Ratio Analysis

1. With the help of the following ratio regarding indu films. Draw the balance sheet of the Company for the year 2017.

Current ratio 2.5

Liquidity Ratio 1.5
Net working capital 3,00,000
Stock turnover Ratio (cost of sales/Closing Stock) 6 times
Gross profit Ratio 20%
Fixed Assets Turnover ratio (on cost of sales) 2 times
Debt collection period 2 Months
Fixed Assets to Shareholder Net worth 0.80
Reserve and surplus to capital 0.50

2. With the following ratios and further information given below prepare a Trading Account, Profit and Loss and
Balance sheet of Shri Narain.
I. Gross Profit Ratio 25 per cent
II. Net Profit/Sales 20 per cent
III. Stock Turnover ratio 10
IV. Net profit to Capital 1/5
V. Capital to Total Liability ½
VI. Fixed Assets /Capital 5/4
VII. Fixed Assets / Total Current Assets 5/7
VIII. Fixed Assets Rs. 10,00,000
IX. Closing Stock Rs. 1,00,000

Capital Budgeting

Q 1. A project costs Rs1, 00,000 and yields annual cash inflow of Rs. 20,000 for 8 years. Calculate its pay
back period.

Q 2. A project requires an investment of Rs.5, 00,000 and has a scrap value of Rs.20,000 After 5 years. It is
expected to yield profits after depreciation and taxes during the 5 years amounting to Rs. 40,000. Rs.60,000,
Rs. 70,000, Rs. 50,000 and Rs.20, 000. Calculate the average rate of return on the investment.

Q 3. Initial Investment = Rs. 1, 00,000

Expected future cash inflows Rs. 20,000, Rs. 40,000, Rs. 60,000, Rs. 70,000

Q4. Victory Ltd. decided to purchase a machine to increase the installed capacity. The company has four
machines under consideration. The relevant details including estimated yearly expenditure and sales are given
below. All sales are for cash. Corporate Tax Rate @ 33.99% (inclusive of Surcharge @ 10%, Deduction cess @
2% and Secondary & Higher Education cess @ 1%)
AVERAGE RATE OF RETURN

Q5. A project costing Rs. 10 lacs. EBITD (Earnings before Depreciation, Interest and Taxes) during
the first five years is expected to be Rs. 2,50,000; Rs. 3,00,000; Rs. 3,50,000; Rs. 4,00,000 and Rs.
5,00,000. Assume 33.99% tax and 30% depreciation on WDV Method.

Q6. A Company is considering a new project for which the investment data are as Follows:
Capital outlay Rs.2, 00,000
Depreciation 20% per annum
Forecasted annual income before charging depreciation, but after all other charges as follows:
Year Rs.
1 100,000
2 100,000
3 80,000
4 80,000
5 40,000
400,000
On the basis of available data, set out calculations, illustrating and comparing the following methods of
evaluating the return of capital employed a. Pay back method b. Rate of return of original investment. State
clearly any assumption you make. Ignore taxation.

NPV
Q7. Z Ltd. has two projects under consideration A & B, each costing Rs.60 lacs.

The projects are mutually exclusive. Life for project A is 4 years & project B is 3 years. Salvage value
NIL for both the projects. Tax Rate 33.99%. Cost of Capital is 15%.
Net Cash Inflow (Rs. Lakhs)

Q8.

The Alpha company ltd is considering the purchase of a new machine. Two alternatives machines (A and B)
have been suggested each costing Rs. 4, 00,000. Earnings after taxation are expected to be as follows:
Year Cash Flow (Rs.)
Machine A Machine B
1 40,000 1, 20,000
2 1, 20,000 1, 60,000
3 1, 60,000 2, 00,000
4 2, 40,000 1, 20,000
5 1, 60,000 80,000
You are require to suggest which machine should be preferred based on
a) NPV Method and b) Profitability Index
Note: The present value of Rs. 1 @ 10 %
Due in 1 Year = 0.91
Due in 2 Years = 0.83
Due in 3 years = 0.75
Due in 4 years = 0.68
Due in 5 years = 0.62
Q9. IRR
Project Cost Rs. 1,10,000
Cash Inflows:
Year 1 Rs. 60,000
Year 2 Rs. 20,000
Year 3 Rs. 10,000
Year 4 Rs. 50,000
Calculate the Internal Rate of Return.
Inventory Management
Illustration 1: A firm buys casting equipment from outside suppliers@Rs.30/unit. Total annual
needs are 800 units. You have with you following further data:
a) Annual return on investment, 10%
b) Rent, insurance, taxes per unit per year, Re.1
c) Cost of placing an order, Rs.100
d) How will you determine the economic order quantity?

