Mock Test Paper - Series I: March, 2024

Date of Paper: 16 March, 2024

Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A: FINANCIAL MANAGEMENT
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks)
Write the most appropriate answer to each of the following multiple choice
questions by choosing one of the four options given. All questions are
compulsory.

1. NV Industries Ltd. is a manufacturing industry which manages its accounts

receivables internally by its sales and credit department. It supplies small
articles to different industries. The total sales ledger of the company stands
at ` 200 lakhs of which 80% is credit sales. The company has a credit policy
of 2/40, net 120. Past experience of the company has been that on average
out of the total, 50% of customers avail of discount and the balance of the
receivables are collected on average in 120 days. The finance controller
estimated, bad debt losses are around 1% of credit sales.
With escalating cost associated with the in-house management of the debtors
coupled with the need to unburden the management with the task so as to
focus on sales promotion, the CFO is examining the possibility of outsourcing
its factoring service for managing its receivables. Currently, the firm spends
about ` 2,40,000 per annum to administer its credit sales. These are avoidable
as a factoring firm is prepared to buy the firm's receivables. The main
elements of the proposal are : (i) It will charge 2% commission (ii) It will pay
advance against receivables to the firm at an interest rate of 18% after
withholding 10% as reserve.
Also, company has option to take long term loan at 15% interest or may take
bank finance for working capital at 14% interest.
You were also present at the meeting; being a financial consultant, the CFO
has asked you to be ready with the following questions:
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 Consider year as 360 days.
I. What is average level of receivables of the company?
a. ` 53,33,333
b. ` 35,55,556
c. ` 44,44,444
d. ` 71,11,111
II. How much advance factor will pay against receivables?
a. ` 31,28,889
b. ` 39,11,111
c. ` 30,03,733
d. ` 46,93,333
III. What is the annual cost of factoring to the company?
a. ` 8,83,200
b. ` 4,26,667
c. ` 5,51,823
d. ` 4,00,000
IV. What is the net cost to the company on taking factoring service?
a. ` 4,00,000
b. ` 4,26,667
c. ` 3,50,000
d. ` 4,83,200
V. What is the effective cost of factoring on advance received?
a. 16.09%
b. 13.31%
c. 12.78%
d. 15.89% (5 x 2 = 10 Marks)
2. Ramu Ltd. wants to implement a project for which ` 25 lakhs is required.
Following financing options are at hand:
Option 1:
Equity Shares 25,000 @ ` 100
Option 2:
Equity Shares 10,000 @ ` 100
12% Preference Shares 5,000@ ` 100
10% Debentures 10,000@ ` 100

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 What is the indifference point & EPS at that level of EBIT assuming corporate
tax to be 35%.
(a) ` 2,94,872; ` 11.80
(b) ` 3,20,513; ` 8.33
(c) ` 2,94,872; ` 7.67
(d) ` 3,20513; ` 12.82 (2 Marks)
3. "If EBIT increases by 6%, net profit increases by 6.9%. If sales increase by
6%, net profit will increase by 24%.
Financial leverage must be -…………."
(a) 1.19
(b) 1.13
(c) 1.12
(d) 1.15 (2 Marks)
4. What is the maximum period for which company can accept Public Deposits?
(a) 1 year
(b) 6 months
(c) 3 years
(d) 5 years (1 Marks)

PART II – Descriptive Questions (35 Marks)

Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.
1. (a) The following figures have been extracted from the annual report of Xee
Ltd.:
Net Profit ` 54 lakhs
Outstanding 12% preference shares ` 200 lakhs
No. of equity shares 2 lakhs
Return on Investment 22%
Cost of capital i.e. (K e) 15%
COMPUTE the approximate dividend pay-out ratio so as to keep the
share price at ` 120 by using Walter’s model?
(Decimal may be taken up to 2 units) (5 Marks)
(b) Capital structure (in market-value terms) of AN Ltd is given below:
Company Debt Equity
AN Ltd. 50% 50%

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 The borrowing rate for the company is 10% in a no-tax world and capital
markets are assumed to be perfect.
Required:
(i) If Mr. R, owns 8% of the equity shares of AN Ltd., DETERMINE his
return if the Company has net operating income of ` 10,00,000 and
the overall capitalization rate of the company (K o) is 20%.
(ii) CALCULATE the implied required rate of return on equity of AN Ltd.
(5 Marks)
(c) ANVY Ltd. has furnished the following ratios and information for the year
end 31st March, 2023:
Equity share capital ` 2,00,000
The relevant ratios of the company are as follows:
Current debt to total debt 0.50
Total debt to Equity share capital 0.60
Fixed assets to Equity share capital 0.70
Total assets turnover 2.5 Times
Inventory turnover 10 Times

