ANSWER ANY TWO QUESTIONS.

(a) State five stake holders of a business organization and briefly explain why
they are interested in affairs of a business organization?
(5
Marks)
(b) Briefly explain the following.
-

Non current assets

Current Assets
Current Liabilities
Equity.

(5 Marks)

(c) Big PLC has been in the business of manufacturing and sale of Ice Cream.
The profit of the company is exempt from income tax. The
following
information was extracted from the financial statements of the Company for
the financial year 2010/2011.
-

Stated capital

Rs.10,000,000
(10,000,000

Ordinary

shares)
-

Profit for the year

Rs.50Mn

Capital employed as at 31/03/2011 -

Rs.280 Mn.

Interest

Current Assets

Current Liabilities

Rs.25 Mn.
Rs.60 Mn.
-

Rs.30 Mn

Further market value of a share as at 31st March 2011 was Rs.100.

You are required to compute,
i.

Earnings per share

ii.

Price earnings ratio

iii.

Interest Cover

iv.

Return on capital employed

v.

Current ratio

(10 Marks)

(d ) Breifly explain the following accounting concepts / principals.

i.Business entity concept.
ii.Going concern concept.
iii.Dual aspect concept.
iv.Money measurement concept
(10 Marks)

(e)
Medium PLC has been in the business of manufacturing and sale of Examination
gloves. The following ratios computed from the financial statements of the
Company for the last two years and the industry ratios are available for your
consideration.
Ration
Gross Profit Margin
Net Profit Margin
Return on Equity
Return on Assets
Assets Turnover
Interest Cover
Current Ratio
Acid Test Ratio
Trade receivable days
Inventory holding period
Trade Payables days
Return on Capital employed
i.

2008/2009
30%
18%
19%
18%
1.8 times
12
4:1
2:1
43 days
80 days
40 days
20%

2009/2010
30%
18%
20%
18%
1.7 times
10
6:1
3:1
38 days
20 days
40 days
20%

Industry
35%
16%
17%
15%
1.0 times
14
3:1
1:1
60 days
90 days
60 days
24%

Mr. Ranjan an investor is interested in investing equity shares of Medium

PLC. He is interested in receiving regular dividend and long term capital
gains from his investments. You are required to write a comprehensive
report to Mr. Ranjan analyzing the financial performance and financial
position of Medium PLC, enabling him to take a decision as to whether he
should invest in this Company.
(20 Marks)
Total 50 Marks

2. (a) Small PLC has in issue 15% bond of a nominal value of Rs.100/=.The market
price of a bond is Rs.80/= (ex. Interest) Calculate the cost of debt capital, if the
bonds are irredeemable.
( 5 Marks)
(b)Good PLC is financed partly by ordinary shares and partly by bonds. The capital
structure of the company is 60% equity and 40 % debt capital.
Cost of equity is 12% cost of debt is 10%.
A new project is under consideration which will cost Rs.5,000,000/= , and will yield a
cash return of Rs.250,000/= a year in perpetuity.The project will be financed 1/2 by
equity and 1/2 by debt.
Advice management whether the project should be accepted or not ?
(10 Marks)
(c ) Explain the reasons why NPV is considered as a better method of investment
appraisal technique than pay back period method.
(5 marks)
( D) HIFI PLC is considering manufacturing a new product.cost of machinery
required for this purpose is Rs.1,000,000/= , and useful life of the machinery is five
years.The machine can be sold for Rs.100,000/= at the end of the project in fifth
year.Cost of the capital of the company is 12%.sales per year is Rs.500,000/= , and
cash expenses per year is Rs.200,000/= .Assume sales and expenses are constant
over the project life time of five years.ignore inflation and taxation.
1) Using the NPV technique , advice whether the company should go ahead with
this investment ?
(15 marks)
2) Calculate the IRR of the project ?
(10 marks)
(e)Briefly explain the decision criteria when you evaluate a project by using IRR
technique ?
(5 marks)
(Total 50 marks)

3. a) Breifly explain the following relevant to the short term decision making ;
i)

Fixed cost

ii)
iii)
iv)

Variable cost.
Opportunity cost.
Sunk cost.
(10 Marks)

(b)XYZl Plc makes three products by using the same skilled labour.However skill
labour supply is limited to 8000 labour hours per month.Details pertaining to
individual products are given below.
Product Big Product Medium

Product

small.
Contribution per unit (Rs)

100

120

400

Skill labour required to produce 1 unit 5kg

12kg

50kg

Maximum demand per month (units)

500

700

600

You are required to advice the management of the company as to the quantity of
each product to be produced in order to maximize profits ?
(15 marks)
c) Mr.Raman is a call writer/seller.Mr.Ranjan entered into a call contract with Mr.
Raman to buy 1000 shares of Maturate plc at the strike price of Rs.20/= per share.
This call contract expires on 31 st March 2012.Mr.Ranjan paid Rs.10,000/= to
Mr.Raman as the option premium. If the price of a share of maturate PLC increased
to Rs.25/= as of 31st March 2012, state the positions of Mr. Raman and Mr. Ranjan.
(15 Marks)
(c) Mr.James (put buyer) purchase a put contract to sell 2000 shares of udarata PLc
to Mr.Thomes(put writer)for Rs.100 per share. Mr. John paid a premium of Rs. 5 per
share being the option price to Mr.Thomes. The put contract will expire on 31 st
March 201.
Evaluate the position of Mr.James and Mr.Thomess if the share price increased up
to Rs.120 as of 31st March 2012.
(10 Marks)
(Total 50 Marks)