Financial Management Model Test Paper - 8 (Questions) | Model Test Papers for CA Intermediate PDF Download

 Page 1


MODEL TEST PAPER 8 
INTERMEDIATE GROUP – II  
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT 
PAPER 6A: FINANCIAL MANAGEMENT 
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks) 
Write the most appropriate answer to each of the following multiple choice 
questions by choosing one of the four options given. All questions are 
compulsory. 
1. KGF Chemicals Ltd., a prominent player in the chemical industry, faces the
challenge of determining its growth trajectory and dividend policy to maximize
shareholder value. With expectations of significant growth in the near term
and stabilization in the long run, the company must strategically manage its
resources to align with investor expectations.
KGF Chemicals Ltd. is a leading manufacturer and supplier of specialty
chemicals catering to diverse industries such as pharmaceuticals, agriculture,
and manufacturing. Established with a commitment to innovation and quality,
the company has garnered a strong market presence over the years.
The company is projected to experience robust growth at a rate of 14% per
annum for the next four years. Subsequently, the growth rate is expected to
stabilize at the national economy's rate of 7% indefinitely. This forecast
reflects both the company's expansion plans and the broader economic
landscape.
KGF Chemicals Ltd. paid a dividend of ? 2 per share last year (Do = 2). The
management faces the crucial decision of balancing dividend payouts with
reinvestment opportunities to sustain growth and meet shareholders'
expectations. The dividend policy must strike a delicate balance between
rewarding shareholders and retaining earnings for future investments.
The required rate of return on equity shares is 12%, indicating investors'
expected return given the company's risk profile and market conditions.
Management must carefully assess investment opportunities to ensure they
meet or exceed this threshold, thereby generating value for shareholders over
the long term.
In navigating the dynamic landscape of the chemical industry, KGF Chemicals
Ltd. must adopt a proactive approach to managing growth and dividend policy.
230
Page 2


MODEL TEST PAPER 8 
INTERMEDIATE GROUP – II  
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT 
PAPER 6A: FINANCIAL MANAGEMENT 
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks) 
Write the most appropriate answer to each of the following multiple choice 
questions by choosing one of the four options given. All questions are 
compulsory. 
1. KGF Chemicals Ltd., a prominent player in the chemical industry, faces the
challenge of determining its growth trajectory and dividend policy to maximize
shareholder value. With expectations of significant growth in the near term
and stabilization in the long run, the company must strategically manage its
resources to align with investor expectations.
KGF Chemicals Ltd. is a leading manufacturer and supplier of specialty
chemicals catering to diverse industries such as pharmaceuticals, agriculture,
and manufacturing. Established with a commitment to innovation and quality,
the company has garnered a strong market presence over the years.
The company is projected to experience robust growth at a rate of 14% per
annum for the next four years. Subsequently, the growth rate is expected to
stabilize at the national economy's rate of 7% indefinitely. This forecast
reflects both the company's expansion plans and the broader economic
landscape.
KGF Chemicals Ltd. paid a dividend of ? 2 per share last year (Do = 2). The
management faces the crucial decision of balancing dividend payouts with
reinvestment opportunities to sustain growth and meet shareholders'
expectations. The dividend policy must strike a delicate balance between
rewarding shareholders and retaining earnings for future investments.
The required rate of return on equity shares is 12%, indicating investors'
expected return given the company's risk profile and market conditions.
Management must carefully assess investment opportunities to ensure they
meet or exceed this threshold, thereby generating value for shareholders over
the long term.
In navigating the dynamic landscape of the chemical industry, KGF Chemicals
Ltd. must adopt a proactive approach to managing growth and dividend policy.
230
By aligning strategic decisions with investor expectations and market 
dynamics, the company can position itself for sustainable success while 
maximizing shareholder value. Continual evaluation and adaptation will be 
essential to capitalize on growth opportunities and maintain competitiveness 
in the evolving marketplace. 
You are required to answer the following on the basis of above information: 
1. What is the expected dividend at the end of 4
th
 Year?
(A) ? 2.1097
(B) ? 2.1483
(C) ? 2.9631
(D) ? 3.3779
2. What is the present value of Expected Dividends to be received in next
four years?
