Managerial and Financial Analysis Page 1 of 7

Certificate in Accounting and Finance Stage Examination

ARTT Business School 04 February 2025

Fellow RAET of the ICAP 3 hours – 100 marks
Prepared by Ahmed Raza Mir, FCA Additional reading time – 15 minutes

Managerial and Financial Analysis

Instructions to examinees:
(i) Answer all Eleven questions.
(ii) Answer in black pen only.

Q1. 1. Which political system prioritizes extreme inequality and protection of national interests, even at the
cost of individual freedom?

a) Centre Moderates Democracy b) Fascist Capitalism

c) Liberals Left Wing Democratic Socialism d) Communism (01)

2. A company is considering acquiring an asset in five years’ time by establishing a sinking fund.
Contribution to the fund will be made at the start of every year. The amount required for the
purchase of equipment is Rs 750,000. The interest rate applicable to the company is 7%. What
would be the annual contribution to be made by the company at the start of every year:

a) Rs 170,951 b) Rs 121,886 c) Rs 179,051 d) Rs 189,218 (1.5)

3. Samurai Limited is considering investing in a project. That will have the following details
 Initial outlay Rs 850,000
 Sales for First year Rs 500,000 (to be increased by 6%)
 Variable Cost Rs 160,000 (to be increase by 4% from year 2)
 Fixed cost Rs 40,000 (to be increased by 5% from year 2)
 Depreciation 20% diminishing Balance (Residual Value Rs 200,000)
 Project Life 4 Years
 No taxes are levied on the company.

Payback period would be close to

a) 2 years and 8 months b) 2 Years and 5 Months
c) 3 Years in full d) No payback period (02)

4. What is a key characteristic of Conservatism (Right Wing Laissez-Faire Democratic Capitalism)?

a) Economic equality b) Power politics and privatization

c) Implementation of ideology through violence d) Social service and nationalization (01)

5. ABC limited gained 600 ticks per contract of a foreign currency sale. If the contract size is 62,250
U.S. dollars and the company has purchased 75 contracts calculate the gains earned by the
company:

a) Rs 215,085 b) Rs 280,125 c) Rs 3,735 d) Rs 0.06 (1.5)

6. Which of the Islamic mode of finance would be appropriate if a business needs a long term asset for
a reasonable period of time but does not have appropriate finance. The business is willing to pay a
rental for a limited time:

a) Modaraba b) Musharaka c) Murabaha d) Ijara (01)

 7. Which of the following is not a computer virus: Managerial and Financial Analysis Page 2 of 7

a) Worms b) Illogical Bomb c) Time Bomb d) Trap Doors (01)

8. ABC limited produces product Zeta and following are the sales projections:

May June July Aug

Sales (Rs in million) 250 270 300 280

The company charges the gross profit margin of 40% on sales and maintains finished goods
inventory at 50% of the next months budgeted sales. Raw material inventories are maintained at
next month's budgeted consumptions. Direct material forms 60% of manufacturing cost. 10% of all
purchases are in cash and remaining in the following month.

Cash paid in the month of June would be (Rs in million):

a) 102.78 b) 94.50 c) 112.78 d) 104.40 (1.5)
9. Which of the following indicators would be used to assess the state of the economy during a peak or
trough, occurring simultaneously with the economic event itself?

a) Industrial Production b) Manufacturers’ New Orders (01)

c) Interest Rates d) Balance of Trade

10. Which of the following information systems integrates various departmental systems across a
company, facilitating a unified approach to managing man-power (HR), operations, and
technology, while also playing a crucial role in business strategy

a) Decision Support System (DSS) b) Management Info System (MIS)

c) Enterprise Resource Planning (ERP) d) Executive Info System (EIS) (01)

11. Which of the following strategies involves businesses influencing the political environment by
mobilizing support from a broad public base, particularly through the use of advocacy advertising
and trade associations, to shape public opinion and political decisions in favor of their interests:

a) Lobbying through Governmental Channels b)Constituency-Building Strategy

c) Corporate Social Responsibility Initiatives d)Stakeholder Engagement Programs (01)

12. A company has in issue a bond that is redeemable at par in four years with a coupon rate of 6% paid
annually. The annual spot yield curve for a bond of this class of risk is as follows:

One-year maturity: 3.0% Three-year maturity: 4.2%

Two-year maturity: 3.5% Four-year maturity: 5.0%

a) Rs 104.00 b) Rs 105.65 c) Rs 108.55 d) Rs 102.35 (1.5)

Q2. HZS Limited, a new car manufacturer targeting young, high-net-worth individuals, began operations
two years ago. The company has achieved impressive growth rates of 26% and 18% year-on-year,
despite the overall car market's slow growth. Through innovative R&D, HZS has developed a low-cost
model and established a strong brand within a short period. With a promising outlook for the next 5–6
years, the company is well-positioned in its niche market, although it currently holds only a 4% share in
a market dominated by large players.

