BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI, K.K. BIRLA GOA CAMPUS
FIRST SEMESTER (2018-19) MID- SEM EXAMANITATION
Course No.: FIN F315/ECON 315
Course - Title: FINANCIAL MANAGEMENT
MAXIMUM MARKS: 30
Date: 09-10-2018
DURATION: 90 MINUTES
Time: 2:00 PM -3:30 PM
Q.1. Fine chemical Ltd, manufactures a special Epoxy curing agent.( C-32) They are thinking
of replacing the existing plant which is facing environmental issues with a new plant. The new
plant will save Rs 15 lac per annum that the company presently spends on pollution control. The
present plant has a book value of Rs 7.2 lac and market value of Rs 9 lacs. but for tax purpose it
may be treated as fully depreciated. The supplier of the new plant is willing to buy the old plant
at Rs 10. Lacs. The new plant will cost Rs 60 lacs and will have as scrap value of Rs 9 lacs at
the end of its life of 6 years and dismantling charge at the end would be Rs 5 lacs.
Presently the company sells 80,000kgs of C-32 at price Rs 800 per kg. with the installation of the
new plant company will be able to sell 1,00,000kgs per year at Rs 780 per kg
The following is the unit cost structure of C-32
Material
Wages
Supervision
Repairs
Power and fuel
Depreciation
Allocated corporate overhead
Total
Existing Plant (80,000 kgs)
Rs.
300
210
80
45
60
1
40
736
New Plant(1,00,000 kgs)
Rs.
260
150
100
30
55
20
50
665
In addition to the above, Company has to spent Rs 20 lacs in the first year towards training of the
workers
For the new plant Company requires additional working capital of Rs 50 lac at the beginning
90% of which will be released at the end. Subsidy of 20% of the original cost of the plant will be
available at the end of the second year. Corporate tax rate is 30% and capital gain tax is 20%.
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Depreciation is provided at 30% on written down value. ( Take depreciation base as Rs 60 lacs).
Company has other profitable segments. Also stimate the incremental cash flow associated with
new plant and advise the management on the Net Present Value basis assuming the cost of
capital as 15%. Ignore the inflation.
[8 Marks]
Q.2. M. Company’s Central Services Department is evaluating new copying machines to replace
the firm’s current copier, which is worn out. The analysis of alternative machines has been
narrowed to three and the estimated costs of operating them are shown below:
Materials cost
Labour cost
Annual lease cost
Cost per 10 copies
Machine A
Rs.
60
80
30,000
Machine B
Rs.
40
30
58,000
Machine C
Rs.
20
20
1,00,000
Required
i)
Compute the cost indifference points for the three alternatives.
ii)
What do the cost indifference points suggest as a course of action in this regard?
iii)
If the management expects to need 87,000 copies next year, which copier would
be most economical?
[6 Marks]
Q.3. (a) Following details of X Ltd as of 31st March 2018 are available
Equity shares capital - 20,00,000 shares @ Rs. 10/- each fully paid
(8,00,000 fully paid shares were issued on 1st October 2017)
10% preference shares - 10,00,000 shares @ Rs. 20/- each
( Each Convertible into 2 equity shares @ Rs. 10/- each)
Profit Before Tax - Rs. 50,00,000/Tax Rate - 30%.
Calculate the Basic EPS & Diluted EPS.
[4 Marks]
(b) An insurance agent is trying to sell you an immediate-retirement annuity, which for a single
amount paid today will provide you Rs 1.2 lacs at the end of each year for next 25 years You
currently earn 9% on risk free investments comparable to the retirement annuity. Ignoring the
taxes, what is the most you would pay for this annuity?
[2 Marks]
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(c) Finance manager of a company wants to buy an asset costing Rs 100 lacs at the end of 10
years. He requests you to find out the annual payment required, if the savings earn an interest
rate of 12 per cent per annum.
[2 Marks]
Q.4. From the following Balance sheet of ABC Ltd. Prepare a Cash Flow Statement in
the format prescribed.
Liabilities
31.12.2016
Rs.
31.12.2017
Rs.
Assets
31.12.2016
Rs.
31.12.2017
Rs.
Equity Share Capital
3,00,000
4,00,000
Land & Buildings
2,00,000
1,70,000
Preference Share capital
1,50,000
1,00,000
Patent
1,15,000
90,000
General Reserve
40,000
70,000
Plant & Machinery
80,000
2,00,000
Profit & Loss
30,000
48,000
Accounts Receivables
1,60,000
2,00,000
Proposed Dividend
42,000
50,000
Inventory
77,000
1,09,000
Creditors
55,000
83,000
Notes Receivable
20,000
30,000
Notes Payable
20,000
16,000
Long term investment
15,000
10,000
Provision for Taxation
40,000
50,000
Cash at Bank
10,000
8,000
6,77,000
8,17,000
6,77,000
8,17,000
Additional Information:
(a) Depreciation of Rs. 40,000 and Rs. 30,000 have been charged on Plant and Land
and Buildings in 2017.
(b) An interim dividend of Rs. 20,000 was paid in 2017.
(c) Rs. 45,000 Income Tax was paid during 2017.
(d) Preference Shares have been redeemed at a premium of 10%.
(e) Investment were sold at a profit of Rs. 3000/(f) A machine having a book value of Rs. 10,000/- was sold for Rs. 8,000/-
[8 Marks]
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