Mock Test Paper - Series II: August, 2024

Date of Paper: 23 rdAugust, 2024

Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATEGROUP–II
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A: FINANCIAL MANAGEMENT
TimeAllowed–3Hours(Totaltimefor6Aand6B) MaximumMarks–50
1. Thequestionpapercomprisestwoparts,PartIandPartII.
2. PartIcomprisesCaseScenariobasedMultipleChoiceQuestions(MCQs)
3. PartIIcomprisesquestionswhichrequiredescriptivetypeanswers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are notrequired.

PARTI–CaseScenariobasedMCQs(15Marks)
Write the most appropriate answer to each of the following multiple
choicequestions by choosing one of the four options given. All questions
arecompulsory.

Mathangi Ltd. is a News broadcasting channel having its broadcasting Centre in

Chennai. There are total 200 employees in the organisation including top
management. As a part of employee benefit expenses, the company serves tea toits
employees, which is outsourced from a third-party. The company offers tea three
times a day to each of its employees. The third-party charges ` 10 for each cup of
tea. The company works for 200 days in a year.
Lookingatthesubstantialamountofexpenditureontea,thefinancedepartment has
proposed to the management an installation of a master tea vending machine from
Nirmal Ltd which will cost ` 5,00,000 with a useful life of five years. Upon purchasing
the machine, the company will have to incur annual maintenance which will require a
payment of ` 25,000 every year. The machine would require electricity consumption
of 500 units p.m. and current incremental cost of electricity for the company is ` 24
per unit. Apart from these running costs, the company will have to incur ` 8,00,000
for consumables like milk, tea powder, paper cup, sugar etc. The company is in the
25% tax bracket. Straight line method of depreciation is allowedfor the purpose of
taxation.
Nirmal Ltd sells 100 master tea vending machines. Variable cost is ` 4,50,000 per
machine and fixed operating cost is ` 25,00,000. Capital Structure of Mathangi Ltd
and Nirmal Ltd consists of the following –

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 Particulars MathangiLtd. NirmalLtd.
EquityShareCapital(Facevalue`10each) 40,00,000 40,00,000
Reserves&Surplus 25,00,000 50,00,000
12%PreferenceShareCapital 12,00,000 Nil
15%Debentures 20,00,000 40,00,000
Risk free rate of return = 5%, Market return = 10%, Beta of the Mathangi Ltd.=
1.9Youarerequiredtoanswerthefollowingfivequestionsbasedontheabovedetails:
1. IfsalesofNirmalLtdareupby10%,impactonitsEBITis
(a) 30%
(b) 60%
(c) 5%
(d) 20%
2. CombinedleverageofNirmalLtdis
(a) 1.63
(b) 2.63
(c) 1.315
(d) 2
3. Discount rate that can be applied for making investment decisions of Mathangi
Ltd is
(a) 12%
(b) 13.52%
(c) 15%
(d) 20%
4. Incremental cash flow after tax per annum attributable to Mathangi Ltd due
toinvestment in the machine is
(a) `2,39,438
(b) `1,98,250
(c) `98,250
(d) `1,31,000
5. NetpresentvalueofinvestmentinthemachinebyMathangiLtdis
(a) `6,88,522
(b) `1,88,522
(c) `9,91,250
(d) `4,91,250 (5x2=10Marks)

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6. Total Assets & Current liabilities of the Vitrag Limited are 50 lakhs & 10 lakhs
respectively.ROCEis15%,measureofbusinessoperatingriskisat3.5& P/V ratio is
70%. Calculate Sales.
(a) 21lakhs
(b) 30lakhs
(c) 37.50lakhs
(d) 40lakhs (2Marks)
7. A company has issued bonds with a face value of ` 100,000 at an annual
coupon rate of 8%. The bonds are currently trading at 95% of their face value.
Whatistheapproximatecostofdebtforthecompanybeforetaxes.
(a) 9.00%
(b) 7.65%
(c) 8.00%
(d) 8.42% (2Marks)
8. A company is considering changing its capital structure by increasing its debt
ratio from 40% to 55%. What is the likely impact on the company’s cost of
equity, assuming all other factors remain constant?
(a) Costofequitywillbeunaffectedbydebtratio
(b) Costofequitywillremainunchanged
(c) Costofequitywilldecrease
(d) Costofequitywillincrease (1Mark)

PARTII–DescriptiveQuestions(35Marks)
QuestionNo.1iscompulsory.
Attemptanytwoquestionsoutoftheremainingthreequestions.
1. (a) XLtdiswillingtoraisefundsforitsNewProjectwhichrequiresan investment
of`84 Lakhs. The Company hastwo options:
OptionI: ToissueEquityShares(`10each)only
OptionII: To avail Term Loan at an interest rate of 12%. But in this
case,asinsistedbytheFinancingAgencies,the Companywill
haveto maintain aDebt–Equityproportion of 2:1.

