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SECTION I
Q.1 B) (i)
Particulars Amount
Sales 8,00,000
(-) Variables Cost 3,20,000
Contribution 4,80,000
(-)Fixed Cost 2,40,000
EBIT 2,40,000
(-) Interest 1,20,000
EBT 1,20,000
1) Operational Leverage = Contribution / EBIT
= 4,80,000/ 2,40,000 = 2
2) Financial Leverage = EBIT/ EBT
= 2,40,000/ 1,20,000 = 2
3) Combine Leverage = Contribution/ EBT
= 4,80,000/ 1,20,000 = 4
Q.1 b ii)
For Trading company Xavier Ltd.
Operating Cycle = F +D C
= 106 +64 80
= 90 days
Cash Cycle = F +D
= 106 +64
= 170 days
Stock Holding period (R) =
COGS
Stock . Avg
x 365
=
36
5 . 10
x 365
= 106.46 days
= 106 days (approx)
Debtors Collection period (D) =
Sale Credit
cv Re . Avg
x 365
=
80
14
x 365
= 63.88 days
= 64 days (approx)
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Creditors payment period (C) =
Purchase Credit
Payable . Avg
x 365
=
39
5 . 8
x 365
= 79.55 days
= 80 days (approx)
Opening Stock +Purchase Closing Stock =COGS
9 +Purchase 12 = 36
Purchase = 36 +3
= 39
Q. 1B) (iii)
X y
Nos. 3,00,000 2,00,000
MPS 30 20
EPS 4 2.25
NPAT 12,00,000 4,50,000
ER = EPS of Target / EPS of Acq. = 2.25 / 4 [based on EPS]
New shares to be issue = Existing share of target co. x ER
= 2,00,000 x 2.25/ 4 =1,12,500
Total No. of share = Existing shares of Acq.co +New shares issued
= 3,00,000 +1,12,500
= 4,12,500
Total profit = NPAT of Target +NPAT of Acq.
= 12,00,000 +4,50,000
= 16,50,000
EPS = Total NPAT/ Total Nos.
[post merger] = 16,50,000/ 4,12,500
= 4
Q.2 Solution)
Project A
Calculation of PVCOF
Year COF PV @ 12% PVCOF
0 40 1 40
1 30 0.89 26.7
PVCOF 66.7
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Calculation of PVCIF
Year CIF PV @ 12% PVCIF
2 45 0.80 36
3 55 0.71 39.05
PVCIF 75.05
NPV = PVCIF PVCOF
= 75.05 66.7
= 8.35
PI =
PVCOF
PVCIF
=
66.7
75.05
= 1.1252
Project B
Calculation of PVCOF
Year COF PV @ 12% PVCOF
0 50 1 50
1 60 0.89 53.4
PVCOF 103.4
Calculation of PVCIF
Year CIF PV @ 12% PVCIF
2 70 0.80 56
3 80 0.71 56.8
PVCIF 112.8
NPV = PVCIF PVCOF
= 112.8 103.4
= 9.4
PI =
PVCOF
PVCIF
=
103.4
112.8
= 1.09
Project C
Calculation of PVCOF
Year COF PV @ 12% PVCOF
1 90 0.89 80.1
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Calculation of PVCIF
Year CIF PV @ 12% PVCIF
2 55 0.80 44
3 65 0.71 46.15
PVCIF 90.15
NPV = PVCIF PVCOF
= 90.15 80.1
= 10.15
PI =
PVCOF
PVCIF
=
80.1
90.15
= 1.1254
Project D
Calculation of PVCOF
Year COF PV @ 12% PVCOF
0 60 1 60
Calculation of PVCIF
Year CIF PV @12% PVCIF
1 20 0.89 17.8
2 40 0.80 32
3 50 0.71 35.5
PVCIF 85.3
NPV = PVCIF PVCOF
= 85.3 60
= 25.3
PI =
PVCOF
PVCIF
=
60
85.3
= 1.42
Project NPV NPV Rank PI PI Rank
A 8.35 IV 1.1252 III
B 9.4 III 1.09 IV
C 10.15 II 1.1254 II
D 25.3 I 1.42 I
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Limit is Rs.1,10,000 in year 0 i.e. 2010. So select Project B and DresultingintocombinedNPV
34.7ascomparedtoProject A & Dresultingintolower combinedNPV i.e. 33.65
And no limit in subsequent years so select Project C.
HenceProject B, D and C is recommended for final selection.
SECTION II
Q.3 Solution
Paranjape Chemical Ltd.
Particulars
Alternatives
1 2 3
Debt
Equity Share Capital
Total Capital
Issue price
:. No of Equity shares
EBIT
(-) Interest
250000 x 10%
Bal. 750000 x 15%
Bal. 500000 x 20%
EBT
(-) Tax @ 30%
EAT
(-) Preference dividend
Earnings for ESH (a)
No. of Equity shares (b)
250000
* 2250000
1000000
1500000
1500000
1000000
2500000 2500000 2500000
150 150 125
15000 10000 8000
500000
25000
-
-
500000
25000
112500
-
500000
25000
112500
100000
475000
142500
362500
108750
262500
78750
332500
-
253750
-
183750
-
332500
15000
253750
10000
183750
8000
:. EPS (ab) Rs.22.17 Rs.25.38 Rs.22.97
Recommendation:- Select Alternative 2 i.e. debt Rs.1000000 since it results into highest EPS
Rs.25.38
Q.4) Solution:-
a) New Units = 400 +25%
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= 400 +100
= 500 units
Present Policy Proposed Policy
400 500
DCP (month) 30 60
Sales @ 1000 4,00,000 5,00,000
(-) Variable Cost @ 800 3,20,000 4,00,000
Contribution (a) 80,000 1,00,000
Receivable = DCP x
360
Sales
33,333 83,333
a) Additional Contribution 20,000
(-) Additional Capital Cost (40,000)
(2,00,000 1,00,000) x 40%
(-) Add. Receivable 50,000 x 40% (20,000)
Net Benefit (40,000)
Advise :- Company should not extend credit period to all customer since Net benefit is negative
Rs.40,000
b) Sales (100 x 1000) = 1,00,000
(-) Variable Cost (100 x 800) = 80,000
Contribution (a) = 20,000
Receivable = DCP x
360
Sales
Receivable = 667 , 16 60 x
360
000 , 00 , 1

Capital Cost
16,667 x 40% = 6667
Additional Investment Cost
1,00,000 500 = 20,000 x 40% = 8,000
? 100
(b) = 14,667
Net Benefit (a b) 5,333
Advice:- Company Should extend credit period to only new customers since it results into net
benefit of Rs. 5,333.
Q.5) Solution
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Particulars April May June
Opening Balance b/f
Add:- Cash Receipt
Int. on Saving A/c
Cash Sales
Collection from debtors.
i)
ii) Cash Payment
Salaries & wages
Interest payable
Cash - Purchases (10%)
Payment to suppliers
Other expenses
ii)
(i-ii)
(-) Saving A/c *
15000
140000
87,000
49000
152000
105700
50000
272.5
121000
125600
242000 306700 296872.5
10000
-
17000
144000
22000
10000
5000
24000
153000
32000
10000
-
18000
216000
21000
193000 224000 265000
49000
-
82700
32700
31872.5
-
Closing Balance 49000 50000 31872.5
W. N 1) Collection from debtors
March April May J une .
Credit Sales 100000 80000 140000 1,20,000
April May J une
50% in same month 38000 66500 57000
50% in 1 month 49000 39200 68600
87000 105700 125600
W. N 2) Interest on Saving A/c
= 5 . 272
12
1
x
100
10
x 700 , 32

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