Finance For Managers

St. Joseph’s College of Commerce M.I.B. 2012 II Sem Finance For Managers Question Paper PDF Download

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  1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examinations – APRIL 2012

  1. I.B – II Semester

FINANCE FOR MANAGERS

TIME: 3 hours                                                                                  Max. Marks: 100 

Section – A

  1. Answer SEVEN questions out of Ten.             (7 x 5 = 35)

 

  1. Explain any five risk accounting methods.

 

  1. Compute weighted average cost of capital from the following
Particulars amount After tax cost
Equity capital(Rs.10/share 150,00,000  
Retained earnings 100,00,000  
10% preference shares 50,00,000  
26% debentures 60,00,000 13%
Term loans 24% 70,00,000 12%
  430,00,000  

Expected dividend is Rs. 2 per share.

 

 

  1. The capital structure of Enron consists of ordinary share capital of Rs. 10,00,000 (100 per share) & Rs. 10,00,000 10% debentures

The selling price is Rs. 10 p.u, variable cost Rs. 6 p.u and fixed expenses Rs. 2,00,000. Income Tax rate is 30%

The sales level is expected to increase from 1,00,000 to 1,20,000 units

Calculate FL, OL and percentage change in EPS

 

  1. Explain determinants of Receivables and the cost involved in it.
  2. Critically evaluate the issue of Bonus shares.
  3. Explain in detail the cost computation methods of different components of capital
  4. Explain the Functions of Finance Manager.
  5. Explain the importance and difficulty of Capital budgeting decisions
  6. Explain any ten determinants of Capital Structure.
  7. Critically evaluate Irrelevance theory of Dividends

 

Section – B

  1. Answer THREE questions out of Five.                          (3 x 15 = 45)

 

  1. Explain critically the objectives of financial management.

 

  1. A Performa cost sheet of a company provides the following

Particulars/Element of cost                        amount per unit

Material                                                             80

Direct labour                                                     30

Overheads                                                         60

Total cost                                                          170

Profits                                                                 30

Selling price                                                      200

 

The following further particulars are available:

  • Raw materials in stock- 1 mt
  • Materials in process- half mt
  • Finished goods in stock-1 mt
  • Credit allowed by suppliers is one month.
  • credit allowed to debtors is two months
  • Lag in payment of wages 1 1/2 wk
  • Lag in payment of overheads one month
  • 1/4 th output is sold against cash
  • cash in hand is expected to be Rs. 25,000
  • Level of activity 1, 04,000 units.

 

Compute working capital requirements.

You may assume that production & sales follow consistent pattern.

Time period of 4 weeks is equal to one month.

  1. Explain factors affecting Dividend Policy.
  2. Evaluate critically the different sources of Long term capital.
  3. Explain in detail inventory Management Techniques.

Section – C

  • Compulsory Case study                                                                              (1 x 20 = 20)

           

  1. R ltd can make either of two investments at the beginning of 2011 using the following methods evaluate the projects and suggest which investment to be made.:
  2. a) Discounted cash flow method (NPV)
  3. b) Payback period method
  4. c) Average return on average investment method.

The details are: Rate of return 10 %

 

 

P.T.O..

 

 

 

 

  Proposal    X Proposal  Y
Cost of the investment Rs 25000 Rs 30000
Life 5 yrs 6 yrs
Scrap Value – –

 

Net Income after Depreciation and Tax

 

Year Rs Rs
2001 600 3800
2002 1000 4500
2003 2500 5000
2004 3000 4500
2005 3500 5500
2006 – 6000

 

It is estimated that each of the alternative projects will require an additional working capital of Rs 2000 which will be received back in full after the expiry of each project life .Depreciation is provided under straight line method.

 

 

St. Joseph’s College of Commerce M.I.B. 2013 III sem Finance For Managers Question Paper PDF Download

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ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION- APRIL 2013
MIB – II SEMESTER
FINANCE FOR MANAGERS
Duration : 3 HRS MARKS : 100

SECTION – A

I) Answer any SEVEN of the following. Each question carries 5 marks. (7×5=35)

1. Explain the theories of Dividend Policy.
2. Explain any five Risk Accounting Methods.
3. Explain factors affecting Capital Structures.
4. Explain in detail tools of Inventory Management.
5. Give a note on Bonus Shares.
6. Elucidate the various Finance Decisions.
7. How do you measure time value of money?
8. What are the different types of leverages? Explain their importance.
9. Define Capital Budgeting and explain its importance.
10. Write a note on factoring.