TheCorporateTaxRateis30%.FINDoutthepointofindifferencefor theproject.
(5Marks)
(b) Mr. Anand is thinking of buying a Share at ` 500 whose Face Value per
shareis`100.Heisexpectingabonusattheratio1:5attheendof the fourth year.
Annual expected dividend is 20% and the same rate is expected to be
maintained on the expanded capital base. He intends to
selltheSharesattheendofseventhyearatanexpectedpriceof`900
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 each.IncidentalExpensesforpurchaseandsaleofSharesare
estimatedtobe5%oftheMarket Price.AssumingaDiscountrateof 12% per
annum, COMPUTE the Net Present Value from the
acquisitionoftheshares. (5Marks)
(c) Paarath Limited had recently repurchased 20,000 equity shares at a
premium of 10% to its prevailing market price. The book value per share
(after repurchasing) is ` 193.20.
OtherDetailsofthecompanyareasfollows:
Earnings of the company (before buyback) = ` 18,00,000
Current MPS is `270 with a P/E Ratio of 18.
CALCULATEtheBookValuepershareofthecompanybeforethere- purchase.
(5Marks)
2. (a)SukrutLimitedhasannualcreditsalesof`75,00,000/-.Actualcredit terms are 30
days, but its management of receivables has been poor,and the average
collection period is about 60 days.Bad debt is 1 percent of total sales.
Afactorhasofferedtotakeoverthetaskofdebtadministrationand
creditchecking,atanannualfeeof1.5percentofcreditsales.
Sukrut Limited estimates that it would save ` 45,000 per year in
administration costs as a result. Due to the efficiency of the factor, the
averagecollectionperiodwouldcomeback totheoriginalcredit offered of
30daysandbaddebtswouldcometo0.5%onrecoursebasis.
The factor would pay net advance of 80 percent to the company at an
annual interest rate of 12 per cent after withholding a reserve of 10%.
Sukrut Limited is currently financing its receivables from an overdraft
costing 10 per cent per year and will continue to finance the balance fund
needed(whichisnotfinancedbyfactor)throughtheoverdraftfacility
If occurrence of credit sales is throughout the year, COMPUTE whether
thefactor’sservicesshouldbeacceptedorrejected.Assume360days inayear.
(7Marks)
(b) Determining the amount to be invested in current assets as working
capital is a crucial policy decision for any entity. WhatFACTORS shoulda
company consider when deciding the level of investment in working
capital? (3Marks)
3. (a)Calculate the WACC using the following data by using Market Value weights:
Particulars `
EquityShares(`10perequity share) 15,00,000
Reserves& Surplus 5,00,000
PreferenceShares (`100perpreference share) 7,50,000
Debentures (`100per debenture) 5,50,000
Themarketpricesofthesesecuritiesare:

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 Debentures-`105perdebenture,
Preference shares - `115 per preference share
Equity shares - `27 per equity shareAdditional
information:
(1) `100FVperdebentureredeemableatpremiumof10%,10% coupon rate,
4% floatation costs, 10-year maturity.
(2) `100FVperpreferenceshareredeemableatpar,12%coupon rate, 2%
floatation cost and 10-year maturity.
(3) Equity shares have `4.5 floatation cost and market price of 27 per
share.
The last dividend paid by the company was ` 2 which is expected to grow
at an annual growth rate of 9%. The firm has the practice of paying all
earnings as a dividend.
The corporate tax rate is 25%. To calculate the overall cost of debt &
preference shares, take the average of their respective costs using
YTM&approximationmethod. (6Marks)
(b) EPL Ltd. has furnished the following information relating to the yearended
31stMarch 2023 and 31stMarch, 2024:
31stMarch,2023 31stMarch,2024
ShareCapital 50,00,000 50,00,000
ReserveandSurplus 20,00,000 25,00,000
Longtermloan 30,00,000 30,00,000
 Netprofitratio:8%
 Grossprofitratio:20%
 Long-termloanhasbeenusedtofinance40%ofthefixedassets.
 Stockturnoverwithrespecttocostofgoodssoldis4.
 Debtorsrepresent90dayssales.
 Thecompanyholdscashequivalentto1½monthscostofgoods sold.
 Ignoretaxationandassume360daysinayear.
You are required to PREPARE Balance Sheet as on 31 stMarch 2024
infollowing format:
Liabilities (`) Assets (`)
ShareCapital - FixedAssets -
ReserveandSurplus - SundryDebtors -
Long-termloan - ClosingStock -
SundryCreditors - Cashinhand -
(4Marks)