You are required to PREPARE the Balance Sheet of ANVY Ltd. as on

31st March, 2023. (5 Marks)
2. (a) NC Ltd. Is considering purchasing a new machine to increase its
production facility. At present, it uses an old machine which can process
5,000 units of TVs per week. NC could replace it with new machine,
which is product specific and can produce 15,000 units per week. New
machine cost ` 100 crores and requires the working capital of ` 3 crores,
which will be released at the end of 5 th year. The new machine is
expected to have a salvage value of ` 20 crores.
The company expects demand for TVs to be 10,000 units per week.
Each TV sells for ` 30,000 and has Profit Volume Ratio (PV) of 0.10. The
company works for the 56 weeks in the year. Additional fixed costs
(excluding depreciation) are estimated to increase by ` 10 crores. The
company is subject to a 40% tax rate and its after-tax cost of capital is
20%. The relevant rate of depreciation is 25 % for both taxation and
accounts. The company uses the WDV method of depreciation. The
existing machine will have no scrap value.
You are required to:
ADVISE whether the company should replace the old machine.
(Decimal may be taken up to 2 units) (8 Marks)
(b) WRITE a short note on “Cut-off Rate”. (2 Marks)

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3. (a) Ram Ltd evaluates all its capital projects using discounting rate of 16%.
Its capital structure consists of equity share capital, retained earnings,
bank term loan and debentures redeemable at par. Rate of interest on
bank term loan is 1.4 times that of debenture. Remaining tenure of
debenture and bank loan is 4 years and 6 years respectively. Book value
of equity share capital, retained earnings and bank loan is ` 20,00,000,
` 30,00,000 and ` 20,00,000 respectively. Debentures which are having
book value of ` 30,00,000 are currently trading at ` 98 per debenture.
The ongoing PE multiple for the shares of the company stands at 4.
You are required to:
(i) CALCULATE the rate of interest on bank loan and
(ii) CALCULATE the rate of interest on debentures
Tax rate applicable is 30%. (8 Marks)
(b) DISCUSS the dividend-price approach to estimate cost of equity capital.
(2 Marks)
4. (a) EXPLAIN the limitations of profit maximization objective of Financial
Management. (4 Marks)
(b) WHAT are the methods of venture capital financing? (4 Marks)
(c) WHAT is ‘Optimum Capital Structure’? (2 Marks)
OR
EXPLAIN the concept of Financial Leverage as ‘Trading on Equity’.
(2 Marks)

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 INTERMEDIATE COURSE: GROUP II
PAPER 6B: STRATEGIC MANAGEMENT
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises case scenario based multiple choice questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case scenario based MCQs (15 Marks)
Question 1.(A) (Compulsory)
1. (A) In the fiercely competitive automotive industry, Zing, a promising
newcomer, set out on a strategic journey with ambitions of making a
substantial impact. Recognizing the significance of a robust distribution
network early on, Zing forged partnerships with established dealerships,
offering them attractive margins. This strategic move significantly
enhanced Zing's reach, with a presence in 80% of the nation's
dealerships by 2022, expanding its coverage significantly.
To differentiate themselves from competitors, Zing adopted two key
strategies. Firstly, they prioritized product design, investing heavily in
aesthetics and incorporating innovative features and environmentally
friendly technologies. This focus on design led to their vehicles receiving
excellent reviews and achieving an impressive 15% year-on-year growth
in sales.
Secondly, Zing implemented switching costs to discourage customers
from switching to other brands. Their vehicles featured branded
software, making it both expensive and cumbersome for customers to
transition to alternative brands. This strategic move effectively protected
Zing's market share.
Zing's overarching goal was to position itself as a premium automotive
brand, blending luxury with sustainability. However, their execution fell
down as they challenged with maintaining consistent quality and service
levels, resulting in mixed customer reviews.
Despite their best efforts, Zing's differentiation strategy fell short due to
issues with inconsistent quality and service. Negative word-of-mouth and
declining customer satisfaction scores tarnished their brand image,
leading to stagnating sales. This failure to deliver on their brand promise
proved to be a significant setback.
As Zing's reputation suffered from execution failures, securing additional
funds for international expansion became challenging. Consequently,
they made the difficult decision to postpone their global ambitions for the
next five years, focusing instead on stabilizing their finances and
rebuilding their brand image.
In summary, Zing's strategic journey illustrates the importance of not
only crafting a compelling differentiation strategy but also executing it
flawlessly. In the competitive automotive landscape, maintaining

