Parab (2013) Financial Management JBIMS 20130408
Parab (2013) Financial Management JBIMS 20130408
Financial
Management
Balkrishna Parab
[email protected]
Contents
1
Answers ............................................................................................................................ 15
(a) Cost of Capital ............................................................................................................ 15
(b) Capital Budgeting ....................................................................................................... 15
(c) Funds Flow Statement ................................................................................................ 16
(d) Ratio Analysis ............................................................................................................ 18
COST OF CAPITAL
1 The earnings, dividends, and stock price of Carpetto Technologies Inc. are expected to
grow at 7% per year in the future. Carpettos common stock sells for $23 per share, and its
last dividend was $2.00. Required (a) Using the Dividend Discount Model what is its cost of
common equity? (b) If the firms beta is 1.6, the risk-free rate is 9%, and the average return
on the market is 13%, what will be the firms cost of common equity using the CAPM
approach?
2
Apuco Limited had the following capital structure on March 31, 2002.
Particulars
Amount (Rs)
8,000,000
2,000,000
6,000,000
Total Rs
16,000,000
The shares of the company are currently selling for Rs. 25 on the National Stock Exchange.
The expected dividend next year is Rs. 3 per share which is expected to grow at the rate of 7
per cent. Assume the tax rate to be 30 per cent. Compute the weighted average cost of capital
for the company.
3 Three companies: Delta, Gamma, Epsilon are in the same line of business. However, their
capital structure is different. The following details are available:
Source of Finance
Equity shares of Rs. 10 each
Current Market Price of Shares
Delta
Gamma
Epsilon
Rs. 20
Rs. 12
Rs. 2.70
Rs. 4.00
Rs. 2.88
8%
10%
7%
Interest rate
NA
10%
8%
Calculate the weighted average cost of capital (WACC) of the three companies assuming
they pay income tax at the rate of 30%.
4 Percy Motors has a target capital structure of 40 per cent debt and 60 per cent equity. The
interest payable on the companys outstanding bonds is 9 per cent, and the companys tax rate
is 40 per cent. Percys CFO has calculated the companys WACC as 9.96 per cent. Required
What is the companys cost of equity shares?
5 AB Limited has estimated the cost of equity and debt component of its capital for
different levels of debt-equity mix to be as follows:
16
12
20
16
12
40
20
16
60
24
20
The income tax rate applicable for the company is 30%. Required Suggest that
proportion of debt which will result in the lowest (WACC) for the company.
6 Patton Paints Corporation has a target capital structure of 40 per cent debt and 60 per cent
equity shares. The companys before-tax cost of debt is 12 per cent and its marginal tax rate is
40 per cent. The current stock price is Rs. 22.50; the last dividend was Rs. 2.00; and the
dividend is expected to grow at a constant rate of 7 per cent.
Required what will be the firms cost of equity shares and its WACC?
7 Chinchpokli Traders Private Limited is engaged in the business of exporting tamarind to
the gulf countries. The total capital of the company includes 30% debt and 70% equity. The
interest rate on debt is 16% pa. The companys shares are listed for trading on the Bombay
Stock Exchange (BSE).
The BSE SENSEX grew by approximately 18.50 over the last year. The return on the
companys stock is highly sensitive to the return on the SENSEX, and was measured as 1.1.
The income tax rate applicable to the company is 40%. The RBI pays interest of 3.50 per cent
government securities. Required Calculate the WACC.
8 Omega Enterprises, Orient Electronics, and Opulence Systems are in the same line of
business. All the companies are listed on the Bombay Stock Exchange, and their capital
structure comprises only of debt and equity. The following details were extracted about these
companies.
Company
Omega Enterprises
80
12%
0.9
Orient Electronics
65
14%
1.1
Opulence Systems
50
18%
1.0
The BSE SENSEX gave a return of 17.50 per cent and the risk-free rate of return is 3.50 per
cent. The income tax rate applicable all the companies is 30%. Required Calculate the
overall cost of capital of all the above companies.
