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Page 1
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE: GROUP – II
PAPER – 6: FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A : FINANCIAL MANAGEMENT
Suggested Answers/ Hints
PART I – Case Scenario based MCQs
1. (d)
2. (b)
Particulars Computation Result
Sales 100 × 5,00,000 5,00,00,000
Less Variable cost 100 × 4,50,000 4,50,00,000
Contribution 50,00,000
Less Fixed cost 25,00,000
EBIT 25,00,000
Less Interest 15% × 40,00,000 6,00,000
EBT 19,00,000
Operating leverage = Contribution ÷ EBIT = 50 Lakhs ÷ 25 Lakhs = 2
times
Operating leverage = % Change in EBIT ÷ % Change in Sales i.e. if sales
increase by 10%, EBIT increase by 20%.
Financial leverage = EBIT ÷ EBT = 25 Lakhs ÷ 19 Lakhs = 1.315 times
Combined leverage = Operating leverage × Financial leverage
= 2 × 1.315 = 2.63 times
3. (b)
Particulars Weights Cost in % Weights × Cost
Share Capital 40,00,000 5 + 1.9 × (10 – 5) = 14.5 5,80,000
Reserves & Surplus 25,00,000 14.5 3,62,500
Preference Share
Capital 12,00,000 12 1,44,000
15% Debentures 20,00,000 15 × (1 – 25%) = 11.25 2,25,000
Total 97,00,000 Total Cost 13,11,500
Discount rate = WACC = 13,11,500 ÷ 97,00,000 × 100 = 13.52%
543
Page 2
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE: GROUP – II
PAPER – 6: FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A : FINANCIAL MANAGEMENT
Suggested Answers/ Hints
PART I – Case Scenario based MCQs
1. (d)
2. (b)
Particulars Computation Result
Sales 100 × 5,00,000 5,00,00,000
Less Variable cost 100 × 4,50,000 4,50,00,000
Contribution 50,00,000
Less Fixed cost 25,00,000
EBIT 25,00,000
Less Interest 15% × 40,00,000 6,00,000
EBT 19,00,000
Operating leverage = Contribution ÷ EBIT = 50 Lakhs ÷ 25 Lakhs = 2
times
Operating leverage = % Change in EBIT ÷ % Change in Sales i.e. if sales
increase by 10%, EBIT increase by 20%.
Financial leverage = EBIT ÷ EBT = 25 Lakhs ÷ 19 Lakhs = 1.315 times
Combined leverage = Operating leverage × Financial leverage
= 2 × 1.315 = 2.63 times
3. (b)
Particulars Weights Cost in % Weights × Cost
Share Capital 40,00,000 5 + 1.9 × (10 – 5) = 14.5 5,80,000
Reserves & Surplus 25,00,000 14.5 3,62,500
Preference Share
Capital 12,00,000 12 1,44,000
15% Debentures 20,00,000 15 × (1 – 25%) = 11.25 2,25,000
Total 97,00,000 Total Cost 13,11,500
Discount rate = WACC = 13,11,500 ÷ 97,00,000 × 100 = 13.52%
543
4. (b)
Particulars Computation Result
Savings in Tea cost 200 Employees × 200 days × 3
times × ` 10
12,00,000
Less: Annual maintenance (25,000)
Less: Cost of Electricity 500 units × ` 24 per unit × 12
months (1,44,000)
Less: Consumables (8,00,000)
Less: Depreciation 5,00,000 ÷ 5 years (1,00,000)
Profit before tax 1,31,000
Less: Tax 1,31,000 × 25% 32,750
Profit after tax 98,250
Add: Depreciation 1,00,000
Cash flow after tax 98,250 + 1,00,000 1,98,250
5. (b)
Year Particulars Cash flow PVF@13.52% PV
0 Initial investment 5,00,000 1 (5,00,000)
1 to 5 Savings 1,98,250 3.473 6,88,522
Net present value 1,88,522
6. (b) ROCE = EBIT / Total Capital Employed
Total Capital Employed = Total Assets – Current Liabilities
= 50 lakhs – 10 lakhs
= 40 lakhs
EBIT = 40 lakhs x 15%
= 6 lakhs
Now, OL of 3.5 = Contribution / EBIT
Therefore Contribution = 6 Lakhs X 3.5 = 21 lakhs
Sales = Contribution / PV Ratio = 21 lakhs / 0.7 = 30 lakhs
7. (d) Calculation: Cost of Debt = (Interest Payment/ Market Price of Bond)
= (8,000 / 95,000) = 8.42%
8. (d) Cost of equity will increase. As the company increases its debt ratio, the
financial risk increases, which typically leads to an increase in the cost
of equity as equity investors demand a higher return for the additional
risk.