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 consistent quality and service is paramount to sustaining brand loyalty
and achieving long-term success.
Based on the above Case Scenario, answer the Multiple Choice
Questions.
(i) What key strategic approach did Zing use to expand its market
presence in the automotive industry?
(a) Product innovation and design
(b) Cost leadership strategy
(c) Entering new international markets
(d) Vertical integration (2 Marks)
(ii) How did Zing protect its market share from potential competitors?
(a) Price-cutting strategy
(b) Branded software and switching costs
(c) Aggressive marketing campaigns
(d) International expansion (2 Marks)
(iii) Why did Zing's differentiation strategy fall short in the market?
(a) Intense price competition
(b) Poor marketing strategy
(c) Inconsistent quality and service
(d) Lack of international expansion (2 Marks)
(iv) Forging partnerships with established dealerships to enhance its
distribution network falls under which level of strategy?
(a) Corporate level strategy
(b) Business level strategy
(c) Functional level strategy
(d) Competitive level strategy (2 Marks)
(v) How did Zing initially expand its market presence across the
nation?
(a) Aggressive marketing campaigns
(b) Developing low-cost vehicles
(c) Partnering with established dealerships
(d) Launching a luxury brand (2 Marks)
(B) Compulsory Application Based Independent MCQs
(i) TechMex Inc., a leading technology company, offers a diverse
portfolio of products ranging from established cash cows to
promising question marks. As part of its strategic planning process,

7
 the company aims to assess its product portfolio's performance and
allocate resources effectively. In which quadrant of the BCG Matrix
would TechMex's new innovative product, recently launched in a
rapidly growing market, likely fall into?
(a) Cash Cow
(b) Dog
(c) Question Mark
(d) Star (2 Marks)
(ii) BlueSky Enterprises, a multinational corporation specializing in
renewable energy solutions, is undergoing a strategic
transformation to enhance its competitive position in the market. As
part of this initiative, the company is reevaluating its organizational
structure, processes, and culture. Which aspect of the McKinsey
7S Model is most relevant for BlueSky Enterprises during this
strategic transformation?
(a) Strategy
(b) Structure
(c) Systems
(d) Skills (2 Marks)
(iii) The threat of substitutes is high when:
(a) There are few substitute products available
(b) Switching costs are low
(c) Suppliers have high bargaining power
(d) There is strong brand loyalty (1 Mark)

PART II – Descriptive Questions (35 Marks)

Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.
1. (a) Swati is the marketing manager at a software company. She is
responsible for developing and implementing marketing strategies for
the company’s products. Swati leads a team of marketing professionals
and works closely with the product development and sales teams to
ensure that the company's products are effectively promoted in the
market. She also analyzes market trends and customer feedback to
refine the marketing strategies. Which level is she working at, discuss
the roles and responsibilities of this level in organization? (5 Marks)
(b) ABC Corp, a multinational consumer electronics company, is planning to
expand its operations into a new country. The company's senior
management is evaluating the potential risks and opportunities of
entering this new market. As part of their analysis, they decide to use
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 the PESTLE framework to assess the external factors that could impact
their decision. How can the PESTLE framework help ABC Corp assess
the external factors affecting its decision to expand into a new country?
(5 Marks)
(c) Imagine you are a consultant advising a small manufacturing company
embarking on a digital transformation journey. The company's leadership
is concerned about managing the change effectively. Using the best
practices for managing change in small and medium-sized businesses,
outline a strategy to help the company navigate this transformation
successfully. (5 Marks)
2. (a) Imagine you are a strategic consultant advising a retail company that is
facing increasing competition from online retailers. The company is
considering several strategic options to improve its market position.
Using the concept that strategy is partly proactive and partly reactive,
explain how the company can develop a strategic approach to address
this challenge. (5 Marks)
(b) You are a strategic manager for a tech company launching a new
smartphone model. The company wants to target tech-savvy consumers
who value innovation and cutting-edge technology. Using the concept of
customer behavior, develop a marketing strategy to promote the new
smartphone. (5 Marks)
3. (a) A beverage company is launching a new line of energy drinks targeted
at health-conscious consumers. The strategic manager wants to study
the market position of rival companies in the energy drink segment.
Which tool can be used for this analysis, and what is the procedure to
implement it effectively? (5 Marks)
(b) The CEO of a textile mill believes that his company, currently operating
at a loss, can be turned around. Develop an action plan outlining steps
the CEO can take to achieve this turnaround. (5 Marks)
4. (a) Why Strategic Performance Measures are essential for organizations?
(5 Marks)
(b) How can Mendelow's Matrix be used to analyze and manage the
stakeholders effectively?
OR
Distinguish between Concentric Diversification and Conglomerate
Diversification. (5 Marks)

