University of Management and Technology
School of Commerce and Accountancy
SPRING – 22 SEMESTER
Course Title: Strategic Performance
Measurement/APM (AC 398/399)
End Term Examination
Course Instructor:
Mr. Muhammad Gulzar
Paper Review Date:
To be communicated
Section:
Program: M. Com./B. Com.(H)
QAC
Time Allowed: 2 hours
Date: July 04,2022
Maximum Marks:
40
TO BE FILLED IN BY THE STUDENT
Student Name:


Student ID:
Answers must be neat, relevant and brief
Shows all workings and Computations
Question 01
a) Boom limited and Doom limited is operating in same sector. Boom and Doom limited are
almost similar in many aspects except internal economies of scale. Given the financial
position of both of the companies:
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($ 000)
Boom limited
Non-Current Assets
Intangible Assets
Current assets
Total Assets
Current liabilities
Sales
Retained earnings
Share capital (@ $ .50 each)
Long term debt
Total liabilities
Operating Profit



Doom limited
10,500
750
?
13,800
?
7,500
450
4,800
6000
9,000
3,000
9,000
600
?
12,000
2,400
4,500
150
7,500
?
4,500
2,700
Tax rate for both companies is 40%
Market value per share at that date is $ 3.20 per share of Boom limited and $ 3.00 per share
of Doom limited.
Interest rate on long term debt is 15% per annum for Doom limited and 12% for Boom
limited
You are required to calculate the Altman Z- Score of each of the above companies and discuss
possible reasons that which company is more indicative towards failure.
(7)
Z-Score = 1.2X1+1.4X2+3.3X3+0.6X4+1.0X5
X1 = working Capital / total Assets; X2 = Retained Earnings / Total Assets; X3 = Earnings before
interest and tax / total assets; X4 = market value of equity / book value of total debt; X5 = sales /
total assets
b) Briefly explain the symptoms of declining companies
(3)
Question 02
The following information relates to a division of CE limited for the year ended June 30, 2020:
$ 000
Net profit before tax
7000
The following adjustment must be considered:

At the end of year the equity and long term debt amounting as $ 24 million and 13.5
million respectively

Non-cash expenses amounting $ 1300,000 has already been charged
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
Amortization of good will took place amounting $ 900,000

Interest is to be charged amounting $ 1200,000 , however the rate of interest on long term
debt is 10%

The company has mix sort of capital structure of which 40% belongs to debt

The estimated cost of equity is assume to be 12%

The good will previously wrote off against reserve amounting $ 1050,000

Non-current assets and current assets at the start of the year amounting $ 25 million and 9
million respectively. Whereas long term liabilities and current liabilities at the start of the
period assume to be 12 million and 6 million respectively

Research and development cost amounting $ 6 million however the R&D should be
divided in to 4 years whereas the whole amount has been charged totally for current year

Tax rate applicable for the company is assume to be 40%
Required:
You are required to calculate the following by using above stated information:
a)
b)
c)
d)
Return on investment (ROI)
Residual income (RI)
Economic Value Added (EVA)
Explain the difference between EVA and RI briefly
(2)
(3)
(4)
(3)
Question 03
a) Tiara limited is in process to prepare strategic budget for the coming five years. The
company is using cost of capital to discount its cash flows derived from the estimated
annual profits of the company.
The estimated figures in respect of the cash flows starting from the year 2020 are as
under
Years
$ 000
2020
1170
2021
1430
2022
1625
2023
1690
2024
1365
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The estimated cost of capital for the company which is assume to be remain consistent
throughout the coming years estimated as 12 % per annum.
At the end of year 2020 it was realized that actual cash flows were $ 1105,000 on the
basis of the actual cash flows the estimations for the coming years has been changed,
hence the following figures came into realized after consultation:
Years
$ 000 (Budgeted)
2021
1365
2022
1560
2023
1658
2024
1170
2025
1105
Required: Assess the strategic progress of the company for the period five years starting
2020, by calculating Net Present Value.
(6)
Question 04
Cress and Brass limited are two divisions of MM limited. Extract of income statements of both
divisions are as under:
Cress limited
Brass limited
$ 000
$000
Total Sales
5250
6500
Cost of production
3150
3850
Gross profit
?
?
Operating expenses
3,500
1,750
Operating Profit
?
?
Cress limited currently sells 70% of its output to external market and transfer remaining output to
Brass limited.
Required: What will be the consequences if business transfers its remaining output to Brass
limited?
i.
ii.
iii.
iv.
v.
At market value
At marginal cost (suppose costs are 80% variable and 20% fixed)
At cost plus 30%
What are the disadvantages of Market Based Transfer pricing?
(3)
(3)
(3)
(2)
Explain the criteria to establish transfer pricing policy?
(1)
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