(A) ? 11.2202
(B) ? 8.3655
(C) ? 9.8423
(D) ? 6.2176
3. Determine the Market Price of shares at the end of 4
th
 Year?
(A) ? 72.28
(B) ? 67.55
(C) ? 50.67
(D) ? 77.34
4. Determine the Present Value of Market Price of shares at the end of 4
th
Year?
(A) ? 49.18
(B) ? 32.22
(C) ? 45.79
(D) ? 42.96
5. Calculate today’s market price of the share.
(A) ? 59.03
(B) ? 54.33
(C) ? 57.01
(D) ? 57.54 (5 x 2 = 10 Marks) 
2. A company has a cost of equity of 10% and a interest rate of 6%. The
company's debt-to-equity ratio is 1.5, and the corporate tax rate is 40%. What
is the company's weighted average cost of capital?
(A) 7.20%
231
Page 3


MODEL TEST PAPER 8 
INTERMEDIATE GROUP – II  
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT 
PAPER 6A: FINANCIAL MANAGEMENT 
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks) 
Write the most appropriate answer to each of the following multiple choice 
questions by choosing one of the four options given. All questions are 
compulsory. 
1. KGF Chemicals Ltd., a prominent player in the chemical industry, faces the
challenge of determining its growth trajectory and dividend policy to maximize
shareholder value. With expectations of significant growth in the near term
and stabilization in the long run, the company must strategically manage its
resources to align with investor expectations.
KGF Chemicals Ltd. is a leading manufacturer and supplier of specialty
chemicals catering to diverse industries such as pharmaceuticals, agriculture,
and manufacturing. Established with a commitment to innovation and quality,
the company has garnered a strong market presence over the years.
The company is projected to experience robust growth at a rate of 14% per
annum for the next four years. Subsequently, the growth rate is expected to
stabilize at the national economy's rate of 7% indefinitely. This forecast
reflects both the company's expansion plans and the broader economic
landscape.
KGF Chemicals Ltd. paid a dividend of ? 2 per share last year (Do = 2). The
management faces the crucial decision of balancing dividend payouts with
reinvestment opportunities to sustain growth and meet shareholders'
expectations. The dividend policy must strike a delicate balance between
rewarding shareholders and retaining earnings for future investments.
The required rate of return on equity shares is 12%, indicating investors'
expected return given the company's risk profile and market conditions.
Management must carefully assess investment opportunities to ensure they
meet or exceed this threshold, thereby generating value for shareholders over
the long term.
In navigating the dynamic landscape of the chemical industry, KGF Chemicals
Ltd. must adopt a proactive approach to managing growth and dividend policy.
230
By aligning strategic decisions with investor expectations and market 
dynamics, the company can position itself for sustainable success while 
maximizing shareholder value. Continual evaluation and adaptation will be 
essential to capitalize on growth opportunities and maintain competitiveness 
in the evolving marketplace. 
You are required to answer the following on the basis of above information: 
1. What is the expected dividend at the end of 4
th
 Year?
(A) ? 2.1097
(B) ? 2.1483
(C) ? 2.9631
(D) ? 3.3779
2. What is the present value of Expected Dividends to be received in next
four years?
(A) ? 11.2202
(B) ? 8.3655
(C) ? 9.8423
(D) ? 6.2176
3. Determine the Market Price of shares at the end of 4
th
 Year?
(A) ? 72.28
(B) ? 67.55
(C) ? 50.67
(D) ? 77.34
4. Determine the Present Value of Market Price of shares at the end of 4
th
Year?
(A) ? 49.18
(B) ? 32.22
(C) ? 45.79
(D) ? 42.96
5. Calculate today’s market price of the share.
(A) ? 59.03
(B) ? 54.33
(C) ? 57.01
(D) ? 57.54 (5 x 2 = 10 Marks) 
2. A company has a cost of equity of 10% and a interest rate of 6%. The
company's debt-to-equity ratio is 1.5, and the corporate tax rate is 40%. What
is the company's weighted average cost of capital?
(A) 7.20%
231
(B) 6.16%
(C) 7.60%
(D) 8.40% (2 Marks) 
3. Output (units) = 3,00,000 Fixed cost = ? 3,50,000 Unit variable cost = ? 1.00
Interest expenses = ? 25,000
Unit selling price = ? 3.00 Applicable tax rate is 35% Calculate Financial
Leverage.