9 Hook Industries has a capital structure that consists solely of debt and equity shares. The
company can issue debt at 11 per cent. Its stock currently pays a Rs. 2 dividend per share, and
the stocks price is currently Rs. 24.75. The companys dividend is expected to grow at a
constant rate of 7 per cent per year; its tax rate is 35 per cent; and the company estimates that
its WACC is 13.95 per cent. Required what percentage of the companys capital structure
consists of debt financing?
10 The Bulchand Companys EPS was Rs. 6.50 in 2012. The company pays out 40 per cent
of its earnings as dividends, and the stock sells for Rs. 36. The dividends are expected to grow
at rate of 7%. Required (a) Calculate the next expected dividend per share; (b) what is the
cost of equity for the Bouchard Company?
[email protected]
CAPITAL BUDGETING
1
Adolfler Limited is desirous of purchasing a piece of equipment which costs Rs. 50 lakhs.
The life of the equipment is expected to be three years at the end of which it would be
scrapped for Rs. 8 lakhs. The company charges depreciation on straight line basis; the rate
of tax applicable to the company is 35%. The companys weighted average cost of
capital is 15%. It is expected that the equipment will generate incremental cash flows
(before tax) at the end of each year as follows:
Year
3,500,000
2,500,000
2,000,000
Calculate (a) cash flows after taxes; (b) net present value; and payback period.
3
Bristol Limited is considering purchase of a piece of equipment whose initial cost is Rs.
1,000,000. The management accountant estimates that the equipment will generate a
before-tax cash flow of Rs. 350,000 for five years beginning with the end of the current
year. The company depreciates assets using straight line method. The rate of Income tax
is 35 per cent; Assume the company has a cost of capital of 20 per cent. Required (a)
What is the NPV of the project? (b) Is the project acceptable?
Truck
Rs.5100
Rs.5100
Rs.5100
Rs.5100
Rs.5100
Pulley
Rs.7500
Rs.7500
Rs.7500
Rs.7500
Rs.7500
Delta Company is wishes to purchase a filtering machine. Two brands of the machine are
available in the market. The company has compiled the following expected cash inflows
(after tax) at the end of each year. The initial cost of both the brands is Rs. 150,000.
Assuming the required rate of return to be 15 per cent which brand should the company
buy?
Year
Initial Cost
Year 1
Year 2
Year 3
Year 4
100,000
25,000
30,000
50,000
50,000
100,000
30,000
40,000
35,000
50,000
100,000
40,000
10,000
50,000
50,000
Gator Limited is considering a project which has 12,000 initial costs with estimated
after-tax benefits to be 8,000 after the first year, 7,500 after the second year and 5,000
after the third year. Calculate the NPV of the project using 18.50% as a discount rate.
What advice would you give about this investment?
Hamston Limited is considering a project which has 45,000 initial costs with estimated
after-tax benefits to be 12,500 after the first year, 15,500 after the second year and
21,000 after the third year and 38,000 after the fourth year. Calculate the NPV of the
project using 28% as a discount rate. What advice would you give about this investment?
10 Sweet Delights Co. is considering a marketing policy for its brand of chocolates. Two
mutually exclusive advertising strategy changes are under consideration. The cash flows
associated with each are as follows. The cost of capital for Sweet Delights is 13%. Which
policy should be adopted?
Policy Initial Cost
(800000)
(400000)
11 A firm considering replacement of its existing machine by a new machine. The new
machine will cost Rs 160,000 and have a life of five years. The new machine will yield
annual cash revenue of Rs 250,000 and incur annual cash expenses of Rs 130,000. The
estimated salvage of the new machine at the end of its economic life is Rs 8,000.
The existing machine was originally purchased for Rs 80,000 and can be sold for Rs
20,000. The existing machine, if used for the next five years is expected to generate
annual cash revenue of Rs 200,000 and to involve annual cash expenses of Rs 140,000. If
sold after five years, the salvage value of the existing machine will be negligible.
