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Business studies
Table of contents
CHAPTERS AND WEIGHTAGE
DELETED PORTIONS
KEY WORDS FOR CASE STUDY QUESTIONS
CASE STUDY QUESTIONS
IMPORTANT CONCEPTS IN ALL LESSONS
ASSERTION REASONING QUESTIONS
 CHAPTER WEIGHTAGE

Financial Management
15
Financial Markets

Marketing Management
15
Consumer Protection

Total 30
 DELETED PORTION
Financial Mangement –NIL
Financial Market - Instruments of money market, Methds of
flotation , Role of SEBI
Marketing Management : Classification of products, promotion
mix advantages and disadvantages
Consumer protection act : Ways and means of consumer
protection , Legal protection
 KEY WORDS
1. Decision affecting liquidity and profitability of
a business short term investment decision/working
capital decision.
2. Decision affection financial risk and
profitability of a business
capital structure decisions
3. Decision that relates to find requirements
both in term of the quantum as well as the
timings
financial planning
4. Decision affecting growth, financial risk and
profitability of business
capital budgeting decisions
5. New issue market
primary market
6. market for existing securities
secondary market
7. Marketing through emphasis on low cost of production concept
production/affordability / availability
8. marketing through emphasis on good quality product concept
of product
 KEY WORDS
9 marketing through emphasis an selling concept
aggressive advertising and sales
promotion

10 marketing through emphasis on making marketing concept

an effort to find wants of people and
fulfil them.
Q1. HurrayLtd. owns an amusement park in Lucknow. Till now the company has
been operating on owner’s fund. Keeping in view its plan to set up two more
amusement parks in the country the company raised debt capital to take
advantage of trading on equity. The proportion of debt in the total capital of the
company is 30%. The debt has been raised @12% whereas the return on
investment is 10%. However even after employing debt the earning per share i.e
EPS of the company is falling.
In the context of the above case:
a) Identify and explain the two types of financial decisions taken by the company.
b) Why do you think even after employing debt the earning per share i.e EPS of
the company is falling?
c) State any two factors which favoured the issue of debt by the company.
Ans:(a) Investment decision and financial decision
(b) Return on investment should be higher than rate of interest which is not satisfied.
(c) Floatation cost, Tax rate
Q2. Arun is a successful businessmen in the paper industry. During his recent
visit to his friend’s place in Mysore, he was fascinated by the exclusive variety
of incense sticks available there. His friend tells him that Mysore region is
known as a pioneer in the activity of Agarbathi manufacturing because it has a
natural reserve of forest products especially Sandalwood to provide for the
base material used in production. Moreover, the suppliers of other types of raw
material needed for production follow a liberal credit policy and the time
required to manufacture incense sticks is relatively less. Considering the
various factors, Arun decides to venture into this line of business by setting up
a manufacturing unit in Mysore.
In the context of the above case:

a) Identify and explain the type of financial decisions taken by Arun.