(A) 1.11
(B) 2.40
(C) 2.67
(D) 1.07 (2 Marks) 
4. External Commercial Borrowings can be accessed through _______
(A) only automatic route
(B) only approval route
(C) both automatic and approval route
(D) neither automatic nor approval route (1 Mark) 
PART II – Descriptive Questions (35 Marks) 
Question No. 1 is compulsory. 
Attempt any two questions out of the remaining three questions. 
1. (a) Alpha Limited issued 40,000 12% redeemable preference share of ` 100
each at a premium of ` 5 each, redeemable after 10 years at a premium 
of ` 10 each.  The floatation cost of each share is ` 2.  You are required 
to CALCULATE cost of preference share capital ignoring dividend tax. 
 (5 Marks) 
(b) Cello Limited is considering buying a new machine which would have a
useful economic life of five years, a cost of ` 1,25,000 and a scrap value
of ` 30,000, with 80 per cent of the cost being payable at the start of the
project and 20 per cent at the end of the first year. The machine would
produce 50,000 units per annum of a new product with an estimated
selling price of ` 3 per unit.  Direct costs would be ` 1.75 per unit and
annual fixed costs, including depreciation calculated on a straight- line
basis, would be ` 40,000 per annum.
In the first year and the second year, special sales promotion
expenditure, not included in the above costs, would be incurred,
amounting to ` 10,000 and ` 15,000 respectively.
CALCULATE NPV of the project for investment appraisal, assuming that
the company’s cost of capital is 10 percent.      (5 Marks)
232
Page 4


MODEL TEST PAPER 8 
INTERMEDIATE GROUP – II  
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT 
PAPER 6A: FINANCIAL MANAGEMENT 
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks) 
Write the most appropriate answer to each of the following multiple choice 
questions by choosing one of the four options given. All questions are 
compulsory. 
1. KGF Chemicals Ltd., a prominent player in the chemical industry, faces the
challenge of determining its growth trajectory and dividend policy to maximize
shareholder value. With expectations of significant growth in the near term
and stabilization in the long run, the company must strategically manage its
resources to align with investor expectations.
KGF Chemicals Ltd. is a leading manufacturer and supplier of specialty
chemicals catering to diverse industries such as pharmaceuticals, agriculture,
and manufacturing. Established with a commitment to innovation and quality,
the company has garnered a strong market presence over the years.
The company is projected to experience robust growth at a rate of 14% per
annum for the next four years. Subsequently, the growth rate is expected to
stabilize at the national economy's rate of 7% indefinitely. This forecast
reflects both the company's expansion plans and the broader economic
landscape.
KGF Chemicals Ltd. paid a dividend of ? 2 per share last year (Do = 2). The
management faces the crucial decision of balancing dividend payouts with
reinvestment opportunities to sustain growth and meet shareholders'
expectations. The dividend policy must strike a delicate balance between
rewarding shareholders and retaining earnings for future investments.
The required rate of return on equity shares is 12%, indicating investors'
expected return given the company's risk profile and market conditions.
Management must carefully assess investment opportunities to ensure they
meet or exceed this threshold, thereby generating value for shareholders over
the long term.
In navigating the dynamic landscape of the chemical industry, KGF Chemicals
Ltd. must adopt a proactive approach to managing growth and dividend policy.
230
By aligning strategic decisions with investor expectations and market 
dynamics, the company can position itself for sustainable success while 
maximizing shareholder value. Continual evaluation and adaptation will be 
essential to capitalize on growth opportunities and maintain competitiveness 
in the evolving marketplace. 
You are required to answer the following on the basis of above information: 
1. What is the expected dividend at the end of 4
th
 Year?
(A) ? 2.1097
(B) ? 2.1483
(C) ? 2.9631
(D) ? 3.3779
2. What is the present value of Expected Dividends to be received in next
four years?
(A) ? 11.2202
(B) ? 8.3655
(C) ? 9.8423
(D) ? 6.2176
3. Determine the Market Price of shares at the end of 4
th
 Year?