The company pays tax at 30%. The companys cost of capital is 20%. Depreciation on the
old machine is charged at 10% of its original cost. Compute the NPV of the replacement
decision.
12 You are a financial analyst for Damon Electronics Company. The director of capital
budgeting has asked you to analyze two proposed capital investments, Projects X and Y.
Each project has a cost of Rs.10000, and the cost of capital for each project is 12 percent.
The projects expected net cash flows (after tax) are as follows:
Year 1 Year 2 Year 3 Year 4
Project X
6500
3000
3000
1000
Project Y
3500
3500
3500
3500
Required
(a) Calculate each projects payback period, net present value (NPV), and internal rate of
return (IRR);
(b) State which project or projects should be accepted if they are independent?
(c) Which project should be accepted if they are mutually exclusive?
13 Adam Smith is considering automating his pin factory with the purchase of a machine
costing Rs.475000. Shipping and installation would cost Rs.5000. Smith has calculated
that automation would result in savings of Rs.95,000 a year due to reduced scrap and
Rs.85,000 a year due to reduced labour costs. The machine has a useful life of three years.
The estimated final salvage value of the machine is Rs.120000. The firm's tax rate is 30
percent. Calculate the NPV of the machine assuming the discount rate of 11%.
FUNDS FLOW
1 The following are the summarised balance sheets of a company as on December 31, 2003
and December 31, 2004.
Liabilities
Share Capital
2003
200000
2004 Assets
250000 Land & Buildings
2003
2004
175000
190000
General Reserve
50000
60000 Machinery
150000
161000
30500
30600 Stock
100000
74000
Term Loan
70000
80000
64000
Sundry Creditors
150000
2500
8800
27000
32000 Investments
3000
8000
3000
3000 Goodwill
20000
5000
530500
510800
Bills Payable
Total Liabilities
530500
Additional Information: (a) Dividend amounting to Rs. 23000 was paid during the year; (b)
Depreciation written off on machinery was Rs. 12,000; (c) Income tax provided during the
year was Rs. 33,000; (d) Loss on sale of machinery, Rs. 200, was written off during the year;
the book value of machine was Rs. 8000.
2
Liabilities
31.3.2005
Share Capital
31.3.2006 Assets
31.3.2005
31.3.2006
100,000
125,000 Goodwill
5,000
3000
General Reserves
25,000
30,000 Building
100,000
95,000
15,000
15,300 Plant
70,000
89,000
35,000
5,000 Stock
50,000
37,700
Creditors
75,000
67,500 Debtors
44,750
32,000
15,000
17,500 Bank
250
4,300
10,000
4,700 Prepaid
5,000
4,000
275,000
265,000 Total Rs
275,000
265,000
Total Rs
Additional Information (a) During the year a dividend of Rs. 11,500 was paid; (b)
Depreciation was written off plant Rs. 7000; (c) Depreciation was written off buildings Rs.
5000; and (d) During the year a sum of Rs. 16,500 was provided for taxation.
Prepare a funds flow statement from the summarised balance sheet of Sky Limited.
