Description

Corporate Finance
June 2023 Examination

1. Compute the NPV and IRR for project whose initial cost is 30,000 and cash inflows
are 14000, 8200, 12000, 15000, 22000. Discount Rate is 10%. Cost of Capital if borrowed
is 15%.
Show value of NPV at IRR as discount factor.
Based on the above calculations, should the project be considered? (10 Marks)
Ans:
Introduction:
Capital investment is one of the most important decisions to be taken by a business
organization. It is also called capital appraisal choices. A capital appraisal is figuring out
which investment notion to handle by reading the prospects of a funding project. Usually,
such decisions are related to acquiring a new asset by comparing the anticipated returns from
distinct options. After the capital appraisal, the next step is to shortlist the best project(s) and
proceeds primarily based on the fund requirement It is only half solved
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2. Calculate the Cash Cycle using the following information. (Assume 360 days in a
year).
Opening Balances
Raw Material 4,00,000
WIP 80,000
Finished Goods 6,00,000
Debtors 2,50,000
Creditors 5,60,000
Closing Balances
Raw Material 5,00,000
WIP 70,000
Finished Goods 7,25,000
Debtors 3,15,000
Creditors 6,25,000
Costs Incurred during the year
Manufacturing Costs 10,45,000
Excise Duty 8,50,000
Selling and Distribution Expenses 4,20,000
Admin. Overheads 3,00,000
Total Sales 4,20,00,500
Total Purchases 3,23,00,000
30% of sales are on credit and 80% of purchases are on credit (10 Marks)
Ans:
Introduction:
The Cash Conversion Cycle is the phenomenon to determine the taken by a business to
convert its investments into inventory and then to cash. It thus measures the time in no. of
days a business invests in converting its input resources into cash.
It is mathematically presented as follows:
Cash Conversion Cycle = DIO + DSO – DPO
Here:
 DIO = Days Inventory Outstanding
 DSO = Days Sales Outstanding

3. a. In the following balance sheet calculate the Current Ratio and the Acid Test Ratio
Ans:
Introduction:
Ratio analysis is a part of financial control that includes comparing different financial ratios
to evaluate a company’s liquidity or solvency position, profitability, etc. A balance is
calculated by assessing other figures within the employer’s financial statements.
Concept and application:
Ratios are calculated for numerous functions. Some

b. Sanghvi & Sons P.Ltd. is a private limited company with almost 80% shareholding
with the Sanghvi family. It has now a requirement of Rs. 400 crores for a project to be
undertaken. Currently it has a debt-equity ratio of about 1.5:1. The management of the
company feels that a ratio of up to 2:1 is acceptable. Discuss whether the company
should fund its requirements by Debt or Equity and various considerations for the
same.
Ans:
Introduction:
A company desires a budget to carry out its operations uninterruptedly. The finances may be
acquired from distinct sources. Proprietors of the business may contribute some of it or be
received by borrowing. Those assets make up the capital shape