Required
1. Identify the positioning of the company on BCG matrix and specify three strategies as per BCG
recommendations
2. Specify whether you agree with the strategies recommended by the BCG Matrix. (05)
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Q3. Tery Maru (TM), a Japanese automobile manufacturer, produces cars, motorbikes, and bicycles using
alternative technologies. TM has developed an innovative product, the MBC-1000, a bicycle equipped
with a battery-powered motor that charges through pedal movements. A fully charged battery delivers a
mileage of 25 kilometers, requiring approximately 1,000 pedal movements.

TM is evaluating the feasibility of launching MBC-1000 in Pakistan, given the following considerations:
 Pakistan faces an acute energy crisis, and the availability of cheap labor further reduces
manufacturing costs.
 The MBC-1000 will cost twice as much as a regular bicycle but will cost only one-fourth the
price of a petrol-powered motorcycle. Its operating cost per kilometer (Rs. 0.5) is significantly
lower than that of traditional motorcycles (Rs. 12/km).
 The Pakistani government provides tax incentives and grants for companies manufacturing
vehicles that reduce oil and gas consumption.

Additionally, TM is developing a mobile application for MBC-1000 users to:

 Monitor usage,
 Assess operating efficiency, and
 Identify and notify users of internal faults for timely resolution.

Key Challenges:
1. TM is unsure about the legal framework for company registration in Pakistan.
2. There is uncertainty about whether the MBC-1000 will be classified as a bicycle (requiring no
license) or a motor vehicle (which would require a driving license). However, legal counsel has
expressed confidence that licensing requirements will likely be waived by the authorities.

Required:
Conduct a detailed PESTEL analysis to evaluate the feasibility of introducing the MBC-1000 in
(08)
Pakistan.

Q4. Ahmed Meat Suppliers (AMS) is a prominent business in Pakistan that specializes in sourcing and
selling premium-quality meat products. AMS sources its cattle from different cities across Pakistan,
ensuring a wide variety of meat types to meet customer preferences. The company operates through
several retail outlets in major cities, along with a growing online sales platform for home delivery.

AMS emphasizes stringent quality control practices to maintain freshness, hygiene, and the nutritional
value of its products. The cattle are sourced from reputable farms, and each batch undergoes thorough
inspections to ensure compliance with health and safety standards. Once sourced, the cattle are
transported to AMS's processing facilities, where trained staff handle the slaughtering, packaging, and
distribution processes.

The company focuses on providing consistent, high-quality services, leveraging a customer-centric

approach through both its physical stores and online platform. AMS also markets its products through
social media, promoting awareness of its quality and ethical sourcing practices.

Required:
Conduct a Porter's primary value chain analysis (primary activities) for Ahmed Meat Suppliers. (07)
Q5. Saleem is the head of an investigation team tasked with probing allegations against Humair Limited, a
company accused of engaging in front running activities in the stock market. Front running involves
exploiting confidential trading information from investors to make personal gains, a practice that
violates financial regulations and ethical standards.

During the course of the investigation, Saleem discovered that the CEO of Humair Limited, along with
several board directors, was actively involved in this malicious activity. Upon presenting these findings
to the company's board of directors, Saleem faced unexpected resistance. Instead of addressing the
allegations responsibly, the board threatened Saleem, citing their influential relationships within the
SEC (Securities and Exchange Commission) as a means to shield themselves from accountability.
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In an attempt to silence Saleem, the board made him an illicit offer for personal gain. They proposed
providing him with hefty financial benefits through benami transactions, ensuring the assets and
monetary gains would be untraceable and not directly linked to him. The implicit understanding was
that accepting this offer would secure his silence and loyalty to the company.

The board members also tried to justify their actions, claiming that their involvement in front running
was unintentional and due to a lack of awareness of legal regulations, attempting to downplay the
severity of the misconduct.