SECTION – B

II) Answer any THREE of the following. Each question carries 15 marks (3×15=45)

11. Critically evaluate the objectives of Financial Management.

12. Explain the following Innovative sources of long term finance
a. Lease Finance
b. Venture Capital
c. Euro Issues

13. Aries Ltd. Wishes to raise additional finance of Rs.10,00,000 for meeting its investment
plans. It has Rs.2,10,000 in the form of retained earnings available for investment purpose. The following are the further details

Date Equity Mix is 3:7
Cos of debt upto Rs.1,80,000-10% before tax, beyond Rs.1,80,000-16% before tax
Earnings per share Rs.4
Dividends payout– 50%
Expected growth rate in dividend – 10%
Current market price per share- Rs.44
Tax rate- 50%

You are required to
a. To determine the pattern of raising the additional finance.
b. To determine post tax average cost of additional debt.
c. To determine cost of retain earnings and cost of equity.
d. Compute overall WACC

14. Axion Ltd. Sells its product on a gross profit of 20% on sales. The following information
is extracted from its annual accounts for the year ending 31st March 2012

Sales( 3 months Credit ) Rs.40,00,000
Raw materials Rs.12,00,000
Wages(15 days in arrears) Rs.9,60,000
Manufacturing Expenses(1 month in arrears) Rs.12,00,000
Administration Expenses (1 month in arrears) Rs.4,80,000
Sales Promotion Expenses (payable half-yearly in advance) Rs.2,00,000

The company enjoys 1 month’s credit from its suppliers and maintains two months stock of raw material and one and a half months of finished goods. Cash balance is maintained at Rs.1,00,000. Assuming a 10% margin find out working capital requirement.
(Cost of sales to be considered for debtors and stock of finished goods)

15. An enterprise can make either of two investments at the beginning of 2013. Assuming
rate of return at 10% Evaluate the investment proposals as under

a. Payback period
b. NPV
c. PI
d. IRR (10% and 14%)

Particulars Proposal A Proposal B
Rs. Rs.
Cost of investment 20,000 28,000
Life (years) 4 5
Net Income (after depreciation and tax)
2012 500 NIL
2013 2,000 3,400
2014 3,500 3,400
2015 2,500 3,400
2016 — 3,400

It is estimated that each of the alternative projects will require an additional net working capital of Rs.2,000which will be received back in full after the expiry of each project life. Depreciation is provided under straight line method

SECTION – C

III) Case Study- Compulsory question. (20 marks)

16. A firm has a sales of Rs.75,00,000, Variable cost of Rs. 42,00,000 and fixed cost of
Rs.6,00,000. It has a debt of Rs.45,00,000 at 9% and equity of Rs. 55,00,000

a. What is the firm’s ROI ?
b. Does it have favorable financial leverage?
c. If the firm belongs to an industry whose asset turnover is 3. Does it have a high or low
Asset leverage?
d. What are the operating, financial and combined leverages of the firm?
e. If the sales drop to Rs.50,00,000 what will be its new EBIT ?
f. At what level the EBIT of the firm will be equal to 0 (zero).
g. Determine its present and future EPS if the value of each share is Rs.100.

St. Joseph’s College of Commerce M.Com. 2014 II Sem Finance For Managers Question Paper PDF Download

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St. Joseph’s College of Commerce (Autonomous)

End Semester Examination- APRIL 2014

MIB – II Semester

FINANCE FOR MANAGERS

Duration:  3 Hours                                                                                      Max. Marks: 100

 

Section –A

 

  1. Answer ANY SEVEN Each carries 5 marks.                       (7×5=35)
  2. A firm has sales of Rs. 20,00,000, variable cost of Rs. 14,00,000 and fixed cost of Rs. 4,00,000. It has a debt of Rs. 10,00,000 @10%. What are the operating, financial & combined leverage? If the firm wants to double the EBIT, how much of a rise in sales would be needed on a percentage basis?
  3. Write short notes on Bonus Shares.
  4. What is the scope/contents of Finance Function.
  5. Distribution of Dividends is influenced by many factors. Elucidate
  6. Explain any five risk accounting methods
  7. Explain any five inventory management techniques.
  8. Sunrise Ltd., wishes to arrange overdraft facilities with the banker during the period April to June 2014. Prepare Cash Budget from the following for that period.
Month sales purchases wages
February 1,80,000 1,24,800 12,000
March 1,92,000 1,44,000 14,000
April 1,08,000 2,43,000 11,000
May 1,74,000 2,46,000 10,000
June 1,26,000 2,68,000 15,0000

50% of credit sales are realised in the month following the sales and the remaining at the second month following.