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 Mock Test Paper - Series II: April, 2024
Date of Paper: 15 April, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE GROUP – II
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A: FINANCIAL MANAGEMENT
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks)
Write the most appropriate answer to each of the following multiple choice
questions by choosing one of the four options given. All questions are
compulsory.

1. Tiago Ltd is an all-equity company engaged in manufacturing of batteries for

electric vehicles. There has been a surge in demand for their products due to
rising oil prices. The company was established 5 years ago with an initial
capital of ` 10,00,000 and since then it has raised funds by IPO taking the
total paid up capital to ` 1 crore comprising of fully paid-up equity shares of
face value ` 10 each. The company currently has undistributed reserves of `
60,00,000. The company has been following constant dividend payout policy
of 40% of earnings. The retained earnings by company are going to provide a
return on equity of 20%. The current EPS is estimated as Rs 20 and prevailing
PE ratio on the share of company is 15x. The company wants to expand its
capital base by raising additional funds by way of debt, preference and equity
mix. The company requires an additional fund of ` 1,20,00,000. The target
ratio of owned to borrowed funds is 4:1 post the fund-raising activity. Capital
gearing is to be kept at 0.4x.
The existing debt markets are under pressure due to ongoing RBI action on
NPAs of the commercial bank. Due to challenges in raising the debt funds,
the company will have to offer ` 100 face value debentures at an attractive
yield of 9.5% and a coupon rate of 8% to the investors. Issue expenses will
amount to 4% of the proceeds.
The preference shares will have a face value of ` 1000 each offering a
dividend rate of 10%. The preference shares will be issued at a premium of
1
5% and redeemed at a premium of 10% after 10 years at the same time at
which debentures will be redeemed.
The CFO of the company is evaluating a new battery technology to invest the
above raised money. The technology is expected to have a life of 7 years. It
will generate a after tax marginal operating cash flow of ` 25,00,000 p.a.
Assume marginal tax rate to be 27%.
1. Which of the following is best estimate of cost of equity for Tiago Ltd?
(a) 12.99%
(b) 11.99%
(c) 13.99%
(d) 14.99%
2. Which of the following is the most accurate measure of issue price of
debentures?
(a) 100
(b) 96
(c) 90.58
(d) 95.88
3. Which of the following is the best estimate of cost of debentures to be
issued by the company? (Using approximation method)
(a) 7.64%
(b) 6.74%
(c) 4.64%
(d) 5.78%
4. Calculate the cost of preference shares using approximation method
(a) 10.23%
(b) 9.77%
(c) 12.12%
(d) 12.22%
5. Which of the following best represents the overall cost of marginal capital
to be raised?
(a) 10.52%
(b) 17.16%
(c) 16.17%
(d) 16.71% (5 x 2 = 10 Marks)

2
2. Ranu & Co. has issued 10% debenture of face value 100 for ` 10 lakh. The
debenture is expected to be sold at 5% discount. It will also involve floatation
costs of ` 10 per debenture. The debentures are redeemable at a premium of
10% after 10 years. Calculate the cost of debenture if the tax rate is 30%.
(a) 9.74%
(b) 9.56%
(c) 8.25%
(d) 10.12% (2 Marks)
3. Given Data: Sales is ` 10,00,000, Break even sales is ` 6,00,000.
What is the Degree of operating leverage?
(a) 3
(b) 2
(c) 2.5
(d) 2.2 (2 Marks)
4. A project requires an initial investment of ` 20,000 and it would give annual
cash inflow of ` 4,000. The useful life of the project is estimated to be 10
years. What is payback reciprocal/Approximated IRR?
(a) 20%
(b) 15%
(c) 25%
(d) 12% (1 Mark)

PART II – Descriptive Questions (35 Marks)

Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.
1. (a) The below information for Lever Ltd is provided on annual basis:
`
Sales at 3 months credit 48,00,000
Materials consumed (suppliers extend 2 months credit) 12,00,000
Wages paid (one month lag in payment) 9,60,000
Cash manufacturing expenses (paid on month in arrear) 12,00,000
Administrative expense (one month lag in payment) 3,60,000
Sales promotion expense (paid monthly in advance) 1,20,000
The Company sells its products at a gross profit of 20%.
The Company keeps two months stock of raw materials and two months
stock of finished goods.
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 Depreciation is considered as a part of cost of production.
Cash balance is retained at ` 1,00,000,
Assuming a 15% margin, COMPUTE the working capital requirements
of the Company on cash cost basis. Ignore work-in progress.
(5 Marks)
(b) SOC Ltd has 10 lakh equity shares outstanding at the beginning of the
accounting year 2024. The existing market price per share is Rs 600.
Expected dividend is Rs 40 per share. The rate of capitalization
appropriate to the risk class to which the company belongs is 20%.
(i) CALCULATE the market price per share by the end of the year
when expected dividends are: (a) declared, and (b) not declared,
based on the Miller – Modigliani approach.
(ii) CALCULATE the number of shares to be issued by the company at
the end of the accounting year on the assumption that the net
income for the year is Rs 15 crore; investment budget is Rs 20
crores, when (a) Dividends are declared, and (b) Dividends are not
declared.
(iii) PROVE that the market value of the shares at the end of the
accounting year will remain unchanged irrespective of whether (a)
Dividends are declared, or (ii) Dividends are not declared.
(5 Marks)
(c) An existing profitable company, RMC World Ltd. is considering a new
project for manufacture of home automation gadget involving a capital
expenditure of ` 1000 Lakhs and working capital of ` 150 Lakhs. The
capacity of the plants for an annual production of 3 lakh units and
capacity utilization during 5 year life of the project is expected to be as
indicated below:
Year 1 2 3 4 5
Capacity Utilization (%) 50 65 80 100 100

The average price per unit of product is expected to be `600 netting a

contribution of 60 percent. The annual fixed costs, excluding
depreciation, are estimated to be `500 Lakhs per annum from the third
year onwards. For the first and second year, it would be ` 200 lakhs and
` 350 lakhs respectively.
Scrap value of the capital asset at the end of 5th year is ` 200 Lakhs.
Depreciation on capital asset is provided on written down value basis @
40% p.a. for income tax purpose. The rate of income tax may be taken
at 30%. The cost of capital is 12%. At end of the third year an additional
investment of ` 200 lakhs would be required for working capital. There
is no capital gain tax applicable.
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 COMPUTE the NPV of the project. RMC World Ltd. is about to make a
presentation to Secure Venture Capital Firm. Secure Venture Capital
Firms will invest in any project if the net addition to shareholder wealth
from the project is above ` 100 lakhs. (5 Marks)
2. (a) From the following PREPARE Income statement of company P and Q.
P Q
No. of Equity Shares 1,00,000 70,000
Financial leverage 3:1 4:1
Operating Leverage 2:1 3:1
Variable cost to sales 67% 50%
Interest ₹ 5,50,000 ₹ 6,00,000
Income tax rate 30% 30%
Also CALCULATE EPS of the company. (4 Marks)
(b) The GT Limited is willing to expand its business for which it requires an
additional finance of ` 50,00,000. At present, the capital structure of the
company is as under:
• 7,00,000 Equity shares of ` 10 each
• 10% Debentures ` 63,00,000
• 12% Term loan ` 54,00,000
• Retained earnings ` 1,30,00,000
At present, the company's EBIT is ` 54,00,000. However, the company,
after expansion, expects ROI 2% greater than the present ROI, Income
Tax Rate is 30%.
Following two options, for getting additional finance, are available-
(a) To raise funds as term loan @ 12%
(b) To raise funds by issuing 1,00,000 equity shares at ` 20 per share
and balance by issuing 11% debentures at par.
Required:
(i) FIND out the market price of shares, if the P/E ratio is 10.
(ii) RECOMMEND the suitable option of raising funds with reason.
(6 Marks)
3. (a) EOC Ltd is a listed company and has presented the below abridged
financial statements below.
Statement of Profit and Loss ` `
Sales 1,25,00,000
Cost of goods sold (76,40,000)
Gross Profit 48,60,000
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Less: Operating Expenses
Administrative Expenses 13,20,000
Selling and Distribution Expenses 15,90,000 (29,10,000)
Operating Profit 19,50,000
Add: Non Operating Income 3,28,000
Less: Non Operating Expenses (1,27,000)
Profit before Interest and taxes 21,51,000
Less: Interest (4,39,000)
Profit before tax 17,12,000
Less: Taxes (4,28,000)
Profit after Tax 12,84,000
Balance Sheet