Liabilities
31.3.2009
31.3.2010
Shareholder Funds
Share Capital
Assets
31.3.2009
31.3.2010
Gross Block
4,200,000
7,500,000
Fixed Assets
2,000,000
3,000,000
General Reserves
400,000
700,000
Accumulated Depreciation
(745,000)
(1,025,000)
P&L Account
500,000
750,000
Net Block
3,455,000
6,475,000
Debentures
1,200,000
800,000
Non-Current Investments
950,000
1,275,000
Term Loan
1,000,000
1,400,000
Stock
1,975,000
2,250,000
Loan from
Directors
500,000
750,000
Debtors
2,045,000
1,875,000
1,650,000
2,150,000
Bills Receivables
375,000
285,000
Bills Payable
560,000
650,000
135,000
225,000
Bank Overdraft
950,000
1,275,000
215,000
215,000
Outstanding
Expenses
240,000
275,000
Prepaid Expenses
200,000
50,000
450,000
650,000
Advance to Supplier
100,000
100,000
Proposed Dividend
200,000
450,000
Loan to Employees
200,000
100,000
9,650,000
12,850,000
9,650,000
12,850,000
Sundry Creditors
Total Rs
Total Rs
Liabilities
31.3.2005
31.3.2006
Assets
31.3.2005
31.3.2006
Share Capital
200000
250,000
Goodwill
24,000
20,000
General Reserves
28000
36,000
Building
80,000
126,000
32000
26,000
Plant
74,000
72,000
Bills Payable
2400
1,600
Investment
58,800
22,000
Creditors
16000
10,800
Stock
60,000
46,800
38,800
3,400
Advances
4,000
9,800
32,000
36,000
Debtors
36,000
38,000
Wages Payable
800
1,200
Bank
13,200
30,400
Total Liabilities
350,000
365,000
Total Assets
350,000
365,000
Additional Information (a) During the year a dividend of Rs. 16000 was paid; (b)
Depreciation was written off plant Rs. 8000; (c) Depreciation was written off buildings Rs.
8000; (d) a provision of Rs. 38000 was made for taxation during the year; (d) During the year
investment which were acquired at Rs. 25000 were sold for Rs. 37500.
Liabilities
Share Capital
31.3.2005
220,000
31.3.2006 Assets
270,000 Property
31.3.2005
31.3.2006
148,500
144,250
Reserves
30,000
40,000 Machinery
112,950
126,200
39,690
41,220 Goodwill
20,000
10,000
Creditors
39,000
41,660 Debtors
66,160
69,430
Bills Payable
33,790
11,000 Cash
1,500
11,000
Bank Overdraft
60,000
0 Stock
110,000
92,000
40,000
3,370
1,000
Total Liabilities
462,480
462,480
453,880
50,000 Prepaid
Expenses
453,880 Total Assets
Additional Information (a) During the year ended December 31, 2005 a dividend of Rs.
26,000 was paid; (b) The following assets of another company were purchased for Rs. 50,000
in exchange for shares: (i) inventories: 21,640; (ii) machinery: 18,360; (iii) goodwill: 10,000;
(c) A new plant was purchased for Rs. 5,650; (d) Depreciation written off during the year was
as follows: (i) property: 4,250; (ii) Machinery: 10,760; and (e) Rs. 28,770 was provided for
income tax during the year.
6 The summarized balance sheets of McKennas Silver Ltd are given below. (a) During the
year investments costing Rs. 8000 were sold for Rs. 8500; the profit was included in the profit
and loss account; (b) Depreciation was written off fixed assets Rs. 70000; (c) Fixed assets
costing Rs. 10000 were sold for Rs. 12000; the profit was included in the profit and loss
account; (d) During the year a sum of Rs. 9000 was provided for taxation; and (e) Dividend
paid during the year amounted to Rs. 40000.
Liabilities
31.3.2005
31.3.2006 Assets
31.3.2005
31.3.2006
400000
320000
8000
3000
122000
87000
270000 Stock
160000
180000
134000 Debtors
210000
455000
10000 Bank
149000
197000
1049000
1242000
Share Capital
450000
General Reserves
300000
310000 Goodwill
56000
Debentures
68000
Creditors
168000
7000
Total Liabilities
1049000
68000 Investments
7 The following are the summarised balance sheets of a company as on December 31, 2005
and December 31, 2006.
Liabilities
2005
Share Capital
200000
2006 Assets
250000 Land
2005
2006
10000
60000
31500
40000 Machinery
25000
40000
P&L A/c
23500
52000 Building
75000
90000
Debentures
40000
35000 Investments
50000
30000
82000
92000
9000
Wages Payable
3000
30000 Stock
32000
40000
Bills Payable
3500
4500 Bank
43000
58000
5500 Prepayment
23000
54000
11500
Creditors
33000
40000 Patents
10000
6000
45000
40000 Goodwill
50000
30000
Total Liabilities
400000
400000
500000
Additional Information (a) Dividend paid during the year was Rs. 26500; Investment
originally purchased for Rs. 20000 were sold in 2006 for Rs. 25000; (c) Machinery having a
written down value of Rs. 5000 was sold at a loss of Rs. 1000; (d) During the year
depreciation charged on Machinery was Rs. 6000; and on Building Rs. 15000; (e) A sum of
Rs. 50,000 was provided for taxes during the year.