Creditors are paid in the month following the month of Purchase

Cash at Bank on 1/4/14 estimated Rs. 25,000.

  1. There are many external factors influencing the decision of Capital structure decision-Elucidate
  2. How is the value of time measured from financial aspect?
  3. Explain the different models of determining Cost of Equity Capital.

 

Section – B

  1. Answer any THREE Each carries 15 marks.                (3×15=45)
  2. A Co. is considering a proposal to purchase a new equipment which would involve a cash outlay of Rs. 5,00,000 and working capital of Rs. 60,000.It has a life of 5 years without any salvage value. Straight line method of depreciation is followed by the Co. The estimated earnings before depreciation and tax are given below. Applicable tax rate is 35% and opportunity cost of capital of the company is 10%.

 

YEAR 1 2 3 4 5
EBDT 1,80,000 2,20,000 1,90,000 1,70,000 1,40,000

 

You are required to calculate:

  1. Pay Back Period
  2. Net present value
  3. Internal Rate of Return

 

  1. Explain important objectives of Financial Management.

 

  1. From the following compute net working capital.
Particulars Cost per unit
Raw materials 400
Direct labour 150
Overheads 300
Total cost 850
Additional information  
Selling price 1,000 p.u
Output 52,000 unit p.a
STOCK:  
Raw materials 4 weeks
Work in progress

(complete100% for material &

50% w.r.t Labour & overheads)

 2 weeks
Finished goods 4weeks
Credit allowed by suppliers 4 weeks
Credit allowed to debtors 8 weeks
Cash at bank Rs. 50,000

Assume that production is sustained at an even pace during 52 weeks of the year. All sales are on credit basis. State any other assumptions that you might have made while computing.

 

  1. Critically explain Relevant and Irrelevant theories of Dividends.

 

  1. Explain the following innovative sources of finance.
  2. Mechanism of Factoring (3mks)
  3. Venture Capital (5 mks)
  4. Lease Financing                                                                              (7 mks)

 

Section – C

III) Compulsory Case Study.                                                                             (20 marks)

 

  1. JRS ltd wishes to raise additional finance of Rs.10 lakhs for meeting its investment plans. It has Rs.2,10,000 in the form of retained earnings available for investment purposes.  The following are the further details

 

 

 

 

Debt/equity mix

Cost of debt upto Rs.1,80,000

Cost of debt beyond Rs.1,80,000

Earnings per share

Dividend payout

Expected growth rate in dividend

Current market price

Tax rate

 30%/70%

10% (before tax)

16%(before tax)

Rs.4

50% of earnings

10%

Rs.44

50%

 

You are required

  • To determine the pattern for raising the additional finance.
  • To determine the post tax average cost of additional cost
  • To determine the cost of retained earnings and cost of equity
  • Compute the overall weighted average after tax cost of additional finance.

 

St. Joseph’s College of Commerce M.I.B. 2015 II Sem Finance For Managers Question Paper PDF Download

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ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examinations –  April 2015
M.I.B. – ii semester
P2 11 202: FINANCE FOR MANAGERS
Duration: 3 Hours                                                                                             Max. Marks: 100
SECTION – A
I) Answer any SEVEN questions.  Each carries 5 marks.                                 (7×5=35)
  1. Define the scope of financial management. What role should the financial manager play in a modern enterprise?

 
  2. What is risk? How can risk of a security be calculated? Explain your answer with the help of an example.

 
  3. Despite its weaknesses, the payback period method is popular in practice? What are the reasons for its popularity?

 
  4. Paramount produces ltd wants to raise Rs. 100 lakhs for a diversification project.  Current estimate of EBIT from the new projects is Rs. 22 lakhs per annum.  Cost of debt will be 15% for amounts upto and including Rs. 40 lakhs, 16% for additional amounts up to and including Rs. 50 lakhs and 18% for additional amount above Rs. 50 lakhs.

The equity shares (face value Rs. 10) of the company have a current market value of Rs. 40.  This is expected to fall to Rs. 32 if debt exceeding Rs. 50 lakhs are raised.  The following options are under consideration of the company

 

Determine the EPS for each option and state which option the company should exercise.  Tax rate applicable to the company is 50%.

Option Equity Debt
I

II

III

 50%

60%

40%

 50%

40%

60%
   

5.