b) Identify the three factors mentioned in the paragraph which are likely to
affect the working capital requirements of his business.
(a) Investment decision
(b) Availability of raw material, Production cycle, Credit availed.
Q3. Visions ltd. Is a renowed multiplex operator in india. Presently it owns 234
screens in 45 properties at 20 locations in the country. Considering the fact that there
is a growing trend among the people to spend more of there disposable income on
entertainment, two years back the company had decided to add more screens to its
existing set up and increase facilities to enhance leisure, food chains etc. It had been
floated an initial public offer of equity shares in order to raise the desired capital. The
issue was fully subscribed and paid. Over the years, the sales and profits of the
company have been increased tremendously and it has been declaring higher dividend
and the market price of its shares have increased manifolds.
In the context of the above case:
a) Name the different kinds of financial decisions taken by the company by quoting
lines from the paragraph.
b) Do you think the financial management team of the company has been able to
achieve its prime objective? Why or why not? Give a reason in support of your
answer.
(a) Investment decisions, Financing decisions, Dividend decisions
(b) Yes. By maximizing the market price of the shares of the company.
4. “A business that doesn’t grow dies”, says Mr. Shah, the owner of Shah
Marble Ltd. with glorious 36 months of its grand success having a capital
base of RS.80 crores. Within a short span of time, the company could
generate cash flow which not only covered fixed cash payment obligations
but also create sufficient buffer. The company is on the growth path and a
new breed of consumers is eager to buy the Italian marble sold by Shah
Marble Ltd. To meet the increasing demand, Mr. Shah decided to expand
his business by acquiring a mine. This required an investment of RS.120
crores. To seek advice in this matter, he called his financial advisor Mr.
Seth who advised him about the judicious mix of equity (40%) and Debt
(60%). Mr. Seth also suggested him to take loan from a financial
institution as the cost of raising funds from financial institutions is low.
Though this will increase the financial risk but will also raise the return to
equity shareholders. He also apprised him that issue of debt will not dilute
the control of equity shareholders. At the same time, the interest on loan
is a tax deductible expense for computation of tax liability. After due
deliberations with Mr. Seth, Mr. Shah decided to raise funds from a
financial institution.
5. Krish limited is in the business of manufacturing and
exporting carpets and other home décor products. It
has a share capital of Rs. 70 lakhs at the face value of
Rs. 100 each. Company is considering a major
expansion of its production facilities and wants to
raise Rs. 50 lakhs. The finance manager of the
company Mr. Prabhakar has recommended that the
company can raise funds of the same amount by
issuing 7% debentures. Given that earning per share of
the company after expansion is Rs. 35 and tax rate is
30%, did Mr. Prabhakar give a justified
recommendation? Show the working.
Q4. EPS = Rs. 35
EPS = Earning after tax/No of equity shares
35 = Earning after tax/70,000
Earning after tax = Rs. 24,50,000
Let Earning before Tax (EBT) = x
EBT – Tax = EAT
x – 0.30x = 24,50,000 => 0.7x = 24,50,000 => x = 35,00,000
EBT = Rs. 35,00,000
Interest = 50,00,000 X 7/100 = Rs. 3,50,000
EBIT = EBT + Interest => 35,00,000 + 3,50,000
EBIt = Rs. 38,50,000
ROI = EBIT/total investment X 100 => 38,50,000/1,20,00,000 X 100 = 32.08%
Justified in making this recommendation as use of debt will lead to trading on equity as ROI >
Rate of interest
6. Vedansh limited has a share capital of Rs.10,00,000 divided into shares of
Rs.100 each. For expansion purposes the company requires additional funds
of RS.5,00,000. The management is considereing the following alternatives
for raising funds:
Alternative 1: Issue of 5,000 equity shares of Rs. 100 each
Alternative 2: Issue of 10% Debentures for RS.5,00,000
The company’s present Earnings Before interest and Tax (EBIT) is
RS.4,00,000 p.a. Assuming that the rate of return on investment remains the
same after expansion, which alternative should be used by the company in
order to maximise the return to the equity share holders. The tax rate is 50%.
Show your working clearly and comment .
ROI REMAINS THE SAME
ROI FOR THE PRESENT SITUATION =4,00,000/10,00,000*100
= 40%
EBIT AFTER EXPANSION
ROI FOR THE NEW SITUATION = X/15,00,000 * 100
40% = X/ 15,00,000 *100
X= 15,00,000*40/100
6,00,000

PARTICULARS OPTION 1 OPTION 2

EBIT 6,00,000 6,00,000
LESS INTEREST ------ 50,000
Earnings after interest 6,00,000 5,50,000
Less Tax 3,00,000 2,75,000
Earnings after tax 3,00,000 2,75,000
EPS
Earnings after tax/share capital 3,00,000/15,00,000*10 2,75,000/10,00,000*100
*100 0 27.5
20%
Option 2 is considered since
the EPS has increased .
Higher the debt, lower the cost of capital

