Q1. Discuss the various uses for Break-Even Analysis?

Ans: Uses for Break-Even analysis are as follows:

[a] Financial Decision Making,
[b]Determination the Contribution Margin,
[c] Fixed Cost and Variable Cost,
[d] P/V Ratio and C/M Ratio, and
[e] Margin of Safety Ratio.
Q2.Solution:
(i)Degree of Operating Leverage (DOL)
=

CM
TotalSales VaribleCos t 750,000 210,000 540,000
=
=
= 270,000 =2 times Ans.
270,000
EBIT
EBIT
EBIT

270,000

(ii) Degree of Financial Leverage (DFL) = EBT 100,000 2.7times Ans.

(iii)Degree of Combined Leverage (DCL) =

CM
TotalSales VariableCo st
750,000 210,000 540,000

5.4times Ans.
EBT
EBT
100,000
100,000

(iv) Break-Even Point in units

FixedCost
270,000 270,000

15,000units Ans.
Salingproc eperunit Variable cos tperunit
25 7
18

Q3. What are the three primary sections of the statement of cash flow? In what section would the payment of a
cash dividend be shown?
Ans: There are three primary sections of the statement of cash flow which are as follows:
[a] Operating Activities,
[b] Investing Activities, and
[c] Financial Activities.
The payment of a cash dividend would be shown in Financial Activities.

Q4.

Solution:

ABC Company
Cash flow statement under indirect method
For the year ended at 31st December
Particulars
Amount ($)
Cash flow from operating activities:
(i)
Net income
(ii)
Non cash expenses or
non cash charge:
Deprecation
Loss on sales of old assets
(iii)
Change in current assets :
Decrease in account receivable
Increase in merchandise inventory
Decrease in prepaid expenses
(iv)
Charge in Current Liabilities :
Decrease in account payable
Increase in income tax payable
Decrease in accrued expenses payable

Amount($)
84,000.00

18,000.00
1,000.00
3,000.00
(10,000.00)
2,000.00
(8,000.00)
12,000.00
(5,000.00)
13,000.00

(v)

Net cash provided by operating

activities
Cash flow from investing activities:
Sales of equipment
Purchase of equipment

97,000.00
17,000.00
(180,000.00)
(163,000.00)

(vi)

Net cash provided by investing

activities
Cash flow from financing activities
Issue of bond
Dividend declared and paid

(66,000.00)
130,000.00
(32,000.00)
98,000.00

(vii)

Q5.

Net cash provided by financing

activities
Add. opening balance
Closing balance

Solution:

32,000.00
159,000.00
191,000.00

Total Current Asset

430,000

(i)

Current Ratio = Total Current Liabilitie s 290,000 1.48 :1 Ans.

(ii)

Acid-Test Ratio=

(iii)

Average Collection Period =

TotalCurre nt Assest Inventory

430,000 168,000

0.90 :1 Ans.
Total Current Liabilities
290,000

365days Average Account Re ceivable

Net Sales

184,000 148,000
2
50.48days Ans.
1,200,000

365days

(iv)
Inventory Turn over Ratio
COGS (Cost of goods sold )
830,000

168,000 140,000 =5.39 times Ans.

=
Average Inventory
2
(v)
(vi)
(vii)

Net Income Income Tax Expenses

70,800 36,000
100
100 62% Ans.
Net Sales
1,200,000
Net sales
1,200,000
Assets Turnover Ratio= Total Assets 1,276,000 0.94times Ans.
Net income after tax Pr eferenceDividend
70,800 450,000

$12.64
Earnings per Share =
No.of issue ordinary share
30,000

Profit Margin=

Ans.
Market price per share

39.00

(viii)

Price-Earnings Ratio= Current earning per share 12.64 3.08 Ans.