8 The comparative balance sheet of Graphic Design Studio, Inc., at June 30, 2009, included
these amounts.
Liabilities
Share Capital
2008
2009 Assets
2008
2009
87,100
94,900 Patents
27400
5000
42,400
96,000
256,700
293,300
276,700
Secured Debentures
59,800
51,200 Land
56,600
29200
48400
Salary payable
47,400
64,100 Investment
74,500
73,600
18,100 Cash
48,800
51,900
3,400
298,900 Equipment
Bills payable
42,400
28,600
8,600
Creditors
13,800
14,500 Debtors
68,600
60,200
3,700
2,800
Fines payable
8,200
9,100 Inventories
Accrued liabilities
3,700
10,100
5,200
900
10,000
5,000
600,000
650,000
Interest payable
Total Rs
600,000
650,000 Total Rs
Additional Information (a) depreciation expense on equipment: Rs. 13,400; (b) purchased
new investment, Rs. 4,900; (c) sold land for Rs. 46,900 at a loss of Rs. 6,700 loss; (d)
acquired equipment by issuing secured debentures, Rs.14,300; (e) repaid secured debentures,
Rs. 61,000; (f) paid cash dividends, Rs.38,100; and (g) provision for tax for the year was Rs.
50,000.
[email protected]
9 The following are the summarised balance sheets of Raffles Ltd. as on December 31,
2005 and December 31, 2006.
Liabilities
Share Capital
2005
200000
2006 Assets
240000 Land
2005
2006
93000
23500
52000 Machinery
25000
90000
Debentures
40000
35000 Building
70000
146000
Term Loans
63900
53600 Goodwill
5000
4000
50000
30000
2000
5000
Outstanding Expenses
Creditors
3500
33000
4200 Investments
40000 Prepaid Expenses
2000
3000 Inventories
30000
35000
Bills Payable
2100
1200 Cash
43000
58000
82000
92000
400000
460000
32000
Total Liabilities
400000
31000 Debtors
460000 Total Assets
Additional Information (a) Dividend paid during the year was Rs. 30,000; (b)
Investment which were originally acquired for Rs. 20000 were sold in 2006 for Rs.
25000; (c) Machinery costing Rs. 5000 on which Rs. 1000 depreciation has been
accumulated was sold for Rs. 3000 in 2006; (d) Depreciation charged on building was
Rs. 14000; and on machinery was Rs. 10,000; (e) Provision for tax was Rs. 28,000; and
(f) During the year the company issued bonus shares of Rs. 40,000; (g) Land was sold
for Rs. 125,000.
10 The following are the summarised balance sheets of Perokside Ltd. as on December 31,
2003 and December 31, 2004.
Liabilities
Share Capital
2003
200000
2004 Assets
250000 Building
2003
2004
200000
190000
150000
169000
Preference Shares
60000
20000 Machinery
20500
70600 Stock
90000
74000
Term Loan
70000
80000
64000
150000
500
8800
Sundry Creditors
Bills Payable
18250
21100 Goodwill
10000
5000
Accrued Liabilities
51250
18100 Patents
29500
19200
30000
25000 Copyrights
40000
20000
Total Liabilities
600000
600000
550000
Additional Information (a) Dividend amounting to Rs. 23000 was paid during the year; (b)
Depreciation written off on machinery was Rs. 12,000; and building Rs. 10,000; (c) A
machine have a written down value of Rs. 15,000 was sold at a loss Rs. 200, was written off
during the year; (d) provision for tax during the year was Rs. 27500.
RATIO ANALYSIS
1 From the following comparative balance sheets: (a) calculate liquidity, asset utilization,
solvency and profitability ratios; and (b) comment on the relative performance of the
companies.