544
Page 3
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE: GROUP – II
PAPER – 6: FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A : FINANCIAL MANAGEMENT
Suggested Answers/ Hints
PART I – Case Scenario based MCQs
1. (d)
2. (b)
Particulars Computation Result
Sales 100 × 5,00,000 5,00,00,000
Less Variable cost 100 × 4,50,000 4,50,00,000
Contribution 50,00,000
Less Fixed cost 25,00,000
EBIT 25,00,000
Less Interest 15% × 40,00,000 6,00,000
EBT 19,00,000
Operating leverage = Contribution ÷ EBIT = 50 Lakhs ÷ 25 Lakhs = 2
times
Operating leverage = % Change in EBIT ÷ % Change in Sales i.e. if sales
increase by 10%, EBIT increase by 20%.
Financial leverage = EBIT ÷ EBT = 25 Lakhs ÷ 19 Lakhs = 1.315 times
Combined leverage = Operating leverage × Financial leverage
= 2 × 1.315 = 2.63 times
3. (b)
Particulars Weights Cost in % Weights × Cost
Share Capital 40,00,000 5 + 1.9 × (10 – 5) = 14.5 5,80,000
Reserves & Surplus 25,00,000 14.5 3,62,500
Preference Share
Capital 12,00,000 12 1,44,000
15% Debentures 20,00,000 15 × (1 – 25%) = 11.25 2,25,000
Total 97,00,000 Total Cost 13,11,500
Discount rate = WACC = 13,11,500 ÷ 97,00,000 × 100 = 13.52%
543
4. (b)
Particulars Computation Result
Savings in Tea cost 200 Employees × 200 days × 3
times × ` 10
12,00,000
Less: Annual maintenance (25,000)
Less: Cost of Electricity 500 units × ` 24 per unit × 12
months (1,44,000)
Less: Consumables (8,00,000)
Less: Depreciation 5,00,000 ÷ 5 years (1,00,000)
Profit before tax 1,31,000
Less: Tax 1,31,000 × 25% 32,750
Profit after tax 98,250
Add: Depreciation 1,00,000
Cash flow after tax 98,250 + 1,00,000 1,98,250
5. (b)
Year Particulars Cash flow PVF@13.52% PV
0 Initial investment 5,00,000 1 (5,00,000)
1 to 5 Savings 1,98,250 3.473 6,88,522
Net present value 1,88,522
6. (b) ROCE = EBIT / Total Capital Employed
Total Capital Employed = Total Assets – Current Liabilities
= 50 lakhs – 10 lakhs
= 40 lakhs
EBIT = 40 lakhs x 15%
= 6 lakhs
Now, OL of 3.5 = Contribution / EBIT
Therefore Contribution = 6 Lakhs X 3.5 = 21 lakhs
Sales = Contribution / PV Ratio = 21 lakhs / 0.7 = 30 lakhs
7. (d) Calculation: Cost of Debt = (Interest Payment/ Market Price of Bond)
= (8,000 / 95,000) = 8.42%
8. (d) Cost of equity will increase. As the company increases its debt ratio, the
financial risk increases, which typically leads to an increase in the cost
of equity as equity investors demand a higher return for the additional
risk.
544
PART II – Descriptive Questions
1. (a) Let the EBIT at the Indifference Point level be E
Particulars Alternative 1 Alternative 2
Description Fully Equity of
84 Lakhs
Debt = 56 Lakhs,
Equity = 28 Lakhs
EBIT E E
Less: Interest at 12% of ` 56
Lakhs
Nil 6.72
EBT E E – 6.72
Less: Tax at 30% 0.3 E 0.3 E – 2.016
EAT 0.7 E 0.7 E – 4.704
Less: Preference Dividend Nil Nil
Residual Earnings 0.7 E 0.7 E – 4.704
No. of Equity Shares (Face
Value ` 10)
8.4 Lakh Shares 2.8 Lakh Shares
EPS =
Shares Lakh 8.4
E 0.7
Shares Lakh 2.8
4.704 - E 0.7
For indifference between the above alternatives, EPS should be equal.
