@Bunko, and other members.........

Here are few questions of Financial Management from past CSS papers.. all members are requested to kindly solve it(specially bunko)..

Q.1…The ‘Big Star Ltd’ purchase a machinery from Hi-Tech Corporation. It is agreed that the payment will be made in Four installment. The Big-Star company paid Rs. 10,000 at the time of purchase and will pay Rs. 15000 after one year. The company will pay Rs.18000 two years later and Rs.21000 three years later, from the time of purchase. What would be the present value of receipt from the sale if the Hi-Tech Corporation uses a discount rate of 5 percent.

Q.2…. ABC Company deals in computer chips and buys these chips from several manufacturers. Chips are ordered in lot sizes of 1000 and each order costs Rs. 40.00 to place. Monthly demand is expected to be 20,000 chips. ABC works out Rs. 0.10 as carrying cost for each chip.
(a) What is optimal order quantity with respect to so many lot sizes (that is, what multiple of 1000 units should be ordered)?
(b) What would be the optimal order quantity if the carrying costs were cut in half to Rs. 0.05 a chip per month?
(c) What would be the optimal order quantity if the carrying costs were reduced to Rs. 10.00 per month?

Q.3….. (a) Suppose you were to receive Rs. 100,000 at the end of 10 years. If your opportunity is 10%. What is present value of this amount assuming the interest (opportunity rate) is compounded annually?
(b) If, instead of compounding annually, interest (opportunity rate) is compounded quarterly, what will be the present value?

Q.4….. General Electric Company has annual sales (all on credit) of $ 1.6 million. Their average collection period is 40 days and they typically have an inventory turnover of 8. Their gross profit margin is 20 percent. Assume, for ease of collection, a 360 day year:

(a) Calculate the company’s accounts receivable.
(b) Calculate the amount in inventory.

Q.5… Cavalier Construction Company is considering buying one of two machines, A or B; the respective costs and benefits of each are listed below:

Machine Cost Life of Machine Savings for Company

A $ 100,000 4 years $ 56,000
B $ 125,000 5 years $ 60,000

(a) Calculate the after-tax cash flow for each machine. Assume, for ease of calculation, straight –line depreciation and no salvage value for either machine. The firm’s tax rate is 40 percent and its required rate of return is 16 percent.

(b) Calculate the NPV of each machine and which would you select and why?

Q.6…. Star corporation is considering a project with a cost of Rs. 40,000/= net investment and net operating cash inflows of Rs. 11,652/= each year for the next five years. The firm uses 10% discount rate for projects with similar risks.

(a) What is projects net present value?
(b) What is its initial rate of return?
(c) Should the project be accepted assuming that funds are available?

Q.7….. Royal corporation current assets inventories and current liabilities for four year period are as follows:

Item 2000 2001 2002 2003
Current assets Rs. 20,000 Rs. 22,400 Rs. 25,600 Rs. 28,100
Inventories Rs. 8,200 Rs. 10,000 Rs. 12,500 Rs. 14,000
Current liabilities Rs. 10,000 Rs. 10,200 Rs. 10,700 Rs. 11,000

a. Calculate the firm’s current and quick ratios for each year.
b. Discuss the firm’s liquidity position over the four year period of time.