Consolidated Balance Sheets on March 31, 2012
Cipla
Sun
Pharma
Torrent
Pharma
Consolidated Profit and Loss Account for year ended March 31, 2012
Cipla
Sun
Pharma
Torrent
Pharma
Income
Sale (Gross).............................................................................7,128.82................. 8,126.94 ................. 2,599.21
Less: Excise Duty ......................................................................108.11.................... 107.45 ........................ 4.80
Net Sales .................................................................................7,020.71................. 8,019.49 ................. 2,594.41
Other Operating income ....................................................................... ............................... .................... 101.51
Total Operating Revenues .......................................................7,020.71................. 8,019.49 ................. 2,695.92
Expenses
Manufacturing, Administration and Selling Expenses ............5,361.86................. 4,815.17 ................. 2,195.28
EBITDA ........................................................................................1,658.85................. 3,204.32 .................... 500.64
Depreciation and Amortisation Expense ....................................312.22.................... 291.16 ...................... 81.73
EBIT (Operating Profit) .................................................................1,346.63................. 2,913.16 .................... 418.91
Non-operating Income ...............................................................139.52.................... 471.51 ...................... 44.52
Finance Costs ...............................................................................38.34...................... 28.20 ...................... 39.45
Other Non-operating Expense ........................................................0.00........................ 1.11 ...................... 65.36
Total Expenses ........................................................................5,712.42................. 5,134.53 ................. 2,316.46
Earnings before Tax .....................................................................1,447.81................. 3,356.47 .................... 358.61
Tax Expenses .............................................................................306.51.................... 382.63 ...................... 72.32
Earnings after tax .........................................................................1,143.30................. 2,973.84 .................... 286.30
Share of Associates ........................................................................2.94........................ 0.00 ........................ 0.00
Minority Interest ............................................................................0.00.................... 385.48 ........................ 2.26
Profit for the Year.........................................................................1,144.24................. 2,587.25 .................... 284.04
WORKING CAPITAL
1
A company plans to sell 30,000 units next year. The estimated cost of goods is as follows:
Raw materials: Rs. 100 per unit; Manufacturing expense: 30 per unit; Selling and
distribution expenses: 20 per unit; Selling price: 200 per unit.
The duration at various stages of the operating cycle is as follows: Raw materials: 2 months;
Work-in-progress: 1 month;
Finished goods; half a month; Debtors: 1 month;
Desired cash balance: Rs. 75,000.
Required Estimate the gross working capital requirement.
Calculate the amount of working capital requirements for a company engaged in unseasonal
business from the following information for an expected level of production of 104000 units:
Raw material ..................................................... Rs. 160 per unit
Direct Labour .............................................................. 60 per unit
Overhead ................................................................... 120 per unit
Selling price .............................................................. 400 per unit
Additional information:
(a) Raw materials are in held in stock on an average for four weeks; materials are in process
on an average for two weeks; and finished goods are in stock on an average for four
weeks. One-fourth of the goods are sold against cash.
(b) Credit allowed by suppliers is four weeks and credit allowed to debtors is eight weeks.
(c) Time lag in payment of wages is one and a half week and in payment of overhead
expenses is four weeks.
(d) Cash in hand and bank is expected to be Rs. 140,000.
The management of Gemini Limited has called for a statement showing the working capital
needed to finance a level of activity of 300,000 units of output for the year. The production
pattern is evenly spread during the year. The cost structure of the company's product is as
follows:
Raw Materials: Rs. 20 per unit; Direct LabourRs. 5 per unit; Overheads Rs. 15 per unit;
Selling Price: Rs. 50 per unit.
Past record suggests the following trend:
(a) Raw materials are held in stock on an average for two months; work-in-progress will
approximate to half a month's production; and finished goods remain in warehouse on
an average for a month.
(b) Two month's credit is normally allowed to debtors; and suppliers of materials extend a
month's credit.
