Financial Goal Setting

Q.1. Calculate EVA from the following data for the year ended 31st March, 2009:

Particulars Rs. Crores

Average Debt 30
Average Equity 270
Profit after tax, before exceptional items 145
Interest after taxes 0.5
Cost of Debt (Post tax) 7.50%
Cost of Equity 15.0%
Q.2. Vijay Ltd. Provides you the following information as on 31st March, 2009:

Balance Sheet as on 31.03.2009

Liabilities Rs. Lakhs Assets Rs. Lakhs

Share capital 1000 Fixed Assets 2250
Reserve & Surplus 1300 Current Assets 750
Long term Debt 200
Creditors 500
3000 3000
Additional Information:
(i) Profit before interest and taxes Rs. 2000 lakhs.
(ii) Interest paid Rs. 30Lakh.
(iii) Tax Rate 30%
(iv) Risk Free Rate 11%
(v) Long Term Market Rate = 12%
(vi) Beta(β) = 1.62
You are required to calculate the Economic value Added.
Q.3. Modern Industries Ltd. is engaged in textiles business. Its income statement and balance
sheet are given below:
(I) Income Statement for the year ended 31.03.2009:

Particulars Rs. Lakhs

Sales Revenue 12000
Less: Cost of Production 9000
PBIT 3000
Less: Interest on Loan 20
PBT 2980
Less: Tax @ 30% 894
Earnings after Tax 2086
(II) Balance Sheet as on 31.03.2009:

Liabilities Rs. Lakhs Assets Rs. Lakhs

Equity Share Capital (Rs.10 each) 400 Land & Building 200
Reserves & Surplus 300 Plant & Machinery 400
10% bank Loan 200 Debtors 200
Creditors 100 Stock 150
Cash & Bank 50
1000 1000
(III) The Company’s weighted average cost of Capital is 12%
(IV) The Company is listed on BSE and has a P/E Ratio of 6 times.
You are required to calculate (a) value of the firm (b) EVA and (c) MVA.
Q.4. The summarized income statement and balance sheet of GEM Ltd. for the year ended 31 st March 2012 are
as under:

(I) Income Statement For the Year ended 31.03.2012:

Particulars Rs. Lakhs

Sales 80
Less: Cost of Goods sold 64
Gross Profit 16
Less: Depreciation 1.50
Administration and Selling Expenses 2.50 4
Profit before interest and taxes (PBIT) 12
Less: Interest 3.00
Profit Before Tax (PBT) 9.00
Less: Tax @ 30% 2.70
Net Profit After tax 6.30
(II) Balance Sheet as on 31.03.2012:

Liabilities Rs. Lakhs Rs. Lakhs

Equity Share capital 50.00
Reserve & Surplus 18.00
68.00
Debentures 8.00
Total 76.00
Employed as:
Fixed Assets 63.00
Current Assets
Stock 9.00
Debtors 5.00
Bills receivable 2.10
Cash & Bank 0.90
17.00
Less: Current Liabilities
Creditors 2.80
Bills payable 1.20

4.00
Net Working Capital 13.00
Total 76.00
You are required to calculate return on networth and comment on the performance of the company.
Q.5. The Balance sheet of Yahoo Ltd. stood as follows:

Rs. Lakhs

Liabilities 2007-08 2008-09 Assets 2007-08 2008-09

Capital 250 250 Fixed Assets 200 260
Reserve 100 116 Investments 30 40
Loans 120 100 Stock 100 120
Creditors 25 129 Debtors 50 70
Cash & Bank 115 105
495 595 495 595

You are also given the following information:

Particulars 2007-08 2008-09

Sales 500 600
PBIT 120 150
Interest 30 24
Provision for tax 40 60
Proposed Dividend 30 50
You are required to calculate the RONW and comment on the performance in the year 2008-
2009.

Q.6. Calculate the P/E ratio from the following:

Particulars Rs.
Equity Share Capital (Rs.10 each) 50,00,000
Reserve & Surplus
Secured Loans @ 15% 5,00,000
Unsecured Loans @ 12.5% 25,00,000
Fixed Assets 10,00,000
Investments 30,00,000
Operating Profit (PBIT) 5,00,000
20,00,000
Income tax rate is 30% and market price of the company’s share is Rs. 40.
Q.7. A Ltd. is capitalized as follows:

Particulars Rs.
9% preference Share of Rs 100 each 6,00,000
Equity shares of Rs. 10 each 14,00,000
Total 20,00,000
The Following information is relevant as to its financial year 2008-09:

Particulars Rs.
Profit after tax @ 30% 5,54,000
Capital Commitments 2,40,000
Market Price of shares 40
Equity dividend paid 20%
Depreciation 1,20,000
You are required to calculate the P/E ratio.