Illustration 2: The annual demand for a product is 6,400 units. The unit cost is Rs.6 and
inventory carrying cost per unit per annum is 25% of the average inventory cost. If the cost of
procurement is Rs. 75, determine:
a) Economic Order Quantity (EOQ)
b) Number of orders per annum
c) Time between two consecutive orders
Working Capital

Illustration 1:You are required to prepare a statement showing the working capital required to
finance the level of activity of 18,000 units per year from the following information:-
Particulars Rs.
Raw material Per Unit 12
Direct labor Per Unit 3
Overheads per Unit 9
Total cost Per Unit 24
Profit per Unit 6
Selling price Per Unit 30

Additional Information:
1. Raw material is in stock on an average for 2 months.
2. Materials are in process on an average for half-a- month.
3. Finished goods are in stock on an average for two months.
4. Credit allowed by creditors is two months in respect of raw materials supplied.
5. Credit allowed to debtors is three months.
6. Lag in payment of wages is half month. Cash on hand and at bank is expected to be Rs.7,000.
7. You are informed that all activities are evenly spread out during the year.

Illustration 2: Runwall Ltd. had annual sales of 50,000 units at Rs.100per unit. The company
works for 50 weeks in the year. Cost details of the Company are as given below:
Particulars Rs.
Raw material Per Unit 30
Labour Per Unit 10
Overheads per Unit 20
Total cost Per Unit 60
Profit per Unit 40
Selling price Per Unit 100
Additional Information:
1. The Company has the practice of storing raw materials for 4weeks requirements.
2. The wages and other expenses are paid after a lag of 2 weeks.
3. Further the debtors enjoy a credit of 10 weeks and Company gets a credit of 4 weeks
from suppliers.
4. The processing time is 2 weeks and finished goods inventory is maintained for 4 weeks.
From the above information prepare a working capital estimate, allowing for a 15%
Contingency.
Illustration3: From the following particulars, you are required to prepare a statement of working
capital requirements:

Additional Information:
1. Inventory norms:
a. Raw material 2months
b. Work in progress 3 weeks
c. Finished goods 1 month
2. 50% of the sales is on credit and 2 weeks credit is normal.
3. The company enjoys 4 weeks credit facilities on 30 % of the purchases.
4. Lag in payment of overheads is one month.
5. Wages are paid at the end of the month.
6. Cash is to be held to the extent of 50% of the current liabilities.

Illustration4: From the following information, you are required to estimate the net working capital.
Particulars Rs.
Raw material Per Unit 400
Labour Per Unit 150
Overheads per Unit 300
Total cost Per Unit 850

Additional information:
1. Selling Price Rs. 1000 per unit
2. Output 52000 units per annum
3. Raw material in stock Average 4 weeks
4. Work in progress (Assume 50% of stage with full material consumption) Average 2weeks
5. Credit allowed by the Suppliers Average 4 weeks
6. Credit allowed to debtors Average 8 weeks
7. Cash at bank expected to be Rs. 50,000
Assume that production is sustained at an even pace during the 52 weeks of the year. All sales are on credit
basis. State any other assumptions that you might have make while computing.

Problem 1: From the following information you are required to estimate the net working capital
Cost Per Unit (Rs.)
Raw material 40
Direct Labour 15
Overheads 30
85
Additional information:
Selling Price Rs. 100 per unit
Output 52000 units per annum
Raw material in stock Average 4 weeks
Work in progress Average 2 weeks
Finished goods in stock Average 4 weeks
Credit allowed by suppliers Average 4 weeks
Credit allowed to debtors Average 8 weeks
Cash at bank is expected to be Rs. 10000. Assume that production in sustained at even pace during the 2 weeks
of the year. All the sales are on credit basis. State any other assumption that you might have made while
computing.