(c) A minimum cash balance of Rs. 25,000 is expected to be maintained.
The board of directors of Nancy Engineering Limited requests you to prepare a statement
showing the working capital requirements for a level of activity at 156,000 units of
production. The cost structure of the company's product is as follows:
Raw Materials ......................................................Rs. 90 per unit
Direct Labour .......................................................Rs. 40 per unit
Overheads .............................................................Rs. 75 per unit
Total Cots............................................................ Rs. 205 per unit
Profit Expected....................................................Rs. 60 per unit
Selling Price ....................................................... Rs. 265 per unit
Past record suggest the following trend:
ANSWERS
Cost of Capital
1: (a) 16.30% (b) 15.40%
2: Ke=19%; Kp=14%; Kd =8.40%;
WACC =14.40%
3: Delta: 27.44%; Gamma: 24.86%;
Epsilon: 23.65%
4: Ke=13%
5: 20%
6: Ke=16.50%; WACC=12.79%
7: 16.88%
8: (a) Omega Enterprises: 14.56%
(b) Orient Electronics: 15.72%
(c) Opulence Systems: 15.05%
9: 20%
10: (a) D1 = Rs. 2.78; (b) Ke = 14.73%
Capital Budgeting
1: (a) NPV = -605832; Project is unacceptable
(b) 2%
2: (a) CFAT (Year 1) 2765000 (Year 2) 2115000 (Year 3) 1790000
(b) NPV = 180546
(c) Payback Period = 2 Years 25 days
3: (a) NPV = 3212985
(b) Project is acceptable
4: (a) Truck: NPV Rs. 409; IRR 15per cent
(b) Pulley: NPV Rs. 3318; IRR 20per cent
5: (a) Brand A: NPV = -25632; Brand B: NPV = -26213.
(b) Brand B is acceptable.
6: (a) Brand A NPV=2302; Brand B NPV=3533; Brand C NPV=516.
(b) Brand B is preferred.
7: Computerisation is advised because of positive NPV of 53263.
8: Undertaking the project is advised because of positive NPV of 3097
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9: Sources (a) Funds from operations: 115,500; (b) Sale of Land: 125,000; (c) Sale of
Investments: 25,000; (d) Sale of Machinery: 3,000; Total sources: 268,500. Application
of Funds (a) Payment of Dividends: 30,000; (b) Tax Paid: 29,000; (c) Increase in
Working Capital: 25,200; (d) Purchase of Machinery: 79,000; (e) Purchase of Building:
90,000; (f) Repayment of Term Loans: 10,300; (g) Repayment of Debentures: 5,000;
Total Applications: 268,500.
10: Sources (a) Funds from operations: 158,100; (b) Sale of Machinery: 14,800; (c) Issue of
Equity Shares: 50,000; Total sources: 222,900. Application of Funds (a) Payment of
Dividends: 23,000; (b) Tax Paid: 32,500; (c) Increase in Working Capital: 21,400; (d)
Purchase of Machinery: 46,000; (e) Repayment of Term Loans: 60,000; (f) Redemption
of Preference Shares: 40,000; Total Applications: 222,900.
Ratio Analysis
RATIO
FORMULA
CIPLA
SUN
TORRENT
Liquidity
Current Ratio
3.51
4.11
1.46
Quick Ratio
2.23
3.27
1.07
Inventory Turnover
3.79
3.84
4.88
Days Inventory in
Stock
97
95
75
Debtors Turnover
4.52
4.16
4.96
Average Collection
Period
81
88
74
1.96
2.45
2.83
0.75
0.49
0.84
0.03
0.03
0.17
Debt to Equity
0.03
0.04
0.43
Interest Coverage
35.12
103.3
10.62
EBITDA Margin
0.24
0.4
0.19
Operating Margin
0.19
0.36
0.16
Net Margin
0.16
0.32
0.11
Return on Assets
0.12
0.16
0.09
Return on Equity
0.15
0.21
0.24
Return on Capital
Employed
0.14
0.2
0.17
Activity
Solvency
Profitability