(A) ? 72.28
(B) ? 67.55
(C) ? 50.67
(D) ? 77.34
4. Determine the Present Value of Market Price of shares at the end of 4
th
Year?
(A) ? 49.18
(B) ? 32.22
(C) ? 45.79
(D) ? 42.96
5. Calculate today’s market price of the share.
(A) ? 59.03
(B) ? 54.33
(C) ? 57.01
(D) ? 57.54 (5 x 2 = 10 Marks) 
2. A company has a cost of equity of 10% and a interest rate of 6%. The
company's debt-to-equity ratio is 1.5, and the corporate tax rate is 40%. What
is the company's weighted average cost of capital?
(A) 7.20%
231
(B) 6.16%
(C) 7.60%
(D) 8.40% (2 Marks) 
3. Output (units) = 3,00,000 Fixed cost = ? 3,50,000 Unit variable cost = ? 1.00
Interest expenses = ? 25,000
Unit selling price = ? 3.00 Applicable tax rate is 35% Calculate Financial
Leverage.
(A) 1.11
(B) 2.40
(C) 2.67
(D) 1.07 (2 Marks) 
4. External Commercial Borrowings can be accessed through _______
(A) only automatic route
(B) only approval route
(C) both automatic and approval route
(D) neither automatic nor approval route (1 Mark) 
PART II – Descriptive Questions (35 Marks) 
Question No. 1 is compulsory. 
Attempt any two questions out of the remaining three questions. 
1. (a) Alpha Limited issued 40,000 12% redeemable preference share of ` 100
each at a premium of ` 5 each, redeemable after 10 years at a premium 
of ` 10 each.  The floatation cost of each share is ` 2.  You are required 
to CALCULATE cost of preference share capital ignoring dividend tax. 
 (5 Marks) 
(b) Cello Limited is considering buying a new machine which would have a
useful economic life of five years, a cost of ` 1,25,000 and a scrap value
of ` 30,000, with 80 per cent of the cost being payable at the start of the
project and 20 per cent at the end of the first year. The machine would
produce 50,000 units per annum of a new product with an estimated
selling price of ` 3 per unit.  Direct costs would be ` 1.75 per unit and
annual fixed costs, including depreciation calculated on a straight- line
basis, would be ` 40,000 per annum.
In the first year and the second year, special sales promotion
expenditure, not included in the above costs, would be incurred,
amounting to ` 10,000 and ` 15,000 respectively.
CALCULATE NPV of the project for investment appraisal, assuming that
the company’s cost of capital is 10 percent.      (5 Marks)
232
(c) A firm’s details are as under:
Sales (@100 per unit) ` 24,00,000 
Variable Cost   50% 
Fixed Cost ` 10,00,000 
It has borrowed ` 10,00,000 @ 10% p.a. and its equity share capital is ` 
10,00,000 (` 100 each). 
Consider tax @ 50 %.  
CALCULATE: 
(a) Operating Leverage
(b) Financial Leverage
(c) Combined Leverage
(d) Return on Investment
(e) If the sales increases by ` 6,00,000; what will the new EBIT?
(5 Marks) 
2. Following information is forecasted by the Puja Limited for the year ending
31
st
 March, 2023:
Balance as 
at 1
st
 April, 
2022 
Balance as at 
31
st
 March, 
2023 
(`) (`) 
Raw Material 45,000 65,356 
Work-in-progress 35,000 51,300 
Finished goods 60,181 70,175 
Debtors 1,12,123 1,35,000 
Creditors 50,079 70,469 
Annual purchases of raw material (all credit) 4,00,000 
Annual cost of production 7,50,000 
Annual cost of goods sold 9,15,000 
Annual operating cost 9,50,000 
Annual sales (all credit) 11,00,000 
You may take one year as equal to 365 days. 
You are required to CALCULATE: 
(i) Net operating cycle period.
(ii) Number of operating cycles in the year.
(iii) Amount of working capital requirement using operating cycles.
(10 Marks) 
233
Page 5


MODEL TEST PAPER 8 
INTERMEDIATE GROUP – II  
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT 
PAPER 6A: FINANCIAL MANAGEMENT 
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks) 
Write the most appropriate answer to each of the following multiple choice 
questions by choosing one of the four options given. All questions are 
compulsory. 
