1. Investment Analysis Problem: A company propose to Purchase a machinery for Rs.1,00,000. The life of the machinery is 5 years. The Cash inflow of the machinery is as follows. Year Cash Inflow Cash Outlay 0- 1,00,000 1 25,000 20,000 2 30,000 -- 3 35,000 -- 4 40,000 -- 5 45,000 -- In the Fifth year scrap of the machinery was Rs.15,000 Calculate the 1. NPV and 2. Profitability Index.

2. Investment Analysis Solution: Year Cash P.V.Factor Present Inflow Value of Cash inflow 125,000 0.909 22,725 2 30,000 0.826 24,780 335,000 0.751 26,285 440,000 0.683 27,320 Out lay calculation 545,000 1,00,000+ (20,000x.909) + 15,000 0.621 37,260 1,00,000 +18,180 --------------- 1,18,180 Total Present Value of Inflow1,38,320 Total Present Value of Outlay1,18,180 -------------- 20,140 - NPV --------------

3. Investment Analysis Total Present Value of Cash Inflow Profitability Index: ------------------------------------------------- Total Present Value of Cash Outlay 1,38,320 Profitability Index = ---------------- = 1.17 or 117 1,18,180

4. Break Even Point 1. From the following particulars, calculate the break even point Variable cost per unit = Rs.12 Fixed expenses = Rs.60,000 Selling price per unit = Ra.18 Solution: BEP (Units) = Fixed cost Contribution per unit (Selling Price – Variable Cost = Contribution) Rs.18 – Rs.12 = 6) Rs.60,000 / Rs.6 = 10,000 units B.E.P. Sales = 10,000 x Rs.18 = Rs.1,80,000

5. BEP. A Company estimates that next year it will earn a profit of Rs.50,000. The budgeted fixed costs and sales are Rs.2,50,000 and Rs.9,93,000 respectively. Find out the break-even point for the company. Solution : B.E.P. (in units) = F x S Contribution Contribution = S – V = F + P F + P = Rs.2,50,000 + Rs.50,000 = Rs.3,00,000 B.E.P. Sales = 2,50,000 x 9,93,000 3,00,000 = Rs.8,27,500

6. BEP 3. From the following particulars, find out the selling price per unit if B.E.P. is to be brought down to 9,000 units. Variable cost per unit Rs.75 Fixed expenses Rs,2,70,000 Selling price per unit Rs.100

7. BEP Solution: Let us assume that the contribution per unit at B.E. sales of 9,000 is x B.E.P. = Fixed Cost Contribution per unit Contribution per unit is not known. Therefore 9,000 units = 2,70,000 x 9,000 x = 2,70,000 x = 30 Contribution is Rs.30 per unit, in place of Rs.25. Therefore, the selling price should have been Rs.105 i.e. Rs.75 + Rs.30.

8. Ratio Analysis Problem: Liabilities Share Capital 2,00,000 Profit & Loss account 30,000 General Reserve 40,000 12% Debentures 4,20,000 Sundry Creditors 1,00,000 Bills Payable 50,000 ----------------- 8,40,000

9. Ratio Analysis Problem: Assets Land & Buildings 1,40,000 Plant & Machinery 3,50,000 Stock 2,00,000 Sundry Debtors 1,00,000 Bills Receivable 10,000 Cash at Bank 40,000 ---------------- 8,40,000

10. Ratio Analysis Calculate: Current Ratio Quick Ratio Inventory to Working capital Debt to Equity Ratio Proprietary Ratio Capital gearing Ratio Current Assets to Fixed assets

11. Ratio Analysis Solution: (i) Current Ratio = Current Assets Current Liabilities Current Assets = Stock + Sundry Debtors + Bills Receivable + Cash at Bank = (2,00,000+1,00,000+10,000+40,000) = Rs 3,50,000 Current Liabilities = Sundry Creditors + Bills Payable = (1,00,000+50,000) = Rs.1,50,000 Current Ratio = 3,50,000 = 2.33 :1 1,50,000

12. Ratio Analysis (ii) Quick Ratio = Liquid Assets Current Liabilities Quick Assets = Sundry Debtors + Bills Receivable + Cash at Bank = (1,00,000+10,000+40,000) = Rs 1,50,000 Quick Ratio = 1,50,000 = 1:1 1,50,000

13. Ratio Analysis ( iii) Inventory to Working capital = Inventory Working Capital Inventory = Stock = Rs.2,00,000 Working capital = Current Assets – Current Liabilities = Rs.3,50,000 – Rs.1,50,000 = Rs.2,00,000 Inventory to Working capital = 2,00,000 = 1:1

14. IV. Debt to Equity Ratio = Long Term Debt Shareholders’ Fund Long Term Debt = Debentures = Rs.4,20,000 Shareholders’ Fund = Capital + Reserves and Surplus = Rs.2,00,000+30,000+40,000 = Rs 2,70,000 Debt to Equity Ratio = 4,20,000 = 1.56: 1 2,70,000 (or) Debt to Equity Ratio = Long Term Debt Shareholders’ Fund + Long Term Debt = 4,20,000 = 0.6: 1 6,90,000

15. (V) Proprietary Ratio = Shareholders’ Fund Total Assets = 2,70,000 = 0.32:1 8,40,000 (vi) Capital gearing Ratio = Fixed interest bearing securities Equity Share capital Fixed interest bearing securities = only debentures = Rs.4,20,000 Capital gearing Ratio = 4,20,000 = 2.1:1 2,00,000

16. Ratio Analysis (vii) Current Assets to Fixed assets = Current Assets Fixed Assets = 3,50,000 = 0.71:1 4,90,000