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4. (a)The agency problem is one of the key concepts in corporate governance and
financial management. On the light of this statement, EXPLAIN
agencyproblem,consequencesofagencyproblemandhowto
overcometheissue. (4Marks)
(b) Operating leases and financial leases are traditionally the most important
types of leases in financial management. However, in recent years, other
types of leases have also gained significance due to their unique benefits
and applications. IDENTIFY AND EXPLAIN at least four other types of
leases that have become increasingly important in modern business
practices. (4Marks)
(c) EXPLAINtheRelationshipbetweenEBIT-EPS-MPS (2Marks)
OR
(c) EXPLAINFinancialLeverageasa‘DoubleedgedSword’ (2Marks)

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 PAPER6B:STRATEGICMANAGEMENT
1. Thequestionpapercomprisestwoparts,PartIandPartII.
2. PartIcomprisescasescenariobasedmultiplechoicequestions(MCQs)
3. PartIIcomprisesquestionswhichrequiredescriptivetypeanswers.
PART I – Case scenario based MCQs (15 Marks)
Question 1. (Compulsory)
1. (A)Sneha Rao, founder and CEO of DEF Technologies, is renowned for her
technological insight and visionary leadership style. She cultivates a
culture of collaboration, continuous learning, and innovative problem-
solving, encouraging her employees to think outside the box
andembracenewchallenges.Herexceptionalabilitytoforesee technological
trends and navigate complex market dynamics has propelledDEF
Technologies to impressive growth over the past decade.
Sneha started DEF Technologies in 2010 as a small software
development firm. With a vision to transform DEF Technologies into a
leading tech company, she initially focused on developing custom
software solutions for local businesses. However, intense
competitionandlimitedmarketdemandledtofinancialdifficulties.Undeterred,
Sneha pivoted the business towards developing cloud-based solutions,
leveraging the growing trend of digital transformation. This strategic shift,
along with aggressive marketing, helped DEF Technologies capture a
significant market share and become a leader in cloud services, setting
new industry standards.
In 2015, Sneha's brother, Raj, joined the company, and together they
crafted an ambitious expansion strategy. DEF Technologies entered the
global market,partneringwithinternationaltechfirms tolaunch anew line of
AI-driven cybersecurity solutions. This venture was highly successful,
establishing DEF Technologies as a global brand and a key player in the
cybersecurity industry.
Raj then led the company’s diversification into the healthcare sector witha
new brand, MedTech Solutions. Recognizing the potential fortechnology
to revolutionize healthcare, Sneha and Raj focused on developing
affordable telemedicine platforms and AI-driven diagnostic tools. Their
approach disrupted the market, providing high-quality healthcare solutions
at lower costs and gaining widespread trust from healthcare providers and
patients alike. MedTech Solutions experienced rapid growth, especially
during the COVID-19 pandemic, as demand for remote healthcare
services surged.
At the beginning of 2023, DEF Technologies launched another new
business, GreenTech Innovations, to address environmental challenges
through technology. DEF Technologies continues to explore new
opportunitiesandventurestostayattheforefrontofthetechindustry.

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BasedontheaboveCaseScenario,answertheMultiple-ChoiceQuestions.
(i) SnehaRao'svisiontotransformDEFTechnologiesintoaleading
techcompany illustrates whichtype ofstrategic intent?
(a) Goal
(b) Mission
(c) Vision
(d) Objective (2Marks)
(ii) Sneha’s leadership style, which promotes collaboration, continuous
learning, and innovative problem-solving, can best be described as:
(a) Transactionalleadership
(b) Transformationalleadership
(c) Autocraticleadership
(d) Laissez-faireleadership (2Marks)
(iii) When DEF Technologies expanded into the global market with AI-
driven cybersecurity solutions, which of Porter's Five Forces was
most likely mitigated by forming partnerships with international tech
firms?
(a) ThreatofSubstituteProductsorServices
(b) BargainingPowerofSuppliers
(c) ThreatofNewEntrants
(d) IntenseRivalryAmongExistingCompetitors (2Marks)
(iv) ByenteringtheglobalmarketandlaunchingAI-driven cybersecurity
solutions, DEF Technologies pursued
whichexpansionstrategyfromAnsoff’sProduct-MarketGrowthMatrix?
(a) Diversification
(b) MarketPenetration
(c) ProductDevelopment
(d) MarketDevelopment (2Marks)
(v) MedTech Solutions’ focus on developing affordable telemedicine
platforms and AI-driven diagnostic tools reflects which of the
following competitive strategies?
(a) Differentiationstrategy
(b) Costleadershipstrategy
(c) Best-costproviderstrategy
(d) FocusStrategy (2Marks)