  

Explain the sources of Working capital finance.
   

6.

  

Explain the concept of lease financing.  What are the types of lease financing?
   

7.

  

A firm has sales of Rs. 1000000 variable cost of Rs. 700000 and fixed costs of Rs. 200000 and debt of Rs. 500000 @ 10% rate of interest.  What are the Operating, financial and combined leverages?  If the firm wants to double its EBIT how much of a rise in sales would be needed on a percentage basis?
   

 

8.

  

 

Discuss the functions of Chief financial officer.
   

9.

  

Calculate the present value of Rs. 600

  • Received one year from now
  • Received at the end of five years
  • Received at the end of fifteen years

Assume a 5% preference rate
   

10.

  

Explain the functions of financial management.
 

SECTION – B
II) Answer any THREE questions.  Each carries 15 marks.                             (3×15=45)
  11. ABC limited has under consideration two mutually exclusive proposals for the purchase of new equipment.  Assuming tax rate to be 50% suggest the management the best alternative using

  • Payback period
  • ARR
  • NPV @ 10%
Particulars Machine X Machine Y
Net cash outlay (Rs)

Salvage value

Life (years)

PBDT (Rs)

1

2

3

4

5

 100000

Nil

5

 

25000

30000

35000

25000

20000

 75000

Nil

5

 

18000

20000

22000

20000

16000
   

12.

  

Company X and Company Y is in the same risk class and identical in all respects except that the company X uses debts while company Y does not.  Levered company has Rs. 9 lakhs debentures carrying 10% rate on interest.  Both companies earn 20% before interest and tax on their total assets Rs. 15 lakhs,  Assume perfect capital markets tax rate of 50% and capitalization rate of 15% for an all equity company

  • Compute the value of both the companies using Net income approach.
  • Compute the value of both the companies using Net Operating income approach.
  • Using net operation income approach calculate the overall cost of capital for both the companies.
   

 

13.

  

 

ABC ltd wants to raise Rs. 500000 as additional capital.  It has two mutually exclusive alternative financial plans.  The current EBIT is Rs. 1700000 which is likely to remain unchanged.  The relevant information is

Present capital structure 300000 equity shares of Rs. 10 each and 10% bonds of Rs. 200000

Tax rate 50%

Current EBIT Rs. 1700000

Current EPS Rs. 2.50

Current MPS Rs. 25 per share

Financial plan I 20000 equity shares of Rs. 25 per share

Financial Plan II 12% debentures of Rs. 500000

What is the indifference level of EBIT?  Identify the financial breakeven levels and plot the EBIT and EPS on graph paper.  Which alternative financial plan is better?
   

14.

  

What is a dividend policy?  What are the determinants of dividend policy?
   

15.

  

JKL ltd has the following book value capital structure

 

Equity share capital 200000 shares

11.5% preference shares

10% debentures

 40,00,000

10,00,000

30,00,000
Total 80,00,000

The equity shares of the company sell for Rs. 20.  It is expected that the company will pay a dividend of Rs. 2 per share next year; this dividend is expected to grow at 5% p.a forever.  Assume 35% corporate tax rate.

  • Compute the company’s WACC based on the existing capital structure
  • Compute the new WACC if the company raises an additional Rs. 20 lakhs debt by issuing 12% debentures.  This would result in increasing the expected equity dividend to Rs. 2.40 and leave the growth rate unchanged, but the price of equity share will fall to Rs. 16 per share

 
SECTION – C
III) Case Study                                                                                                           (1×20=10)
  16. The following figures of Krish ltd are presented to you

Earnings before interest and tax 23,00,000
Less: Debenture interest @8%

Long term loan interest @11%

Earnings before tax

Less Tax

EAT

 80000

220000

2000000

1000000

1000000

 

NO of equity shares Rs. 10 each 500000

EPS Rs. 2

Market price of share Rs. 20

PE ratio 10

 

The company has undistributed reserves and surplus of Rs. 20 lakhs.  It is in need of Rs. 30 lakhs to pay off debentures and modernize its plant.  It seeks your advice on the following alternative modes of raising finance

Alternative I – Raising entire amount as term loan from banks @ 12%

Alternative II – Raising part of the funds by issue of 100000 shares of Rs. 20 each and the rest by term loan @12%

 

The company expects to improve its rate of return by 2% as a result of modernization but PE ratio is likely to go down to 8 if the entire amount is raised as term loan

 

  • Advice the company on the financial plan to be selected
  • If it is assumed that there will be no change in the PE ratio if either of the two alternatives are adopted, would you advice still hold good?