(ix)

Debt to Total Assets = Total Assets

(x)

Time Interest Earned =

Total Liabilities

530,000
100 41.54% Ans.
1276,000
EBIT ( earning before int erest and Taxes ) 125 ,000

7.88times Ans.
Interest ch arg e
15 ,600
100

Q6. Why does money has a time value? List five different financial application of the time value of
money.
Ans: Money has a time value associative with it &therefore money received today is worth more than money to
be received in the future. Money has a time value because it can be used to compare investment alternative & to
solve problems .It is an important concept in the financial management.
Listed five different financial application of the time value: Loan, mortgage, lease, saving and series of problem
or installment or annuity.
Q7.Find the compound interest on Tk.10, 000 for 4 years at 5%per annum. What will be the simple
interest in the above case?
Solution: Here P= principal amount=Tk.10, 000, n= number of year=4, i= rate of interest=5%=0.05
We know that
Future Value (FV) = P (1+i) n 10,000(1 0.05) 4 Tk .12,155.06
Compound Interest (CI) =FV-P=12,155.06-10,000=TK.2,155.06 Ans.
Simple Interest (SI) = Pni =10,000 4 0.05 =Tk.2,000.Ans.

8. Find the compound interest on TK. 6,950 for 3 years if interest is payable half yearly, the interest rate
for first 2 years being 6% per annum and for the third year 9% Per annum.
Solution:
For the first 2 years
Here P= principal amount=Tk.6,950, n= number of year=2, i= rate of interest=6%=0.06

Future Value (FV) = P( 1

i 2n
0.06 2 2
) 6 ,950 ( 1
)
6 ,950 ( 1.03 )4 TK .7 ,822.39
2
2

Again, for the third year

Here P= principal amount=Tk.7,822.39, n= number of year=1, i= rate of interest=9%=0.09
Future Value (FV) P ( 1

i 2n
0.09 21
) 7 ,822.29 ( 1
) 7 ,822.29 ( 1.045 )2 TK .8 ,542.14
2
2

So, the required Compound Interest (CI) = FV-P=8,542.14-6,950=Tk.1,592.14 Ans.

Q9. What are the different sources of cost of capital?
Ans. The different sources of cost of capital are
Long term debt, Preference share, Ordinary share, and Retained earning.
Q10.Discuss the methods of measuring of cost of capital.
Ans .The computed of cost capital determined by multiplying the cost each item in the optimal capital structure
by its weighted representation in the overall capital structure and summing up the results.
Q11. Solution

Sources
(1)

Amount of
Tk.
(2)

Cost after Tax Weighted Cost

(3)

(4)=(2) (3)

Long term debt

6,00,000

4.77%

28,620

Performance Share

4,00,000

10.53%

42,120

Ordinary Share

8,00,000

14.99%

116,720

Retained Earning

2,00,000

14.00%

28,000

Weighted Average
Cost of Capital

215,460

Q12. Discuss some of the major benefits to be gained from budgeting.

Ans.

The major benefits to be gained from budgeting are as follows: Budget

[a] Force manager to plan,
[b] Provides information that can be used to improve the decision making,
[c] Improves the communication,
[d] Provides standard use for performance evaluation and control, and
[e] Improves the coordination.
Q13.

Solution:

Particulars

..Company
A cash Budget
For the month ended April to June
April
May
June

Total

Beginning Balance

Tk.20,000.00 Tk.4,000.00

Tk.4,200.00

Tk.20,000.00

Add Collection
A. Total cash available
before financing

181,000.00
201,000.00

217,200.00
221,200.00

283,000.00
287,200.00

681,200.00
701,200.00

Cash Payment of A/P

Payroll
Lease Payments
Advertising
Equipment Purchase

(108,000.00)
(19,000.00)
(25,000.00)
(70,000.00)
(8,000.00)

(120,000.00)
(19,000.00)
(25,000.00)
(80,000.00)
-

(180,000.00)
(18,000.00)
(25,000.00)
(60,000.00)
-

(408,000.00)
(56,000.00)
(75,000.00)
(210,000.00)
(8,000.00)

B. Total Cash Payment

(230,000.00)

(244,000.00)

(283,000.00)

(757,000.00)

(29,000.00)

(22,800.00)

4,200.00

(55,800.00)

33,000.00
4,000.00

27,000.00
4,200.00

4,200.00

60,000.00
4,200.00

Disbursement of
payment

C. Excess/Deficiency of
cash over disbursement
(A-B)
D. Financing Expenses:
Borrowing
Repayment
Interest
E. Ending cash balance
(C-D)