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 (B) CompulsoryApplicationBasedIndependentMCQs
(i) A traditional desi ghee company modernized its production and
introduced pro-biotic desi ghee, facing initial market doubts.
Aggressive marketing campaigns highlighted its benefits, gaining
acceptance.Duringwhichstageoftheproductlifecycledidthe desi ghee
company face doubts but gained acceptance through aggressive
marketing campaigns?
(a) Introductionstage
(b) Growthstage
(c) Maturitystage
(d) Declinestage (2Marks)
(ii) ValueMart is a discount retail chain that targets budget-conscious
consumers by offering a wide range of products at the lowest
possible prices. The company achieves this by sourcing goods in
bulk, negotiating lower prices with suppliers, and maintaining lean
operations. ValueMart's goal is to dominate the market by attracting
price-sensitive customers from competitors. Which of Michael
Porter’sGenericStrategiesisValueMartprimarilyemploying?
(a) Differentiation
(b) FocusedCostLeadership
(c) CostLeadership
(d) FocusedDifferentiation (2Marks)
(iii) A women’s clothing brand recognized new opportunities and
researched emerging trends and consumer preferences. They
introduced a new clothing line, received positive feedback frominitial
trials, and grew through strategic partnerships and targeted
advertising.Whatstrategicchoicebestdescribesthisapproach?
(a) ProductDevelopment
(b) MarketDevelopment
(c) MarketPenetration
(d) Diversification (1Mark)

PARTII–DescriptiveQuestions(35Marks)
QuestionNo.1iscompulsory.
Attemptanytwoquestionsoutoftheremainingthreequestions.
1. (a)TechNova, a leading software development firm known for its cutting-edge
operating systems, is developing a groundbreaking new platform.
ElectroWave, an emerging player in the electronics and hardware
industry, specializes in manufacturing advanced devices. TechNova and
ElectroWavehavedecidedtojoinforcestodesigninnovativelaptops

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 and smartphones, aiming to tap into new markets and broaden their
business horizons. What kind of external growth strategy is being
consideredbyTechNovaandElectroWave? (5Marks)
(b) Vikram Patel owns a chain of ten bookstores across the Mumbai region.
Three of these stores were launched in the past two years. He hasalways
believed in strategic management and enjoyed robust sales of books,
magazines, and educational materials until about five years ago.
However,withtheincreasingpreferenceforonlineshopping,thesales at his
physical stores have declined by approximately sixty percent over the last
five years. Analyze Vikram Patel's current position in light of the
limitationsofstrategicmanagement. (5Marks)
(c) Orion Tech Solutions Pvt. Ltd. is renowned for its ability to launch
groundbreaking software products. Despite the relaxed and casual work
environmentatOrion,thereisastrongcommitmenttomeeting
deadlines.EmployeesatOrionbelieveinthe"workhard,playhard" ethic. The
company has shifted from a formal, hierarchical structure to a more
results-oriented approach. Employees are deeply committed to the
company’s strategies and work diligently to achieve them. Theysafeguard
innovations and maintain strict confidentiality and secrecy in their
operations. Their work culture is closely aligned with the organization's
values, practices, and norms. What aspects of an
organizationarebeingdiscussed?Explain. (5Marks)
2. (a)AnalyzetheroleofKeySuccessFactors(KSFs)indetermining
competitivesuccesswithinanindustry. (5Marks)
(b) What are distribution channels, and why is analyzing them crucial for
business expansion? Describe the three main types of channels
explainingtheirrolesinensuringproductsreachcustomersefficiently
andwiththenecessarysupport. (5Marks)
3. (a)What is a strategic vision, and what are the essential components that
makeitaneffectivetoolforguidinganorganization'sfuture?(5Marks)
(b) Which strategy is implemented by redefining the business, by enlargingits
scope of business and substantially increasing investment in the
business?Explain the major reasons for adopting this strategy.(5 Marks)
4. (a)Describe the principal aspects of strategy-execution process, which are
includedinmostsituations. (5Marks)
(b) How does the PESTLE framework assist in analyzing the macro-
environment?
OR
A manufacturing company is in direct competition with fifteen companies
at the national level. The head of marketing department of this company
wishes to study the market position of rival companies by grouping them
into like positions. Name the tool that may be used by him/her.Explain
theprocedurethatmaybeusedtoimplementthetechniques.(5Marks)

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