Question 1)a)
From the following information prepare a statement showing the working capital requirements:
Budgeted Sales: Rs. 26,00,000
per annum Analysis of one rupee of Sales (Rs.)
Raw materials 0.30
Direct Labour 0.40
Overheads 0.20
Total cost 0.90
Profit 0.10
Sales 1.00
It is estimated that:
i. Raw materials are carried in stock for three weeks and finished goods for two weeks.
ii. Factory processing will take three weeks.
iii. Suppliers will give 5 weeks credit.
iv. Customers will require 8 weeks credit.
v. The production pattern is assumed to be even during the year
Question 2) Determine the weighted average cost of capital of the ABC Company with the following information. The Company’s capital structure is:
Debenture (Rs.100 per debenture) Rs.15, 00,000
Preference shares (Rs.100 per share) Rs.5, 00,000
Equity shares (Rs.10 per share) Rs.20, 00,000
Anticipated external financing opportunities are:
(i) Rs.100 per debenture redeemable at par; 10 year maturity, 12% coupon rate, 4% flotation costs, sale price, Rs.100.
(ii) Rs.100 preference share redeemable at par; 10 year maturity, 15% dividend rate, 5% flotation costs, sale price, Rs.100.
(iii) Equity shares: Rs.2 per share flotation costs, sale price = Rs.20. Also, the dividend expected on the equity share at the end of the year is Rs.3 per share; the anticipated growth rate in dividend is 8%. The corporate tax rate is 50%.
Question 3)a) Briefly explain the major features of the accounting process.
b) Fizzle Limited is facing gloomy prospects. Earnings and dividends are expected to decline at 4%. The previous dividend was Rs. 1.50. If the present market price is Rs. 8.00, what rate of return to investors expect from the stock of fizzle Limited?