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CA Final | CA Inter | CA IPCC | CA Foundation Online Test Series
Question Paper
FM & SM Duration: 75
Details: TEST-2 (FM-4,5,9 SM-11, 12) Marks: 45
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
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Q-1
Compute the cost of capital of 12% debentures issued by Vikas (P) Ltd., face value of Rs.100,
amount of Rs.200000, in following situations. The life of debenture is 7 years.
(i) Issued at par, redeemable at par. Tax @ 20%
(ii) Issued at 10% premium. Tax @ 30%
(iii) Issued at 10% discount. Tax @ 40%
(6 Marks)
Q-2
Expected EBIT of the firm is Rs.2,00,000. The cost of equity (i.e., capitalization rate) is 10%.
Find out the value of Firm and overall cost of capital if degree of leverage is:
Rs.200000
Rs.500000
Rs.700000
Debenture interest rate is 6%.
(6 Marks)
Q-3 XYZ Corporation, a well-established technology company, is planning to conduct a
SWOT analysis to enhance its competitive position in the rapidly evolving tech industry.
Explain the fundamental concepts of SWOT analysis, including the elements of strengths,
weaknesses, opportunities, and threats. Describe how the SWOT analysis can guide XYZ
Corporation in formulating future strategies for achieving a competitive advantage.
(5 Marks)
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Q-4 On 1st January, 2009, the Board of Directors of Dowell Co. Ltd. wishes to know the
amount of working capital that will be required to meet the program of activity they have
planned for the year. The following information’s are available:
i) Issued and paid-up capital Rs. 2,00,000.
ii) 5% Debentures (secured on assets) Rs. 50,000.
iii) Fixed assets valued at Rs. 1,25,000 on 31.12.2008.
iv) Production during the previous year was 60,000 units. It is planned that the level of
activity should be maintained during the present year.
v) The ratios of cost to selling price are—raw materials 60%., direct wages 10%, and
overheads 20%.
vi) Raw materials are expected to remain in stores for an average of two months before
these are issued for production.
vii) Each unit of production is expected to be in process for one month.
viii) Finished goods will stay in warehouse for approximately three months.
ix) Creditors allow credit for 2 months from the date of delivery of raw materials.
x) Credit allowed to debtors is 3 months from the date of dispatch.
xi) Selling price per unit is Rs. 5.
xii) There is a regular production and sales cycle.
Prepare— a) Working capital requirement forecast; and
b) An estimated Profit and Loss Account and Balance Sheet at the end of the year.
(8 Marks)
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Q-5
X Ltd. requires Rs.50 lacs for a new plant, which is expected to yield earnings before interest
and taxes of Rs.10 lacs. The company has three alternatives for financing.
Option I: Raising debt of Rs.5 lacs and the balance by equity.
Option II: Raising debt of Rs.20 lacs and the balance by equity.
Option III: Raising debt of Rs.30 lacs and the balance by equity.
The company’s share is currently selling at 150, but it expected to decline to 125 in case the
funds are borrowed in excess of 20 lacs. The funds can be borrowed at the rate of 10% up to
5 lacs at 15% over 5 lacs and up to 20 lacs and at 20% over 20 lacs. The tax rate applicable to
the company is 50%. Which option of financing the company should choose?
(7 Marks)
Q-6
Rahul, a student studying strategic management, is exploring the concept of value chain
analysis. He has some confusion regarding the primary activities and support activities
within the value chain. Can you clarify these concepts for Rahul by describing the five
primary activities and four support activities associated with value chain analysis, and
providing examples to illustrate each of these activities?
