INTERMEDIATE

Test I.D.: 12656

Course: CA Intermediate
Paper: FM Marks: 50
Test 3 Time Allowed: 1.5 Hours
PART A - Multiple Choice Question (10 X 1 Mark Each)

1. What should be the optimum Dividend pay-out ratio, when r = 15% & Ke = 12%:
(a) 100%
(b) 50%
(c) Zero
(d) None of the above.
2. Which of the following is the irrelevance theory?
(a) Walter model
(b) Gordon model
(c) M.M. hypothesis
(d) Linter’s model
3. If the company’s D/P ratio is 60% & ROI is 16%, what should be the growth
rate?
(a) 5%
(b) 7%
(c) 6.4%
(d) 9.6%
4. If the shareholders prefer regular income, how does this affect the
dividenddecision:
(a) It will lead to payment of dividend
(b) It is the indicator to retain more earnings
(c) It has no impact on dividend decision
(d) Can’t say

5. Observing changes in the financial variables across the years is:

(a) Vertical analysis
(b) Horizontal Analysis
(c) Peer-firm Analysis
(d) Industry Analysis.
6. The Receivable-Turnover ratio helps management to:
 (a) Managing resources
(b) Managing inventory
(c) Managing customer relationship
(d) Managing working capital
7. Which of the following is a liquidity ratio?

(a) Equity ratio

(b) Proprietary ratio

(c) Net Working Capital

(d) Capital Gearing ratio

8. Which of the following is not a part of Quick Assets?

(a) Disposable investments

(b) Receivables

(c) Cash and Cash equivalents

(d) Prepaid expenses

9. Trade credit is a:

(a) Negotiated source of finance

(b) Hybrid source of finance

(c) Spontaneous source of finance

(d) None of the above.

10. Factoring is a method of financing whereby a firm sells its trade debts at adiscount to
a financial institution. The statement is:

(a) Correct
(b) Incorrect

(c) Partially correct

(d) I cannot say.

 PART B - (Solve any 5 questions out of 6) (8 Marks Each)

Q. No. 1
The following information pertains to M/s XY Ltd.
Earnings of the Company Rs. 5,00,000
Dividend Payout ratio 60%
No. of shares outstanding 1,00,000
Equity capitalization rate 12%

Rate of return on investment 15%

i) What would be the market value per share as per Walter’s model?

ii) What is the optimum dividend payout ratio according to Walter’s model and the market value of
Company’s share at that payout ratio?

Q. No. 2
The following figures and ratio pertain to ABG Company Limited for the year ending 31st March:
Annual Sales(credit) Rs 50,00,000
Current Ratio 1.5
Gross Profit Ratio 28%
Debtors collection Period 45 Days
Fixed Assets Turnover Ratio (based on Cost of Goods Sold) 1.5
Reserves & Surplus to share capital 0.60 : 1
Stock Turnover Ratio (based on Cost of Goods Sold) 6
Capital Gearing Ratio 0.5 Quick Ratio 1:1
Fixed Assets to worth 1.2:1
Prepare the Balance Sheet as 31th March, based on the above information. Assume 360 days in a year

Q. No. 3
X Co. has made plans for the next year. It is estimated that the company will employ total assets of Rs 8,00,000;
50 per cent of the assets being financed by borrowed capital at an interest cost of 8 per cent per year.
The direct costs for the year are estimated at Rs. 4,80,000 and all other operating expenses are estimated at
Rs 80,000. The goods will be sold to customers at 150 per cent of the direct costs. Tax rate is assumed to be 50
per cent.
You are required to CALCULATE: (i) Operating profit margin (before tax); (ii) net profit margin (after tax); (iii)
return on assets (on operating profit after tax); (iv) asset turnover and (v) return on owners’ equity.

Q. No. 4
RST Ltd. has a capital of Rs. 10,00,000 in equity shares of Rs. 100 each. The shares are currently quoted at par.
The company proposes to declare a dividend of Rs. 10 per share at the end of the current financial year. The
capitalization rate for the risk class of which the company belongs is 12%.
COMPUTE market price of the share at the end of the year, if
(i) dividend is not declared
(ii) dividend is declared
Assuming that the company pays the dividend and has net profits of Rs. 5,00,000 and makes new investments of
Rs. 10,00,000 during the period, CALCULATE number of new shares to be issued? Use the MM model.
 Q. No. 5

The management of Trux Company Ltd. is planning to expand its business and consults you to prepare an
estimated working capital statement. The records of the company reveals the following annual
information:
(Rs.)

Sales – Domestic at one month’s credit 18,00,000

Export at three month’s credit (sales price 10% below domestic 8,10,000
price)

Materials used (suppliers extend two months credit) 6,75,000

Lag in payment of wages – ½ month 5,40,000
Lag in payment of manufacturing expenses (cash) – 1 month 7,65,000
Lag in payment of Administration Expenses – 1 month 1,80,000
Selling expenses payable quarterly in advance 1,12,500
Income tax payable in four installments, of which one falls in thenext 1,68,000
financial year

Rate of gross profit is 20%. Ignore work-in-progress and depreciation.

The company keeps one month’s stock of raw materials and finished goods (each) and believes in keeping
Rs. 2,50,000 available to it including the overdraft limit of Rs. 75,000 not yet utilized by the company.
The management is also of the opinion to make 10% margin for contingencies on computed figure.
You are required to PREPARE the estimated working capital statement for the next year.

Q. No 6

PREPARE monthly cash budget for six months beginning from April 2022 on the basis of the following
information:
(i) Estimated monthly sales are as follows:
Rs. Rs.
January 1,00,000 June 80,000
February 1,20,000 July 1,00,000
March 1,40,000 August 80,000
April 80,000 September 60,000
May 60,000 October 1,00,000

(ii) Wages and salaries are estimated to be payable as follows:-

Rs. Rs.
April 9,000 July 10,000
 May 8,000 August 9,000
June 10,000 September 9,000

(iii) Of the sales, 80% is on credit and 20% for cash. 75% of the credit sales are collected within one month after
sale and the balance in two months after sale. There are no bad debt losses.
(iv) Purchases amount to 80% of sales and are made on credit and paid for in themonth preceding the sales.
(v) The firm has 10% debentures of Rs. 1,20,000. Interest on these has to be paidquarterly in January, April
and so on.
(vi) The firm is to make an advance payment of tax of Rs. 5,000 in July, 2022.

The firm had a cash balance of Rs. 20,000 on April 1, 2022, which is the minimum desired level of cash
balance. Any cash surplus/deficit above/below this level is made up by temporary investments/liquidation of
temporary investments or temporary borrowings at the end of each month (interest on these to be
ignored).