Q.8. Veena Ltd. has presented its financial information for the year ended 31stMarch , 2012:

Particulars Rs.
Earnings before interest and taxes (EBIT) 8,00,000
1,00,000 Equity shares of Rs. 10 each 10,00,000
10% Debentures 15,00,000
Reserves & Surplus 5,00,000
Provision for taxation 30%
Proposed Dividend 20%
Market price per Share 32
Calculate (i) EPS and (ii) P/E Ratio and comment on the performance of the Company.

Q.9. The financial data relating to ‘C’ Ltd. is given below:

Particulars Rs.
8% preference shares of Rs. 100 each 5,00,000
1,00,000 Equity Shares of Rs. 10 each 10,00,000
Total 15,00,000
The following data is also available for the year ended of 31.03.2012

Particulars Rs.
Net profit after tax 5,60,000
Market Price of Shares 24
Equity Dividend Paid 20%
Depreciation 1,20,000
You are required to calculate the following:
(a) EPS, (b) Cash EPS, (c) P/E Ratio.
Q. 10. The following details are given regarding A Ltd. for the three years.

Rs. Lakhs

Particulars 2006-07 2007-08 2008-09

Sales 60 63 65
Cost 54 56 58
Profit 06 07 07
Capital 40 44 45
Calculate:
(a) Return on Sales,
(b) Capital Turnover,
(c) Return on Investment.

Q.11.From the following figures extracted from the Income statement and Balance Sheet of
Amar Sales Ltd., calculate the return on investment:

Particulars Rs. Lakhs

Fixed Assets 450
Current Assets 150
Investment in Government Securities 100
Sales 500
Cost of goods sold 295 Provision for tax @30% of net profits.
Share capital:
10% preference Capital 100
Equity Share Capital (Rs. 10) 200
Reserve & Surplus 100
15% debentures 100
Income from Investments 10

Q.12. The profit and loss account of X Ltd. for the year ended 31st December, 2012 and the
Balance Sheet as on that date are given below:
 (a) Profit and Loss Account for the year ended 31-12-2012:

Particulars Rs. Lakhs

Sales 500
Less: Expenses 350
Depreciation 10 360
Profit before tax 140
Less: Income tax @ 30% 42
Profit after tax 98
The rate to be used for calculating capital charge is 10%

(b) Balance sheet as on 31-12-2012

Liabilities Rs. Lakhs Assets Rs.Lakhs

Share Capital: Fixed Assets: 500
Equity Shares of Rs. 10 each 200 Less: Accumulated Depreciation 200 300
Reserve and Surplus 80
Current Assets:
Current liabilities: Debtors 100
Creditors 150 Stock 150
Bills Payable 50 Cash & Bank 50 300
Other Liabilities 120 320
600 600
You are required to calculate (a) return on investment and (b) Economic Value Added and
comment on the relation between them.

Q. 13. You are given the following details regarding Swam Sidhi Ltd.:

Rs.Lakhs

Investment Cash and Bank Inventories Debtors / Fixed Assets Budgeted Profit
Centre Balance Receivables
A 20 40 60 180 60
B 30 30 50 130 25
C 10 20 40 100 17
The corporate cost of capital relating to money invested in receivables and debtors is 7% post
tax. The rate of return required by the company for investing in fixed assets is 8% post tax.
Calculate the ROI and EVA from the above and show the difference between the two
methods of investment centre evaluation.

Q. 14. From the following information of HK Ltd. calculate the ROI and EVA.
 Rs. Lakhs

Business Unit Cash Receivables Inventories Fixed Assets Budgeted profit

A 10 20 30 60 24
B 20 20 30 50 14
C 15 40 40 10 10
D 05 10 20 40 04
E 10 05 10 10 -02
Assume that the company’s required rate of return of investing in fixed assets is 10% after
taxes and on working capital is 4%.
Comment on the difference between ROI & EVA.

Q.15. Prakash Industries Ltd. has prepared the following budgeted profitability statement for
the year ended 31st March, 2012:

Particulars Rs. Rs.

Sales (25000 units @ Rs. 40 each) 10,00,000
Less: Variable Cost
Materials 4,00,000
Labour 3,00,000 7,00,000
Contribution 3,00,000
Less: Fixed Cost 2,00,000
Profit 1,00,000
Make the sensitivity analysis with the help of the following data:
(a) Selling price is reduced by 10%
(b) If the sales units are reduced by 10% of the budgeted units of 25,000.
(c) The labour cost increases by 33.33%
(d) The material cost increases by 25%.

Q. 16. From the following project details calculate the sensitivity of the (a) project cost, (b)
annual cash flow, (c) cost of capital. Which variable is more sensitive?

Project cost Rs. 12,00,000 , Annual cash flow Rs. 4,50,000 , life of the project – 4 years, cost
of capital 14%. The annuity factor @ 14% is 2.9137 and at 18% for 4 years is 2.6667.