Higher the debt, higher the EPS for equity

shareholders , provided ROI > Cost of capital

Higher the debt higher the financial leverage

(Advantage) and the risk in the business

Higher the debt, lower is the tax liability

leading to reduced cost of capital

’7. Abhishek Ltd.’ is manufacturing cotton clothes. It has been consistently earning
good profits for many years. This year too, it has been able to generate ^ profits. There
is availability of enough cash in the company and good prospects for growth in future.
It is a well managed organisation and believes in quality, equal employment
opportunities and good remuneration practices. It has many shareholders who prefer
to receive a regular income form their investments.
It has taken a loan of Rs.50 lakhs from I.C.I.C.I Bank and is bound by certain
restrictions on the payment of dividend according to the terms of the loan agreement.
The above discussion about the company leads to various factors which decide how
much of the profits should be retained and how much has to be distributed by the
company. Quoting the lines from the above discussion, identify and explain any four
such factors.

Consistently earning good profits

‘There is availability of enough cash in the company’
‘It has many shareholders who prefer to receive a regular income’
‘It has taken a loan of Rs.50 lakhs from I.C.I.C.I Bank and is bound by certain restrictions
on the payment of dividend’
8. An organisation is busy preparing its financial blueprint for its future
operations. The idea is to create satisfactory amount of money which
should be there in the reach of the organisation at the right time.
Which concept of financial management has been highlighted in the above
case?

9. A company was expecting a sale increase of 20% in comparison to the

last year. However, due to poor support from the economic situations
around the increase turned out to be only 10%. The company however had
prepared itself for this situation. It knew how to change its expenses in
financial case the sales increase goes down in comparison to the
expectations.
Identify the concept of financial management which is highlighted in
thaabove case.
 TRADINGON EQUITY
 Companies prefer to employ cheaper debts to enhance the
earning per share (EPS)
 This practice is called Trading on equity
 It refers to the increase in profit earned by the equity
shareholders due to the presence of fixed financial charges
like interest.
 On the other too much financial risk will reduce the EPS.
 So it is advisable to opt for a risk-return combination which
increases the shareholder’s wealth
 FINANCIAL MARKET
Identify the type of function of SEBI in the following cases:
1. Rajeev was unwilling to buy shares in the stock market as he was told by someone that
stock market is a place where various malpractices take place. He decides to discuss the
matter with his friend who explains to him how SEBI takes care of the interests of the
investors.
2. Pankaj wants to become a stock broker. When he approaches people and asks them to
get started as investor through him they ask for a certificate which the SEBI must have
given him. He becomes aware of the fact that in order to function as a stock broker he
will have to get registered with SEBI.
3. Kirti Steels already has issued shares in the stock market and is a well known name
among the people. Recently it issued shares but had to go through the proper audition
process and thorough inspection about the various requirements to be fulfilled as an
issuer.
4. Recently some people were caught in some of the malpractices like insider trading. The
SEBI has decided to take strict action and cancel their candidature. Further penalties are
also to be imposed on them.
5. A magazine has published a report on how SEBI is serious about training of the
intermediaries and deciding their code of conduct. A lot of research has been going on
in various related areas and the information of use is being published so that various
participants can get useful results from it.
6. Some workshops are being organized to create awareness among the investors. The
programme will not stop here. There is going to be a proper education of the investors.
After the workshop is over a test will be conducted to check the knowledge and
applicative ability of the investors.
MARKETING
Identify the marketing management philosophy involved in the
following cases:
Geetika scooters are the leading manufacturers of scooters in the industry.
They have the first mover advantage in the industry. When they started
manufacturing scooters no other company was doing it. They manufacture
scooters and the middle class purchases them in a high number. With each
passing year the number of scooters sold is increasing. The company’s main
concern usually is to produce maximum number of scooters. Company’s profit
is governed by the maximum number of scooters they produce.

Aman microwaves produce microwaves but they do not try to understand the
needs of the customers. Their main focus is always on the quality of the
product but never on customer requirement. They try’ to include as many
features as possible in their product. This year they have added a special type
of alarm in their product which is a unique feature. The alarm is available in
ten varieties. However, the customers say that the product is not of much use
to them as it consumes a lot of electricity.
Ravi coolers is a very progressive company. The owners of the company feel that unless
and until they contribute to society it is worthless to exist as a company. In a recent move
by the government the organisation has decided to help it. The organisation will be making
five teams of hired environmentalists from foreign countries. This team will help the local
people clean the portions of a polluted river in the country. The costs of this project will be
borne by the company.