Saleem is now confronted with a serious ethical dilemma. He must choose between:
 Taking the easier path: Accepting the financial gains offered through benami transactions and
overlooking the company’s unethical activities, thereby ensuring his financial security.
 Taking a stand for integrity: Reporting the violations to the SEC despite the threats and
potential risks to his personal and professional life.

If the violations are reported, the SEC is likely to impose severe penalties on Humair Limited, which
may include substantial fines, suspension of trading privileges, and further criminal investigations
against the individuals involved. This could also damage Saleem’s relationship with powerful
individuals in the industry, potentially putting his career in jeopardy.

Required
Apply AAA model (any four out of 7 steps) of the ethical decision making to the above case (06)
Q6. Shahid Limited, a baseball bat manufacturer, has experienced a 10% decline in its customer base due to
frequent bat breakages. These breakages stem from inconsistent production quality—primarily due to
70% reliance on manual processes—and the use of substandard, locally sourced wood with varying
quality. As a result, the company's performance falls short of industry benchmarks:

 Defect Rate: 10% of bats break within one month, compared to the global sporting goods industry
average of 3%.
 Material Quality: The company’s wood does not comply with ASTM F2219 (International
standards), leading to durability issues and loss of customer trust.

To rebuild its reputation and regain market confidence, Shahid Limited has identified two important
Factors:
1. Implementing measures to ensure consistent, defect-free manufacturing.
2. Sourcing (purchasing) internationally certified English wood and high-quality adhesives to meet
global standards.

Planned Strategic Initiatives (Implementation Timeline: 6 Months):

1. Obtain ISO 9001 certification (received after audit of processes by ISO) to standardize quality
control procedures.
2. Automate 80% of manual production processes to minimize human error and improve
consistency.
3. Establish quality testing mechanism to assess raw materials (wood density, adhesive strength)
against ASTM standards.
4. Introduce a 48-hour defective bat replacement policy to enhance customer satisfaction and brand
reliability.
5. Integrate customer feedback into production workflows to address recurring defects and refine
manufacturing processes.

Requirement:
Apply Johnson and Scholes’ six-step strategic approach to the case above. (09)
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Q7. Solomon Limited, a steel products manufacturer operating across Europe, has been distributing all its
earnings as dividends for several years. Last year, the company distributed Rs. 252 million in dividends.

The company is financially geared, with a bank loan of Rs. 1,200 million carrying an interest rate of
10% per annum. It has 7 million shares issued, each with a par value of Rs. 100. The equity beta of the
company is 1.385.

Over the past two years, no positive NPV projects have been found, and the market value of equity has
remained constant. In an effort to increase the market value of its equity, the company is considering
two possible capital structure adjustments:

1. Increase gearing: Obtain an additional bank loan of Rs. 800 million and use the funds to buy
back shares. This change would increase the company’s beta to 1.6.

2. Reduce gearing: Repay half of the existing loan by issuing new equity, which would result in a
reduction in beta to 1.2.

Regardless of the chosen option, the profit before interest and tax (PBIT) will remain unchanged.

Market Information:
 Risk-free rate: 9% per annum
 Market risk premium: 6.5% per annum
 Corporate tax rate: 30%

Required:
Evaluate the impact of each option on the company's market value and determine which option would
(10)
lead to an increase in equity value.

Q8. Start limited produces 3 products namely A, B and C. Product C is the advanced version of product B
and is sold at 20% above the rate of product B. Product B is sold at 50% higher prices as compared to A.
Product C is sold to an exporter who exports the same to Europe.

Profit and loss account for the last year is as under:

Sales 8,702,000
Material (3,420,000)
Labour (1,560,000)
Overheads (832,000)
Selling OH (1,204,000) (7,016,000)
Profit 1,686,000

Other information
Product A Products B & C
Units Sold 5,000 4,000

Sales of C is 3/8 of the total sales of B and C.

Cost Information
1. Product A requires 6 hours per unit, while Products B and C require 25% more time than Product A.
2. The company operated at 80% of its total capacity last year.
3. The same material is used for all products. Material usage per unit was 2.4 kg for Product A and 3.6
kg for Products B and C. Process losses are 4% for Product A and 10% for Products B and C due to
their complex structures.
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4. Variable overheads (VOH) for Products B and C are twice the VOH per unit for Product A.
5. 37.5% of the total production overheads are fixed.
6. Variable selling overheads for Product B are 50% higher than Product A. Variable selling overheads
for Product C are 4 times higher (Rs 96 per unit) than Product A, due to special packing costs.

