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Q1.An Engineering Company is considering its working capital investment for the next year. Estimated
fixed assets and current liabilities for the next year are 2.6 crores and Nu.2.34 crores, respectively. Sales
and profit before interest and tax (PBIT) depend on current asset investment –particularly inventories and
book debts. The company is examining the following alternatives working capital policies.
a. Return on Investment
b. Net Working Capital
c. Current Ratio
Q2. Suppose a firm has the following data for some future year:
Q3.Assume that the Engineering firm has chosen the moderate working Capital policy (that is, investment
of Rs.3.9 crores in current assets).The company is now examining the use of long term and short term
borrowing for financing its assets. The company will use Rs.2.5 crore of equity funds. The corporate tax
rate is 35% .The Company is considering the following debt alternatives. Assume fixed assets and current
liability to be Rs 2.6 and 2.34 crores respectively for all the financing policy. And also assume forecasted
sales and EBIT to be Rs. 11.5 and 1.15 respectively.
a. Rate of Return
b. Net Working capital position
c. Current Ratio
Q4.The Calgary Company is attempting to establish in current asset policy. Fixed assets are Rs.6 lakhs and
the firm plans to maintain a 50% debt to asset ratio. The interest rate is 10% on all debts. Three alternative
current assets policies are under consideration-60%, 50% and 40% on projected sales. The company
expects to earn 15% before interest and taxes on sales of Rs.30 lakhs. Calgary’s effective tax rate is
40%.What is the expected return on equity under each alternative?
Q5.ABC Corporation is planning to invest in their new business project. The company is planning to invest
Rs.3.5 crore as equity funds and the balance amount to be raised using short term and long term for
financing it assets. ABC plans to invest Rs. 5.9 crores in current assets and 3.6 crore in fixed assets. The
expected current liability is Rs.2.44 crores. The interest for short term and long term debt is 14% and 18%
respectively. The corporate tax is 30%.The forecasted sales and EBIT is expected to be Rs.15.5 and
Rs.2.15.The following table shows the amount in crores for short term and long term borrowing for all the
financing policies.
a. Rate of Return
b. Net Working capital position
c. Current Ratio