So,
Shares Lakh 8.4
E 0.7
=
Shares Lakh 2.8
4.704 - E 0.7
On cross multiplication and simplification, 2.1 E – 14.112 = 0.7 E. So,
1.4 E = 14.112
So, E =
1.4
14.112
= 10.08
So, for same EPS, required EBIT = ` 10.08 Lakhs. EPS at that level
= ` 0.84
Note: Presentation of solution may differ.
(b) Computation of PV of Future Cash Flows
Year Nature Cash Flow DF @ 12% DCF
1 Dividends (` 100 × 20%) 20 0.893 17.86
2 Dividends (` 100 × 20%) 20 0.797 15.94
3 Dividends (` 100 × 20%) 20 0.712 14.24
4 Dividends (` 100 × 20%) 20 0.636 12.72
5 Dividends (` 100 × 1.2 × 20%) 24 0.567 13.61
6 Dividends (` 100 × 1.2 × 20%) 24 0.507 12.17
7 Dividends (` 100 × 1.2 × 20%) 24 0.452 10.85
7 Net Sale Proceeds (` 900 ×
1.2 – 5%)
1,026
0.452 463.75
Shares Equity of . No
Earnings sidual Re
545
Page 4
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE: GROUP – II
PAPER – 6: FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A : FINANCIAL MANAGEMENT
Suggested Answers/ Hints
PART I – Case Scenario based MCQs
1. (d)
2. (b)
Particulars Computation Result
Sales 100 × 5,00,000 5,00,00,000
Less Variable cost 100 × 4,50,000 4,50,00,000
Contribution 50,00,000
Less Fixed cost 25,00,000
EBIT 25,00,000
Less Interest 15% × 40,00,000 6,00,000
EBT 19,00,000
Operating leverage = Contribution ÷ EBIT = 50 Lakhs ÷ 25 Lakhs = 2
times
Operating leverage = % Change in EBIT ÷ % Change in Sales i.e. if sales
increase by 10%, EBIT increase by 20%.
Financial leverage = EBIT ÷ EBT = 25 Lakhs ÷ 19 Lakhs = 1.315 times
Combined leverage = Operating leverage × Financial leverage
= 2 × 1.315 = 2.63 times
3. (b)
Particulars Weights Cost in % Weights × Cost
Share Capital 40,00,000 5 + 1.9 × (10 – 5) = 14.5 5,80,000
Reserves & Surplus 25,00,000 14.5 3,62,500
Preference Share
Capital 12,00,000 12 1,44,000
15% Debentures 20,00,000 15 × (1 – 25%) = 11.25 2,25,000
Total 97,00,000 Total Cost 13,11,500
Discount rate = WACC = 13,11,500 ÷ 97,00,000 × 100 = 13.52%
543
4. (b)
Particulars Computation Result
Savings in Tea cost 200 Employees × 200 days × 3
times × ` 10
12,00,000
Less: Annual maintenance (25,000)
Less: Cost of Electricity 500 units × ` 24 per unit × 12
months (1,44,000)
Less: Consumables (8,00,000)
Less: Depreciation 5,00,000 ÷ 5 years (1,00,000)
Profit before tax 1,31,000
Less: Tax 1,31,000 × 25% 32,750
Profit after tax 98,250
Add: Depreciation 1,00,000
Cash flow after tax 98,250 + 1,00,000 1,98,250
5. (b)
Year Particulars Cash flow PVF@13.52% PV
0 Initial investment 5,00,000 1 (5,00,000)
1 to 5 Savings 1,98,250 3.473 6,88,522
Net present value 1,88,522
6. (b) ROCE = EBIT / Total Capital Employed
Total Capital Employed = Total Assets – Current Liabilities
= 50 lakhs – 10 lakhs
= 40 lakhs
EBIT = 40 lakhs x 15%
= 6 lakhs
Now, OL of 3.5 = Contribution / EBIT
Therefore Contribution = 6 Lakhs X 3.5 = 21 lakhs
Sales = Contribution / PV Ratio = 21 lakhs / 0.7 = 30 lakhs
7. (d) Calculation: Cost of Debt = (Interest Payment/ Market Price of Bond)
= (8,000 / 95,000) = 8.42%
8. (d) Cost of equity will increase. As the company increases its debt ratio, the
financial risk increases, which typically leads to an increase in the cost
of equity as equity investors demand a higher return for the additional
risk.