Plans for Next year

1. The company has been approached by an exporter for Product C, requesting a 10% discount on the
selling price. The exporter has agreed to purchase double the quantity compared to last year.
2. Sales of Product B are expected to increase by 40% compared to last year. The company will give
priority to Products B and C due to better future market opportunities.
3. Material costs are expected to increase by 15% starting from the second quarter of next year. Labour
costs are expected to increase by 10% from the beginning of the year.
4. Variable overheads will increase by 8%, and fixed overheads will increase by 9% due to inflation
starting next year.
5. A comprehensive marketing campaign for Product B is planned to support the expected 40%
increase in sales, costing Rs 300,000.

Required
Prepare a budgeted profit and loss statement for the next year. (15)

Q9. Today is 1 February 2023.

Jasmine Limited, a manufacturer of industrial‐use bulbs, plans to purchase a new blower costing Rs.
17.5 million on April 30, 2023. To finance this purchase, the company intends to liquidate one of its
bonds; however, the bond cannot be liquidated until September 30, 2023. Consequently, Jasmine
Limited will obtain a short‐term loan for Rs. 17.5 million during the interim period.

As of February 1, 2023, the spot interest rate is 8.40%. The company can borrow at the market rate plus
55 basis points, and market participants expect the spot rate on April 30, 2023 to rise to 12.6%. In order
to hedge against the anticipated interest‐rate increase, the treasury department wishes to use interest‐rate
futures. The following futures contracts are available on February 1, 2023:

Loan Term Maturity Futures Price Basis Diminishes

3 Months 31 March 89.00 Basis diminishes uniformly until maturity
3 Months 31 May 87.10 70% of the basis diminishes in the first two
months; the remaining 30% diminishes
equally over the next two months

Each futures contract has a notional amount of Rs. 1.25 million.

Required
1. Demonstrate how Jasmine Limited can hedge its interest‐rate exposure using an appropriate futures
contract.
2. Calculate the effective interest cost on the interim loan after implementing this hedge. (08)

Q10 Sultan Limited is evaluating an investment opportunity to establish a small-scale rent-a-car business by
acquiring a fleet of five taxis. The initial capital outlay required to commence operations includes the
following expenditures:

Cost Component Amount (Rs)

Cost of Taxis 6,500,000
Registration Expenses 780,000
Initial Setup Costs per Vehicle 20,000
Total Initial Investment 7,300,000

The tax authorities permit depreciation on the total investment at a 25% per annum diminishing balance
method. At the end of the four-year useful life, the fleet is expected to have a residual value of Rs
1,000,000.
 Managerial and Financial Analysis Page 7 of 7

The company will generate revenue by leasing the vehicles, with users bearing fuel expenses. Rental
income is based on a per-day charge of Rs 7,500 per vehicle, with an expected annual operational period
of 320 days. The anticipated occupancy rates over the four-year period are as follows:

Year Expected Occupancy Rate (%)

1 90%
2 75%
3 60%
4 70%

Operating Costs:
 Each driver will be paid a fixed daily wage of Rs 2,000 per taxi, irrespective of occupancy.
 Annual repair and maintenance costs per vehicle are initially Rs 150,000, increasing by Rs 10,000
per year per vehicle.

Financial Considerations:
 Corporate tax rate: 30%
 Required rate of return (discount rate): 15%

Required:
Conduct a Net Present Value (NPV) analysis to determine the financial viability of the proposed
investment. (12)

Q11 Following data pertains to two companies of same industry as at 31 December 2024

A B A B
Non Current Assets 500,000 840,000 Equity 420,000 800,000
Current Assets Liabilities
Account Receivables 140,000 180,000 Long term Debt 360,000 105,000
Stock in trade 175,000 342,000 Current 70,000 744,280
Labilities
Other Current Assets 35,000 287,280
Total Assets 850,000 1,649,280 Eqty and Liabts 850,000 1,649,280

 Company A and Company B maintains a bare minimum of stock at all the times 42% and 30%
respectively of their current stock value.
 Both company A and Company B observes seasonal sales once in a year. Average seasonal
customers are 40% and 50% of average receivables for company A&B respectively.
 2/5 and 1/6 all of the other current assets R permanent in nature for company A&B respectively.

Required
Identify which working capital funding policies are adopted by company A and B
(05)