(6 Marks)
MCQs:-
1. ABC Company provides the following details:
Rf = 7% ß = 1.20 Rm - Rf = 6%
CALCULATE the cost of retained earnings based on CAPM method
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A) 12%
B) 14.2%
C) 15%
D) 10%
(1 Mark)
2. Consider the below mentioned statements:
1. No indifference point: If after tax cost of the source other than equity shares is not same
under both plans then there will be no indifference point between the two
2. Many indifference points: If after tax cost of the source other than equity shares is same
under both plans then each EBIT will be an indifference point
State True or False:
A) 1-True, 2-True
B) 1-False, 2-True
C) 1-False, 2-False
D) 1-True, 2-False
(1 Mark)
3. In the competitive smartphone industry, two companies, XYZ Tech and Innovate Mobile,
are vying for market dominance. Both companies have been producing smartphones for
several years. Recently, XYZ Tech, a larger and more established firm, has consistently been
able to offer its smartphones at a lower price compared to Innovate Mobile. This has
intrigued industry experts, who are considering the implications of the experience curve.
Which of the following options best explains the situation described in the case scenario?
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A) XYZ Tech's lower prices are due to random market fluctuations, and the experience curve
has no relevance in this context.
B) Innovate Mobile has better marketing strategies, which is why XYZ Tech's prices are
lower.
C) XYZ Tech benefits from the experience curve, allowing them to produce smartphones at
lower unit costs, giving them a competitive advantage over Innovate Mobile.
D) Innovate Mobile's smartphones are of superior quality, justifying their higher prices
compared to XYZ Tech.
(1 Mark)
4. A company raised loan by selling 250 debentures with 10% rate of interest at premium of
Rs. 5 per debentures (Par value = Rs. 100), redeemable at the end of 10th year.
Underwriting and other issuance costs amounted to 3% of the proceeds. The tax rate is 50%.
Calculate cost of debt capital.
A) 4.865%
B) 8.641%
C) 9.123%
D) 10.841%
(1 Mark)
5. Raj, the CEO of a growing manufacturing company, is exploring various forms of bank
credit for his business. He wants to understand the differences between these credit forms.
Which of the following statements accurately distinguishes between two of the forms of
bank credit mentioned in the passage?
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A) Cash Credit is a short-term borrowing facility used for urgent funding needs, while Bills
Acceptance involves the issuance of a bill of exchange by a company, which the bank
accepts and promises to pay in the future.
B) Bank Overdraft allows the borrower to continuously exceed the credit limits sanctioned
by the bank, while Line of Credit is a commitment by a bank to lend a certain amount of
funds on demand without specifying a maximum amount.
C) Bills Discounting involves a company drawing a bill on the buyer, which the seller
discounts with the bank, and Bank Guarantees are facilities extended by banks to their
clients on behalf of third parties.
D) Letter of Credit is an arrangement where the bank undertakes to pay or accept on behalf
of a customer against stipulated documents, while Bills Acceptance involves the issuance of
a bill of exchange that the bank accepts and promises to pay in the future.
(1 Mark)
6. In understanding consumer behavior, which of the following best defines the relationship
between external influences and internal influences on consumer decision making?
A) External influences are solely concerned with the psychological and internal processes
shaping consumer decisions, while internal influences focus on factors like advertisements
and marketing efforts.
B) External influences include elements like advertisements, peer recommendations, and
social norms, which have no impact on the psychological processes affecting consumer
decisions.
C) External influences primarily revolve around factors like company marketing efforts,
while internal influences are exclusively related to customer motivations and attitudes.
D) External influences comprise elements like advertisements, peer recommendations, and
social norms, which directly impact the psychological and internal processes influencing
consumer decisions.
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(1 Mark)
7. Sophia, a public relations manager, is tasked with managing stakeholder relationships for
her organization. She needs to determine how to categorize and engage with different
stakeholder groups based on their power and level of interest. According to Mendelow’s
stakeholder classification, which group should Sophia make the greatest effort to fully
engage and satisfy?
A) LOW PRIORITY Stakeholders
B) KEEP SATISFIED Stakeholders
C) KEEP INFORMED Stakeholders
D) KEY PLAYERS Stakeholders
(1 Mark)
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