Corporate Finance
April 2025 Examination
- Mr. Joshi is the Finance Manager at M/s Vriddhi Impex. The Company is looking at lateral growth and diversification into garment making from cloth making. For doing this, there needs to be put up a factory with all the latest machinery for cutting and stitching garments. The cost of acquisition of land, setting up the factory and buying the machinery works out to Rs. 100 lacs. It is estimated that the project will start generating revenue immediately from year 1. The Net revenue (after tax) for the next 5 years is Rs. 20 lacs, 30 lacs, 35 lacs, 45 lacs, 48 lacs.
A new loan is available to Vridhi Impex at 9% p.a. interest rate (net of tax). Mr. Joshi has another proposal which gives him a return of 12% p.a. and hence he does not want to invest below this rate.
Assist Mr. Joshi to evaluate the project proposal using NPV and IRR. (Show all calculations for comparing it with the alternative proposal also). Should he go ahead with the project proposal? (10 Marks)
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- Parag is evaluating 3 options for investment of his surplus money of Rs. 15,00,000/- for a period of 5 years.
- Invest it in a Debenture which gives him a return of 12% compounded quarterly.
- Invest in a Corporate Deposit at a rate of 9% compounded bi-annually.
iii. Invest it in a Business Proposal which gives him the following returns.
Considering the risk involved, the discounting factor is considered @ 11%.
| Year | CF |
| 1 | 250,000 |
| 2 | 350,000 |
| 3 | 575,000 |
| 4 | 525,000 |
| 5 | 645,000 |
As his finance advisor which option would you suggest him. Provide reasons. (10 marks)
- a) In the following Balance sheet, calculate the Current Ratio and the Acid Test Ratio for both years Mar 2024 and Mar 2023. What do they indicate about the company’s financial position and the movement over the years? (5 Marks)
| Tata Motors | ||
|
Standalone Balance Sheet |
——————- in Rs. Cr. —————–
— |
|
| Mar 24 | Mar. 23 | |
| EQUITIES AND LIABILITIES | ||
| SHAREHOLDER’S FUNDS | ||
| Equity Share Capital | 766.50 | 766.02 |
| Total Share Capital | 766.50 | 766.02 |
| Reserves and Surplus | 29,374.83 | 21,701.37 |
| Total Reserves and Surplus | 29,374.83 | 21,701.37 |
| Money Received Against Share Warrants | – | – |
| Total Shareholders Funds | 30,141.33 | 22,467.39 |
| 1.72 | 2.46 | |
| NON-CURRENT LIABILITIES | ||
| Long Term Borrowings | 5,235.67 | 10,445.70 |
| Deferred Tax Liabilities [Net] | 49.78 | 51.16 |
| Other Long Term Liabilities | 1,392.16 | 1,411.78 |
| Long Term Provisions | 1,936.92 | 1,588.75 |
| Total Non-Current Liabilities | 8,614.53 | 13,497.39 |
| CURRENT LIABILITIES | ||
| Short Term Borrowings | 8,535.37 | 8,426.74 |
| Trade Payables | 8,826.46 | 7,162.60 |
| Other Current Liabilities | 8,830.41 | 9,805.30 |
| Short Term Provisions | 1,133.92 | 408.89 |
| Total Current Liabilities | 27,326.16 | 25,803.53 |
| Total Capital And Liabilities | 66,083.74 | 61,770.77 |
| ASSETS | ||
| NON-CURRENT ASSETS | ||
| Tangible Assets | 11,990.26 | 12,129.14 |
| Intangible Assets | 2,353.79 | 2,413.18 |
| Capital Work-In-Progress | 645.03 | 575.65 |
| Intangible Assets Under Development | 588.92 | 509.30 |
| Fixed Assets | 15,578.00 | 15,627.27 |
| Non-Current Investments | 30,315.57 | 29,181.62 |
| Deferred Tax Assets [Net] | 1,558.65 | 1,477.26 |
| Long Term Loans And Advances | 101.89 | 114.40 |
| Other Non-Current Assets | 3,321.96 | 3,870.27 |
| Total Non-Current Assets | 50,876.07 | 50,270.82 |
| CURRENT ASSETS | ||
| Current Investments | 1,993.50 | 3,142.96 |
| Inventories | 3,470.38 | 3,027.90 |
| Trade Receivables | 2,765.16 | 2,307.72 |
| Cash And Cash Equivalents | 5,150.96 | 1,414.65 |
| Short Term Loans and Advances | 132.19 | 132.29 |
| Other Current Assets | 1,695.48 | 1,474.43 |
| Total Current Assets | 15,207.67 | 11,499.95 |
| Total Assets | 66,083.74 | 61,770.77 |
- b) Monica has a debenture of Face value Rs. 100/- @ 8.5%. Calculate its current yield if: (5 Marks)
- i) Market Price is Rs. 98.90
- ii) Market Price is Rs. 95.20 iii) Market Price is Rs. 105
What inference can you draw from this about the relation between Market price and yield?