544
PART II – Descriptive Questions
1. (a) Let the EBIT at the Indifference Point level be E
Particulars Alternative 1 Alternative 2
Description Fully Equity of
84 Lakhs
Debt = 56 Lakhs,
Equity = 28 Lakhs
EBIT E E
Less: Interest at 12% of ` 56
Lakhs
Nil 6.72
EBT E E – 6.72
Less: Tax at 30% 0.3 E 0.3 E – 2.016
EAT 0.7 E 0.7 E – 4.704
Less: Preference Dividend Nil Nil
Residual Earnings 0.7 E 0.7 E – 4.704
No. of Equity Shares (Face
Value ` 10)
8.4 Lakh Shares 2.8 Lakh Shares
EPS =
Shares Lakh 8.4
E 0.7
Shares Lakh 2.8
4.704 - E 0.7
For indifference between the above alternatives, EPS should be equal.
So,
Shares Lakh 8.4
E 0.7
=
Shares Lakh 2.8
4.704 - E 0.7
On cross multiplication and simplification, 2.1 E – 14.112 = 0.7 E. So,
1.4 E = 14.112
So, E =
1.4
14.112
= 10.08
So, for same EPS, required EBIT = ` 10.08 Lakhs. EPS at that level
= ` 0.84
Note: Presentation of solution may differ.
(b) Computation of PV of Future Cash Flows
Year Nature Cash Flow DF @ 12% DCF
1 Dividends (` 100 × 20%) 20 0.893 17.86
2 Dividends (` 100 × 20%) 20 0.797 15.94
3 Dividends (` 100 × 20%) 20 0.712 14.24
4 Dividends (` 100 × 20%) 20 0.636 12.72
5 Dividends (` 100 × 1.2 × 20%) 24 0.567 13.61
6 Dividends (` 100 × 1.2 × 20%) 24 0.507 12.17
7 Dividends (` 100 × 1.2 × 20%) 24 0.452 10.85
7 Net Sale Proceeds (` 900 ×
1.2 – 5%)
1,026
0.452 463.75
Shares Equity of . No
Earnings sidual Re
545
Present Value of Cash Inflows 561.14
0 Less: Initial Investment (` 500
+ 5%)
525 1 525.00
Net Present Value 36.14
Note: At the end of Year 4, Anand will have 1.2 Share i.e. 1 Bought Share
+ 1/5
th
Bonus Share.
(c) i. No of Eq. Shares (before buyback) = Total Earnings (before
buyback)/EPS
= 18,00,000/(270/18)
= 1,20,000 shares
ii. Buyback price = 270 + 10% premium = 297
iii. No of Eq. shares (after buyback) = 1,20,000 (-) 20,000 = 1,00,000
shares
iv. Total Book Value of Equity (after buyback) = 1,00,000 X 193.20
= 1,93,20,000
Now,
Total BV of Eq. (after buyback) = Total BV of Eq.(before buyback) (-)
Amt of buyback
1,93,20,000 = x (-) (20,000 X 297)
Therefore x = Total BV (before buyback)
= 2,52,60,000
BV per share (before buyback) = 2,52,60,000 / 1,20,000
= 210.50 per share
2. (a) Evaluation of Factoring Proposal -
PARTICULARS ` `
(A) Savings (Benefit) to the firm
Administration Cost 45,000 45,000
Bad Debts Cost (On Recourse
basis)
In House – 75 lakhs X 1%
Factoring – 75 lakhs X 0.5%
Net Savings in bad debts cost
(75 lakhs X 0.5%) 37,500
Cost of Carrying Debtors Cost (WN – 1) 1,06,750
TOTAL 1,89,250
(B) Cost to the Firm:
546
Page 5
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE: GROUP – II
PAPER – 6: FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A : FINANCIAL MANAGEMENT
Suggested Answers/ Hints
PART I – Case Scenario based MCQs
1. (d)
2. (b)
Particulars Computation Result
Sales 100 × 5,00,000 5,00,00,000
Less Variable cost 100 × 4,50,000 4,50,00,000
Contribution 50,00,000
Less Fixed cost 25,00,000
EBIT 25,00,000
Less Interest 15% × 40,00,000 6,00,000
EBT 19,00,000
Operating leverage = Contribution ÷ EBIT = 50 Lakhs ÷ 25 Lakhs = 2
times
Operating leverage = % Change in EBIT ÷ % Change in Sales i.e. if sales
increase by 10%, EBIT increase by 20%.