1. KGF Chemicals Ltd., a prominent player in the chemical industry, faces the
challenge of determining its growth trajectory and dividend policy to maximize
shareholder value. With expectations of significant growth in the near term
and stabilization in the long run, the company must strategically manage its
resources to align with investor expectations.
KGF Chemicals Ltd. is a leading manufacturer and supplier of specialty
chemicals catering to diverse industries such as pharmaceuticals, agriculture,
and manufacturing. Established with a commitment to innovation and quality,
the company has garnered a strong market presence over the years.
The company is projected to experience robust growth at a rate of 14% per
annum for the next four years. Subsequently, the growth rate is expected to
stabilize at the national economy's rate of 7% indefinitely. This forecast
reflects both the company's expansion plans and the broader economic
landscape.
KGF Chemicals Ltd. paid a dividend of ? 2 per share last year (Do = 2). The
management faces the crucial decision of balancing dividend payouts with
reinvestment opportunities to sustain growth and meet shareholders'
expectations. The dividend policy must strike a delicate balance between
rewarding shareholders and retaining earnings for future investments.
The required rate of return on equity shares is 12%, indicating investors'
expected return given the company's risk profile and market conditions.
Management must carefully assess investment opportunities to ensure they
meet or exceed this threshold, thereby generating value for shareholders over
the long term.
In navigating the dynamic landscape of the chemical industry, KGF Chemicals
Ltd. must adopt a proactive approach to managing growth and dividend policy.
230
By aligning strategic decisions with investor expectations and market 
dynamics, the company can position itself for sustainable success while 
maximizing shareholder value. Continual evaluation and adaptation will be 
essential to capitalize on growth opportunities and maintain competitiveness 
in the evolving marketplace. 
You are required to answer the following on the basis of above information: 
1. What is the expected dividend at the end of 4
th
 Year?
(A) ? 2.1097
(B) ? 2.1483
(C) ? 2.9631
(D) ? 3.3779
2. What is the present value of Expected Dividends to be received in next
four years?
(A) ? 11.2202
(B) ? 8.3655
(C) ? 9.8423
(D) ? 6.2176
3. Determine the Market Price of shares at the end of 4
th
 Year?
(A) ? 72.28
(B) ? 67.55
(C) ? 50.67
(D) ? 77.34
4. Determine the Present Value of Market Price of shares at the end of 4
th
Year?
(A) ? 49.18
(B) ? 32.22
(C) ? 45.79
(D) ? 42.96
5. Calculate today’s market price of the share.
(A) ? 59.03
(B) ? 54.33
(C) ? 57.01
(D) ? 57.54 (5 x 2 = 10 Marks) 
2. A company has a cost of equity of 10% and a interest rate of 6%. The
company's debt-to-equity ratio is 1.5, and the corporate tax rate is 40%. What
is the company's weighted average cost of capital?
(A) 7.20%
231
(B) 6.16%
(C) 7.60%
(D) 8.40% (2 Marks) 
3. Output (units) = 3,00,000 Fixed cost = ? 3,50,000 Unit variable cost = ? 1.00
Interest expenses = ? 25,000
Unit selling price = ? 3.00 Applicable tax rate is 35% Calculate Financial
Leverage.
(A) 1.11
(B) 2.40
(C) 2.67
(D) 1.07 (2 Marks) 
4. External Commercial Borrowings can be accessed through _______
(A) only automatic route
(B) only approval route
(C) both automatic and approval route
(D) neither automatic nor approval route (1 Mark) 
PART II – Descriptive Questions (35 Marks) 
Question No. 1 is compulsory. 
Attempt any two questions out of the remaining three questions. 
1. (a) Alpha Limited issued 40,000 12% redeemable preference share of ` 100
each at a premium of ` 5 each, redeemable after 10 years at a premium 
of ` 10 each.  The floatation cost of each share is ` 2.  You are required 
to CALCULATE cost of preference share capital ignoring dividend tax. 