Rajesh is a manager in a company. His main area of focus is to generate revenue for the
company through repeated sales. He decides to develop a product for the company which
can generate revenue in the long run. For this he meets a team of R&D (Research &
Development) of his company. After a long meeting they decide to do survey. Based on the
survey a product is made to fulfill needs pf the customers. The product later produces a lot
of revenue through repeated sales in the long run.

A company decides to do promotion for a new chips flavour. For this many contests are
organized in different colleges. The youth is the target market for the chips makers.
However, there hasn’t been proper research about the liking of the flavour among the
youth. The company has launched this product based only on intuition. The company has
decided to go ahead with the promotional campaign even if there is a negative response
from the buyers.
 DISTRICT FORUM

It is set up for redressal of

consumer’s grievances at district
level set up by State
government
Consists of one President and two
other members appointed by state
government . One of the members
must be a Women

A Complaint is made to the District

Forum is the value of goods and
services along with compensation
claimed does not exceed Rs. 1 crore.
 STATE FORUM
It is set up for redressing
grievances at the state
level set up by state
Government

Consists of a President and at least two

members appointed by state government ,
one of the member is women

A complaint is made if the value of goods

along with compensation claimed exceeds
one crore but does not exceed ten crore
rupees.or an appeal against district
forum
 NATIONAL
FORUM
It is set up for redressing
grievances at the national level
set up by Central Government

Consists of a President and at least

four members appointed by central
government , one of the member is
women

A complaint is made if the value of goods

along with compensation claimed exceeds
Rs. 10 crores and the aggrieved party is not
satisfied with the order of the National
Commission.
Against whom a complaint can be filed
A complaint before the appropriate consumer forum can be made against:
• Any Trade or Service Provider adopting unfair contract, unfair trade
practices and restrictive trade practices
• Any Trade or Service Provider providing inferior and defective goods.
• Complaints can be filled against service provider’s dealing in defective
or deficient services.
• Any Trade or Service Provider charging a price in excess of fixed by or
under any law in force, displayed on goods, placed in the Price List and
price fixed as agreed between parties
• Any Trade or Service Provider dealing in goods which are hazardous to
life and safety during use.
• Any Manufacturer, Trader or Service Provider towards claim for product
liability against their products and services. Redressal agencies under the
consumer protection act (Redressal Machinery
Amazing Duniya’ is a tourist agency. It also has a group of hotels. The company offers new types of schemes to
the potential customers. Amit was offered a scheme of staying in a hotel for 6 days and 5 nights for free. However
when he reached the destination he was told that every room of the hotel was booked. He told tlhem that he was
told earlier that his room was booked. He even showed them the confirmation he received on his mail.

Can Amit file a complaint against the tourist agency?

Will he get a relief in this case?
Name the relief he will get.
Which consumer right has been violated in this case?
Yes, he can file a complaint against the tourist agency as he has got the confirmation as the proof.
He even showed them the confirmation he received on his mail.
Yes, he will get a relief as he has proof of confirmation of his booking. He will get relief as his time
and money (Fare charges for travelling purpose) are wasted.
The relief he will get is ‘he will be compensated for the loss of time and money and also for filing the
complaint’. The second relief will be directed towards the company which will have to stop this
wrong trade practice for future.
The consumer right which has been violated here is ‘Right to be Informed’. This was the
responsibility of the company to inform him before hand if the rooms were not available. They did
the worse by giving him confirmation and denying him the hotel room at the last moment.
ASSERTION AND REASONING QUESTIONS
1.Assertion (A): Capital budgeting decisions are very crucial and must be taken with utmost care.
Reason (R): Investment decisions affect the earning capacity of the firm over the long run and are
irreversible except at a huge cost.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanationof Assertion
(A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof
Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.
2. Assertion (A): A company having easy access to the capital market follows a strict dividend policy.
Reason (R): Such a company can raise capital by approaching the capital market.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanationof Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.