Financial leverage = EBIT ÷ EBT = 25 Lakhs ÷ 19 Lakhs = 1.315 times
Combined leverage = Operating leverage × Financial leverage
= 2 × 1.315 = 2.63 times
3. (b)
Particulars Weights Cost in % Weights × Cost
Share Capital 40,00,000 5 + 1.9 × (10 – 5) = 14.5 5,80,000
Reserves & Surplus 25,00,000 14.5 3,62,500
Preference Share
Capital 12,00,000 12 1,44,000
15% Debentures 20,00,000 15 × (1 – 25%) = 11.25 2,25,000
Total 97,00,000 Total Cost 13,11,500
Discount rate = WACC = 13,11,500 ÷ 97,00,000 × 100 = 13.52%
543
4. (b)
Particulars Computation Result
Savings in Tea cost 200 Employees × 200 days × 3
times × ` 10
12,00,000
Less: Annual maintenance (25,000)
Less: Cost of Electricity 500 units × ` 24 per unit × 12
months (1,44,000)
Less: Consumables (8,00,000)
Less: Depreciation 5,00,000 ÷ 5 years (1,00,000)
Profit before tax 1,31,000
Less: Tax 1,31,000 × 25% 32,750
Profit after tax 98,250
Add: Depreciation 1,00,000
Cash flow after tax 98,250 + 1,00,000 1,98,250
5. (b)
Year Particulars Cash flow PVF@13.52% PV
0 Initial investment 5,00,000 1 (5,00,000)
1 to 5 Savings 1,98,250 3.473 6,88,522
Net present value 1,88,522
6. (b) ROCE = EBIT / Total Capital Employed
Total Capital Employed = Total Assets – Current Liabilities
= 50 lakhs – 10 lakhs
= 40 lakhs
EBIT = 40 lakhs x 15%
= 6 lakhs
Now, OL of 3.5 = Contribution / EBIT
Therefore Contribution = 6 Lakhs X 3.5 = 21 lakhs
Sales = Contribution / PV Ratio = 21 lakhs / 0.7 = 30 lakhs
7. (d) Calculation: Cost of Debt = (Interest Payment/ Market Price of Bond)
= (8,000 / 95,000) = 8.42%
8. (d) Cost of equity will increase. As the company increases its debt ratio, the
financial risk increases, which typically leads to an increase in the cost
of equity as equity investors demand a higher return for the additional
risk.
544
PART II – Descriptive Questions
1. (a) Let the EBIT at the Indifference Point level be E
Particulars Alternative 1 Alternative 2
Description Fully Equity of
84 Lakhs
Debt = 56 Lakhs,
Equity = 28 Lakhs
EBIT E E
Less: Interest at 12% of ` 56
Lakhs
Nil 6.72
EBT E E – 6.72
Less: Tax at 30% 0.3 E 0.3 E – 2.016
EAT 0.7 E 0.7 E – 4.704
Less: Preference Dividend Nil Nil
Residual Earnings 0.7 E 0.7 E – 4.704
No. of Equity Shares (Face
Value ` 10)
8.4 Lakh Shares 2.8 Lakh Shares
EPS =
Shares Lakh 8.4
E 0.7
Shares Lakh 2.8
4.704 - E 0.7
For indifference between the above alternatives, EPS should be equal.
So,
Shares Lakh 8.4
E 0.7
=
Shares Lakh 2.8
4.704 - E 0.7
On cross multiplication and simplification, 2.1 E – 14.112 = 0.7 E. So,
1.4 E = 14.112
So, E =
1.4
14.112
= 10.08
So, for same EPS, required EBIT = ` 10.08 Lakhs. EPS at that level
= ` 0.84
Note: Presentation of solution may differ.
