Description

Corporate Finance
June 2024 Examination
Q1. The following information is available of material X purchased by a company for
its manufacturing operations.
a. Annual requirement 60,000 units
b. Purchase price per unit Rs.80
c. Inventory carrying cost per unit per annum Rs.10
d. Cost of placing an order Rs.1000
e. Alternate order sizes (in units)
(i) 60,000 (ii) 30,000 (iii) 15,000 and (iv) 5000
Determine the total of ordering cost and inventory carrying cost for ordering in each
of the lot sizes.
Using EOQ formula determine the EOQ of this item. (10 Marks)
Ans 1.
Introduction
Corporate finance often involves the management of a company’s finances, ensuring that
every operational facet is optimized for cost-effectiveness and efficiency. One crucial area
in this realm is inventory management, where the key objective is to minimize the total
costs associated with ordering and holding inventory. The Economic Order Quantity
(EOQ) model is a fundamental tool used in this process. It provides the most cost-effective
quantity of stock to order, considering factors like total demand, order costs, and carrying
costs. In the provided scenario, a company needs to evaluate its inventory management
strategy for material X by calculating the ordering and carrying costs for different order
sizes and determining the optimal order quantity using the EOQ model.
Concept and Application
Economic Order Quantity (EOQ) and Inventory Management
In corporate finance, optimizing the management of inventory is crucial for minimizing
It is only half solved
Get Complete assignment help from us
Price – 290/ assignment
NMIMS Complete Solved Assignments
Available for session JUNE 2024
The last date is 29th MAY- 2024
Our assignment help is affordable
Our goal is to provide you with the best and the cheapest
services
Contact No – 8791514139 (WhatsApp)
OR
Mail us- [email protected]
Our website – www.assignmentsupport.in
Online buy – https://assignmentsupport.in/shop/
Q2. From the following information calculate the duration of the operating cycle for
each of the two years
Particulars 2022-2023 (Rs.) 2023-2024 (Rs.)
Stocks of Raw 2,70,000
Materials work-in- 2,00,000 1,20,000 1,50,000 1,75,000
process Finished Goods 2,50,000
Purchase of raw materials on
Credit
15,00,000 18,00,000
Cost of goods sold 18,00,000 19,00,000
Credit Sales 25,00,000 27,00,000
Debtors 5,00,000 6,00,000
Creditors 1,00,000 1,50,000
All figures to be rounded off to the nearest whole number (10 Marks)
Ans 2.
Introduction
The duration of the operating cycle is a vital measure in business finance, illustrating the
total time taken by a company to convert its investments in inventory and other resources
into cash flows from sales. This metric is particularly important as it helps in assessing the
liquidity and efficiency of a company’s operational processes. For the purpose of this
analysis, we will compute the operating cycle for two fiscal years, 2022-2023 and 2023-
2024, based on the provided financial data. The data includes inventories (stocks of raw
materials, work-in-progress, and finished goods), purchases of raw materials on credit, cost
of goods sold, credit sales, debtors, and creditors. These elements play crucial roles in
determining how efficiently a company manages its inventory and receivables, as well as
Q3a. The earnings per share of a company which is capitalized at 15% is Rs.8. Its
return on investment is 18%. According to Walter’s Model what would be the market
price per share if the company pays a dividend of Rs. 4 per share? According to
Walters what should be optimum dividend payable in this situation and what
wouldbe the market price per share in that situation? (5 marks)
Ans 3a.
Introduction
The question provided offers a scenario to explore the impact of dividend policies on a
company’s market price per share using Walter’s Model. This model, created by Professor
James E. Walter, evaluates how dividends affect the company’s value based on its return on
investment (ROI) and cost of equity (ke). By applying this model, we can determine the
optimum dividend policy and its corresponding market price, which is particularly valuable
Q3b.A Company sells its product to its regular customers on 60 days credit. The
Finance Manager has suggested that they should offer to their customers a cash
discount of 2% if payment is made within 10 days. The company finances its working
capital requirement from a bank at 14% interest. Should the advice of theFinance
Manager be accepted? Further, should a customer of the company who finances his
working capital requirement at 12% interest accept the offer? (5 marks)
Ans 3b.
Introduction
Evaluating the Finance Manager’s proposal to offer a 2% cash discount for early payments
involves analyzing the financial implications for both the company and its customers. The
decision revolves around the cost of financing and the benefits derived from improved cash
flow. This analysis will provide insights into whether such a discount is beneficial from a
corporate finance perspective.
Concept and Application
To assess whether the advice of the Finance Manager should be accepted, we need to