 

 

 

 

St. Joseph’s College of Commerce M.I.B. 2016 Finance For Managers Question Paper PDF Download

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REG NO:

St. Joseph’s College of Commerce (Autonomous) 

End Semester Examination – March /April 2016
M.COM(I.B.) – II SEMESTER
P4 15 MC 201: FINANCE FOR MANAGERS
Duration: 3 Hours                                                                                              Max. Marks: 100
SECTION – A
I. Answer any SEVEN questions.  Each carries 5 marks.                                    (7×5=35)
  1. The Indian yatch company has developed a new cabin cruiser which they have earmarked for the medium to large boat market.  A market analysis has a 30% probability of annual sales being 5000 boats, 40% probability of 4000 annual sales and 30% probability of 3000 annual sales.  This company can go into limited production, where variable costs are Rs. 10000 per boat, and fixed costs are Rs. 800000 annually.  Alternatively, they can go into full scale production, where variable costs are Rs. 9000 per boat, and fixed costs are Rs. 50, 00,000 annually.  If the new boat is to be sold for Rs. 11000 should the company go into limited or full scale production when their objective is to maximize the expected profits?
  2. From the following project details calculate the sensitivity of the

Project cost

Annual cash flows

Cost of capital

 

  • Project cost Rs. 12000
  • Annual cash flow rs. 4500
  • Life of the project 4 years
  • Cost of capital 14%

 
  3. XYZ ltd intends to set up a project with capital cost of rs. 50,00,000.  It is considering the three alternative proposals of financing

Alternative 1 100% equity financing

Alternative 2 debt equity 1:1

Alternative 3 debt equity 3:1

The estimated annual net cash inflow is @ 24% i.e. Rs. 12, 00,000 on the project.  The rate of interest on debt is 15%.  Calculate WACC for three different alternatives and analyze the capital structure decision.
  4. Write short notes on Gilt edged securities and call/notice  money market
  5. ABC ltd was started a year back with a paid up equity capital of Rs. 40, 00,000.  The other details are as under

Earnings of the company Rs. 4,00,000

Price earnings ratio 12.5

Dividend paid Rs. 3,20,000

Number of shares 40000

You are required to find out the company’s dividend payout ratio is optimal using Walter’s formula.

 
  6. Z ltd is foreseeing a growth rate of 12% per annum in the next 2 years.  The growth rate is likely to fall to 10% for the third year and fourth year.   After that the growth rate is

Expected to stabilize at 8% per annum.  If the last dividend paid was Rs. 1.50 per share and the investors required rate of return is 16%.  Find out the intrinsic value per share of Z ltd as of date.
  7. Consider the figures available for Greaves ltd

Net sales Rs. 16 crores

EBIT as a percentage of sales 10%

Tax rate 40%

Capital employed

Equity share capital Rs 10 each Rs. 4 crores

10% Preference shares of Rs. 100 each Rs. 3 crores

12% secured debentures Rs. 2 crores

You are required to calculate

EPS of Greaves ltd

The % change in EPS if EBIT increases by 10%
  8. How do you ascertain the risk and return of a portfolio
  9. Describe how RADR can be computed under Irving Fisher model?
  10. An investor holds two equity shares X and Y in equal proportion with the following risk and return characteristics

E ( R x) 24%

E ( R y) 19%

Std of X = 28%

Std of Y = 23%

The returns of these securities have a positive correlation of 0.6.  You are required to calculate the portfolio return and risk.  Further, suppose the investor wants to reduce the portfolio risk to 15%.  How much should the correlation coefficient be to bring the portfolio risk to the desired level?
SECTION – B
II. Answer any THREE questions.  Each carries 15 marks.                                (3×15=45)
  11. The Shcrisight company is attempting to decide whether or not to invest in a project that requires an initial outlay of Rs. 4 lakhs.  The cash flows of the project are known to be made up of two parts, one of which varies independently overtime and the other one which display positive correlation.  The cash flows of the six year life of the project are:

Year Perfectly correlated components Independent components
  Mean Stddeviation Mean Std deviation
1

2

3

4

5

6

 40000

50000

48000

48000

55000

60000

 4400

4500

3000

3200

4000

4000

 42000

50000

50000
50000

52000

52000

 4000

4400

4800

4000

4000

3600

Find out the expected value of the NPV and its standard deviation, using a discount rate of 10%

