Financial Management Prelims Question Paper 2013 – Shreya Classes

Subject: Financial Management

Notes:

Section 1 is compulsory  & from Section 2 attempt any 3.

Section 1

Q1) Explain in brief:                                                                                               (15) Marks

(a)          Float

(b)          Cash Cycle

(c)           Financial Leverage

(d)          Collection Cost

(e)          Default Cost

Q2) Case Study:                                                                                                       (8) Marks

(A)  The following are details regarding the operation of a firm during a period of 12 months:

Sales Rs. 12,00,000

Selling price per unit Rs. 10

Variable cost per unit Rs. 7

Total cost per unit Rs. 9

Credit period allowed to customers one month

The firm is considering a proposal to increasing the credit period from one month to two months. This relaxation is expected to increase sales by 25%. Assuming the firms required return on investment is 25%. You are requested to advise the company regarding adoption of new credit policy.

(B) The Sales and Profits during the last two years are as follows:                   (7) Marks

You are required to calculate:

(a)   P/V Ratio

(b)   Break Even Point

(c)    The sales required to earn profit of Rs. 80,000

(d)   The profit made when sales are Rs. 7,00,000

(e)   Margin of safety at a profit of Rs. 50,000

(f)     Variable cost of the two years

Section 2

Q3) Household Appliances Ltd. Deals with consumer durables, having an annual turnover of 80 Lakhs, 75% of which are on credit, while the balance sales are on cash basis. Normal credit period is 30 days.

The company proposes to expand its business substantially and there is a good demand as well. However, the marketing department find that, the dealers have difficulty in holding more Stocks due to financial problems. It, therefore, proposes a change in credit policy as follows:

The products yield an average contribution of 25% on sales. Fixed costs amount to Rs. 5 Lakhs p.a. The company expects a pre-tax return of 20% on capital employed. Bad debts are expected to be 1 ½ s% for plan I and @ 2% for plan II as against the present 10% of sales. Evaluate merits of the new products and recommend the best policy                                              (10) Marks

Q4) Amit starts business on 1^st Nov 2004. Prepare Cash budget for January-   June,2005 from the following information:                                                   (10) Marks

(1)  The estimated particulars are as follows:

(2)  80% of sales are on credit basis

(3)  50% of the credit sales collected in the month following the month of sales, 30% in the second month and 20% in the third month

(4)  The Time lag in the payment of wages and salaries is one-third of a month and of miscellaneous expenses one month

(5)  Debentures worth Rs. 40,000 were sold in Jan, 05

(6)  The firm borrowed Rs. 36,000 @ 12% p.a. on 1^st May, 05. The interest shall be paid on monthly basis at the end of each month

(7)  Cash Balance at the end on Dec, 04 is Rs. 60,000

Q5) Prepare Cash Budget for 3 months ended in December 2006, from the following information:                                                                                                               (10) Marks

(a)  The estimates sales expenses are as follows:

(b)  20% of the sales is on cash

(c)   1% of the credit sales are returned by customers and Bad Debt for Oct, Nov and Dec 2006 are Rs. 800, Rs. 760 and Rs. 740 respectively

(d)  50% of the Good accounts are collected in the month of sale and the rest in the next month

(e)  Time lag in the payment of Miscellaneous Expenses and Purchases is 1 month

(f)   Wages and Salaries are paid 50% in the same month and balance in next month

(g)  The opening cash balance is Rs. 25,000

Q6) Short Notes:                                                                                                      (10) Marks

(a)  Margin of Safety

(b)  Objectives of Cash Management