(b) Computation of PV of Future Cash Flows
Year Nature Cash Flow DF @ 12% DCF
1 Dividends (` 100 × 20%) 20 0.893 17.86
2 Dividends (` 100 × 20%) 20 0.797 15.94
3 Dividends (` 100 × 20%) 20 0.712 14.24
4 Dividends (` 100 × 20%) 20 0.636 12.72
5 Dividends (` 100 × 1.2 × 20%) 24 0.567 13.61
6 Dividends (` 100 × 1.2 × 20%) 24 0.507 12.17
7 Dividends (` 100 × 1.2 × 20%) 24 0.452 10.85
7 Net Sale Proceeds (` 900 ×
1.2 – 5%)
1,026
0.452 463.75
Shares Equity of . No
Earnings sidual Re
545
Present Value of Cash Inflows 561.14
0 Less: Initial Investment (` 500
+ 5%)
525 1 525.00
Net Present Value 36.14
Note: At the end of Year 4, Anand will have 1.2 Share i.e. 1 Bought Share
+ 1/5
th
Bonus Share.
(c) i. No of Eq. Shares (before buyback) = Total Earnings (before
buyback)/EPS
= 18,00,000/(270/18)
= 1,20,000 shares
ii. Buyback price = 270 + 10% premium = 297
iii. No of Eq. shares (after buyback) = 1,20,000 (-) 20,000 = 1,00,000
shares
iv. Total Book Value of Equity (after buyback) = 1,00,000 X 193.20
= 1,93,20,000
Now,
Total BV of Eq. (after buyback) = Total BV of Eq.(before buyback) (-)
Amt of buyback
1,93,20,000 = x (-) (20,000 X 297)
Therefore x = Total BV (before buyback)
= 2,52,60,000
BV per share (before buyback) = 2,52,60,000 / 1,20,000
= 210.50 per share
2. (a) Evaluation of Factoring Proposal -
PARTICULARS ` `
(A) Savings (Benefit) to the firm
Administration Cost 45,000 45,000
Bad Debts Cost (On Recourse
basis)
In House – 75 lakhs X 1%
Factoring – 75 lakhs X 0.5%
Net Savings in bad debts cost
(75 lakhs X 0.5%) 37,500
Cost of Carrying Debtors Cost (WN – 1) 1,06,750
TOTAL 1,89,250
(B) Cost to the Firm:
546
Factor Commission [Annual
credit Sales × % of Commission]
75 lakhs X 1.5% 1,12,500
Interest Cost on Net advances (See WN – 1) 53,100
TOTAL 1,65,600
(C) Net Benefits to the Firm (A – B) 23,650
Advice: Since the savings to the firm exceed the cost due to factoring,
the proposal is acceptable.
WN-1 : Calculation of Savings in Interest Cost of Carrying Debtors
(I) In house Management:
Interest Cost = Credit Sales X Avg Collection Period / 360 X Interest
(%) p.a
= 75,00,000 x 60/360 x 10%
= 1,25,000
(II) If Factoring services availed: If factoring services are availed,
then Sukrut Limited must raise the funds blocked in receivables to
the extent which is not funded by the factor (i.e amount of factor
reserve (+) amount of factor commission for 30 days (+) 20% of net
advances)
Calculation of Net Advances to the firm -
Debtors = 75 lakhs x 30/360 = 6,25,000
(-) Factor Reserve = 10% of above = (62,500)
(-) Factor Commission = 1.5% of Debtors = (9,375)
Net Advance = 5,53,125
Advance from Factor = 5,53,125 x 80% = 4,42,500
Int cost on Advance from Factor = 4,42,500 x 12% = 53,100
Now, the amount that is not funded by the factor (6,25,000 -
4,42,500) needs to be funded by Sukrut Limited from overdraft
facility at 10%
Therefore, Int cost on Overdraft (Cost of carrying debtors)
= 1,82,500 x 10% = 18,250
Net Savings in Interest Cost of Carrying Debtors = 1,25,000 (-)
18,250 = 1,06,750
(b) Level of investment depends on the various factors listed below:
(a) Nature of Industry: Construction companies, breweries etc.
requires large investment in working capital due long gestation
period.
(b) Types of products: Consumer durable has large inventory as
compared to perishable products.
547
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Oct 01, 2025
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,Financial Management Model Test Paper - 5 (Answers) - CA Intermediate
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Additional Information about Financial Management Model Test Paper - 5 (Answers) for CA Intermediate Preparation
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