Also find the probability that the project will be successful i.e. NPV>0 and state the assumptions under which the probability can be determined.
  12. Given below is information of market rates of returns and data from two companies A and B

  2002 2003 2004
Market

Company A

Company b

 12

13

11

 11

11.5

10.5

 9

9.8

9.5

Determine the Beta co efficient of the shares of company A and Company B
  13. A new product is being introduced by XYZ ltd at a cost of Rs. 100000.  The following cash flows have been projected for the life of the project

Year 1 Year 2 Year 3
CFAT P CFAT P CFAT P
51,150

52,800

59,400

63,250

66,000

 0.1

0.2

0.4

0.2

0.1

 39,325

43,450

48,400

50,600

55,000

 0.1

0.2

0.4

0.2

0.1

 35,750

14,200

15,600

16,600

18,000

 0.1

0.2

0.4

0.2

0.1

The company feels that cash flows over time are perfectly correlated.  Assume a risk free rate of 8%.

Compute the expected value and standard deviation of the probability distribution of possible NET present values

Assuming a normal distribution what is the possibility of the project providing a net present value of

  • Zero or less
  • Of 12000 or more

 
  14. Salvations and solutions have been in IT business for six years and enjoy a favorable market reputation.  Corporate tax is 30%.  They anticipate that the demand for IT solutions would increase sizably since many foreign firms are setting up their BPO shops in India.  For an expansion project, they propose to invest Rs. 22 crores to be funded by new debt and equity on 50: 50 bases.  Enquiries with merchant bankers reveal hat funds can be raised as under.

debt Rate%
First Rs. 5 crores

Next Rs. 5 crores

All additional funds

Equity

Risk gradation by company

 10%

12%

15.72%

12%

2% over WMCC
  • Compute the appropriate risk adjusted discount rate
  • What should be target breakeven level of net annual cash flow after tax for the company, if the life of the project is four years?
  15. Describe the traditional view on the optimum capital structure.   Compare and contrast this view with the NOI approach and NI approach.
 

 

 

SECTION – C
III. Case Study                                                                                                              (1×20=20)
  16. AC company ltd has improved its profitability in 2014 and is on a growth path after poor performance in the preceding two years.  The following is the summary of the company’s operations during the preceding three years.

The company’s focus in 2014 was on cost reduction and funds management rather than growth in sales.  Operating and interest costs fell by 3.3% and 60% respectively.  According to the company’s managing director.  The turnover in 2014 dipped because of a drop in volumes.  However the sales are not strictly comparable because in the previous year, there was a large order worth Rs.15 crores from a public sector oil company.  On the other hand, the net profit growth was higher because of better asset management.  This resulted in reduced borrowings and lowered the financial charges.  The company was able to bring down its inventory holding period to 46 days from 81 days and debtors holding period to 95 days from 119 days.  The company is changing its debt policy to a conservative policy.  The debt equity ratio of 1.8:1 in 2012 has been brought down to 0.5:1 in 2014.

Operating performance                                                   (Rs. In crores)

  2012 2013 2014
Sales

Gross profit

Net profit

EPS (Rs)

 53.4

3.4

1.3

1.8

 75.6

4.5

1.3

1.8

 69.5

12.3

5.9

8.1

The prospects of the company for increased business in 2015 are estimated to be good.  According to the managing director.  The general industrial activity as such has picked up which should result in a better demand for the company’s products from sectors such as automobiles, mining and chemicals.  Experts think that compressor industry will grow at 10% in 2015.  The company is anticipating a sales growth of 15-20% in 2015.  The company’s strategy of cost reduction and improving marketing efficiency will continue.

The company operates in the compressor industry and drilling and mining equipment industry.  It is number two in the compressor industry after Inger Soll rand.  The product profile of the company in the years has shifted in favor of the compressor sector.

In 2014 the company’s gross block increased to rs. 22 crores from Rs. 20 crores.  The company has planned for an investment of Rs 5 crores in its Poona factory.  The company’s share enjoys good liquidity and its PE ratio is 32.  In the expectation of good performance the company’s share price started rising since January 2009 and sharply increased to Rs. 285 just before the budget from Rs. 190 in January.  The current price (after technical correction) is around Rs. 225 -35.

In the last two years the company paid a dividend of 10%.  The company was wondering if it should declare a higher dividend in 2014.

Questions:

  1. Evaluate the company’s financial condition
  2. Recommend the dividends to be paid by AC company ltd.  Justify your advice.

 

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