenges

d) By balancing internal and external factors

(5×2 = 10 MARKS)

General MCQ

6. During which stage of the Product Life Cycle (PLC) does competition become tough, and
organizations need to work on maintaining stability?

A) Introduction stage

B) Growth stage

C) Maturity stage

D) Decline stage

(2 MARKS)

7. Why are values considered crucial in a business setting, as highlighted by Ratan N Tata,
and how do they impact both internal and external aspects of an organization?

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A) Values are irrelevant in business; they do not influence employee behavior or consumer
choices.

B) Values provide a framework for ethical conduct, shape behavior in dilemmas, and
influence employees and consumers alike.

C) Values are only important for external branding and have no impact on internal
operations.

D) Values are primarily a marketing tool and do not contribute to the longevity of a
company.

(2 MARKS)

8. Which factor is NOT considered crucial in choosing the right strategic performance
measures for an organization?

A) Relevance

B) Data Availability

C) Data Timeliness

D) Data Quantity

(1 MARK)

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 Division B – Descriptive Questions

Question 1 is compulsory: attempt any two from test three questions

Q-1 (a) General public is discerning from buying air conditioning units due to rising prices.
Consequently, Nebula Pvt. Ltd, a manufacturer of evaporation coils used in air conditioning
units has faced significant loss in working capital due to sharp fall in demand. The company
conducted financial assessment and developed a workable action plan based on short and
long term financial needs. But for immediate needs, an emergency plan has been
implemented. It includes selling scrap, asset liquidation and overheads cost reduction.
Further, to avoid any such untoward event in future, they plan to diversify into newer
business areas along with its core business. Identify and explain the strategy opted by M/s.
Nebula Pvt. Ltd.?

(5 MARKS)

Q-1 (b) Diversification endeavours can be categorized into four broad classifications. State
the basis for this classification and name the four categories. How is concentric
diversification different from vertically diversification? Explain.

(5 MARKS)

Q-1 (c) Define Experience Curve, What are the key features of the Experience Curve? How is
the concept of the Experience Curve relevant in strategic management?

(5 MARKS)

Q-2(a) ABC Textiles, a prominent player in the textile industry, is gearing up for a strategic
analysis of its competitive landscape. Outline the steps ABC Textiles should take to

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comprehensively understand its competitive environment. Provide detail explanation of
Steps to understand the Competitive Landscape.

(5 MARKS)

Q-2(b) Deepak Verma owns fifteen outlets specializing in consumer durables across the
Mumbai region. Over the past three years, he expanded his business by establishing four
new stores. Traditionally, his stores were thriving in the sales of refrigerators, televisions,
washing machines, air conditioners, and similar products. However, in the last four years,
there has been a substantial decline of around seventy per cent in sales due to a shift in
consumer preferences towards online purchases.

Evaluate Deepak Verma's situation considering the constraints posed by the limitations of
strategic management.

(5 MARKS)

Q-3(a) A successful Focused Strategy relies on specific factors that contribute to its
effectiveness, encompassing both focused cost leadership and focused differentiation.
Analyze the critical success factors and evaluate the advantages and disadvantages
associated with pursuing a focused strategy.

(5 MARKS)

Q-3(b) GreenSack Solutions Ltd., a manufacturer of biodegradable plastic bags, observes a

growing public awareness regarding the environmental impact of traditional plastic bags.
Recognizing the positive shift towards eco-friendly options, GreenSack Solutions faces
competition from jute bags and reusable cloth bags. Despite their higher cost, these
alternatives are gaining consumer acceptance.

Identify and explain the category of Porter’s Five Forces Model for Competitive Analysis
that encompasses the competition from jute bags and reusable cloth bags.

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 (5 MARKS)

Q-4(a) Discuss the significance of Strategic Performance Measures (SPM) in evaluating a

company's performance and the implementation of its strategies Provide examples of
different types of strategic performance measures and explain how they contribute to
assessing various aspects of organizational effectiveness.

(5 MARKS)

Q-4(b) Describe the strategic planning process and its role in the formation of corporate
strategy. Explain it.

OR

Explain the ADL Matrix and how it categorizes products or Strategic Business Units (SBUs)
based on industry maturity and competitive position. Describe the five competitive
positions within the matrix and the criteria used for assessing a firm's competitive position.

(5 MARKS)

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