 (5 Marks) 
(b) Cello Limited is considering buying a new machine which would have a
useful economic life of five years, a cost of ` 1,25,000 and a scrap value
of ` 30,000, with 80 per cent of the cost being payable at the start of the
project and 20 per cent at the end of the first year. The machine would
produce 50,000 units per annum of a new product with an estimated
selling price of ` 3 per unit.  Direct costs would be ` 1.75 per unit and
annual fixed costs, including depreciation calculated on a straight- line
basis, would be ` 40,000 per annum.
In the first year and the second year, special sales promotion
expenditure, not included in the above costs, would be incurred,
amounting to ` 10,000 and ` 15,000 respectively.
CALCULATE NPV of the project for investment appraisal, assuming that
the company’s cost of capital is 10 percent.      (5 Marks)
232
(c) A firm’s details are as under:
Sales (@100 per unit) ` 24,00,000 
Variable Cost   50% 
Fixed Cost ` 10,00,000 
It has borrowed ` 10,00,000 @ 10% p.a. and its equity share capital is ` 
10,00,000 (` 100 each). 
Consider tax @ 50 %.  
CALCULATE: 
(a) Operating Leverage
(b) Financial Leverage
(c) Combined Leverage
(d) Return on Investment
(e) If the sales increases by ` 6,00,000; what will the new EBIT?
(5 Marks) 
2. Following information is forecasted by the Puja Limited for the year ending
31
st
 March, 2023:
Balance as 
at 1
st
 April, 
2022 
Balance as at 
31
st
 March, 
2023 
(`) (`) 
Raw Material 45,000 65,356 
Work-in-progress 35,000 51,300 
Finished goods 60,181 70,175 
Debtors 1,12,123 1,35,000 
Creditors 50,079 70,469 
Annual purchases of raw material (all credit) 4,00,000 
Annual cost of production 7,50,000 
Annual cost of goods sold 9,15,000 
Annual operating cost 9,50,000 
Annual sales (all credit) 11,00,000 
You may take one year as equal to 365 days. 
You are required to CALCULATE: 
(i) Net operating cycle period.
(ii) Number of operating cycles in the year.
(iii) Amount of working capital requirement using operating cycles.
(10 Marks) 
233
3. (a)  Shahji Steel Limited requires ` 25,00,000 for a new plant. This plant is
expected to yield earnings before interest and taxes of ` 5,00,000. While 
deciding about the financial plan, the company considers the objective 
of maximizing earnings per share. It has three alternatives to finance the 
project - by raising debt of ` 2,50,000 or ` 10,00,000 or ` 15,00,000 and 
the balance, in each case, by issuing equity shares. The company's 
share is currently selling at ` 150 but is expected to decline to ` 125 in 
case the funds are borrowed in excess of ` 10,00,000. The funds can be 
borrowed at the rate of 10 percent upto ` 2,50,000, at 15 percent over 
` 2,50,000 and upto ` 10,00,000 and at 20 percent over ` 10,00,000. 
The tax rate applicable to the company is 50 percent. ANALYSE which 
form of financing should the company choose?  (6 Marks) 
(b) Following information are available for Navya Ltd. along with various
ratios relevant to the particular industry it belongs to. APPRAISE your
comments on strength and weakness of Navya Ltd. comparing its ratios
with the given industry norms.
Navya Ltd. 
Balance Sheet as at 31.3.2023 
Liabilities  (`) Assets  (`) 
Equity Share Capital  48,00,000 Fixed Assets 24,20,000 
10% Debentures 9,20,000 Cash 8,80,000 
Sundry Creditors 6,60,000 Sundry debtors 11,00,000 
Bills Payable 8,80,000 Stock 33,00,000 
Other current Liabilities 4,40,000 - 
Total 77,00,000 Total 77,00,000 
Statement of Profitability 
For the year ending 31.3.2023 
Particulars  (`) (`) 
Sales 1,10,00,000 
Less: Cost of goods sold: 
Material 41,80,000 
Wages 26,40,000 
Factory Overhead 12,98,000 81,18,000 
Gross Profit  28,82,000 
Less: Selling and Distribution Cost 11,00,000 
Administrative Cost 12,28,000 23,28,000 
Earnings before Interest and Taxes 5,54,000 
Less: Interest Charges 92,000 
Earning before Tax 4,62,000 
Less: Taxes @ 50% 2,31,000 
Net Profit (PAT) 2,31,000 
234