Sources of Funds ` `
Owned Funds
Equity Share Capital 30,00,000
Reserves and Surplus 18,00,000 48,00,000
Borrowed Funds
Secured Loan 10,00,000
Unsecured Loan 4,30,000 14,30,000
Total Funds Raised 62,30,000
Application of Funds
Non-Current Assets
Building 7,50,000
Machinery 2,30,000
Furniture 7,60,000
Intangible Assets 50,000 17,90,000
Current Assets
Inventory 38,60,000
Receivables 39,97,000
ST investments 3,00,000
Cash and Bank 2,30,000 83,87,000
Less: Current Liabilities
Creditors 25,67,000
ST loans 13,80,000 (39,47,000)
Total Funds Employed 62,30,000

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 The company has set certain standards for the upcoming year financial
status.
All the ratios are based on closing figures in financial statements.
Equity SC to Reserves= 1
Net Profit Ratio= 15%
Gross Profit Ratio= 50%
Long Term Debt to Equity= 0.5
Debtor Turnover= 100 Days
Creditor Turnover (based on COGS)= 100 Days

Inventory= 70% of Opening inventory

Cash Balance is assumed to remain same for next year

You are required to -
(1) CALCULATE inventory turnover ratio in days for current year
(2) CALCULATE receivables turnover ratio in days for current year
(3) CALCULATE the projected receivables, inventory, payables and long
term debt (8 Marks)
(b) NAME the various financial instruments dealt with in the International
market. (2 Marks)
4. (a) WRITE short notes on Inter relationship between investment, financing
and dividend decisions. (4 Marks)
(b) DISCUSS the liquidity vs. profitability issue in management of working
capital. (4 Marks)
(c) EXPLAIN the concept of discounted payback period. (2 Marks)
OR
(c) EXPLAIN the concept of Indian depository receipts. (2 Marks)

7
 INTERMEDIATE COURSE: GROUP II
PAPER 6B: STRATEGIC MANAGEMENT
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises case scenario based multiple choice questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case scenario based MCQs (15 Marks)

Question 1.(A) (Compulsory)

1. (A) Café Delight, a thriving restaurant chain known for its unique blend of
Australian and Indian culinary experiences, embarked on a remarkable
journey from its humble beginnings as a small café in Australia to
becoming a renowned player in the Indian restaurant industry. This case
study digs into the strategic decisions and market dynamics that fueled
Café Delight's growth, highlighting its transition from a single café in
Powai, Mumbai, to a flourishing chain with a presence in five cities and
over 25 stores. It explores how Café Delight effectively leveraged social
media and adapted its pricing strategy to compete with global brands
while maintaining a healthy profit margin.
In 2005, Café Delight was founded in Melbourne, Australia, by a
passionate entrepreneur with a vision to bring the flavors of Australia
and India together. The first café established in Powai, Mumbai, received
accolades for its unique menu, blending Australian coffee culture with
Indian culinary traditions. Over the course of five years, Café Delight
expanded to three stores in Mumbai, driven by exceptional mouth
publicity, customer loyalty, and consistent quality.
As the social media landscape evolved, Café Delight recognized the
power of online platforms in reaching a wider audience. By effectively
utilizing social media and online marketing, Café Delight expanded its
presence to five cities across India and established over 25 stores.
Customer engagement through social media platforms enabled the
brand to create a strong and vibrant community, driving organic growth.
Café Delight's customer-centric approach involved continuously evolving
its menu to cater to the changing tastes and dietary preferences of its
patrons. By understanding the evolving needs of its customers, Café
Delight could offer personalized menu items, seasonal specials, and
dietary alternatives. This approach created a sense of loyalty and
engagement among customers, strengthening the brand's appeal. Not
just customers but High-power, low-interest stakeholders, including
regulatory authorities, were addressed with careful compliance and
adherence to industry standards. Low-power, high-interest stakeholders,
like potential customers and local communities, were engaged through
8
targeted marketing campaigns and community involvement initiatives.
This meticulous stakeholder analysis allowed Café Delight to build and
maintain strong relationships with each group, effectively managing their
influence and impact on the brand.
With its expanding presence and increasing popularity, Café Delight
underwent a shift in its pricing strategy. It transitioned from a pocket -
friendly pricing model to a skimming strategy, capitalizing on its unique
blend of Australian and Indian flavors to position itself as a premium
restaurant. Café Delight faced stiff competition from global brands
entering the Indian market but maintained a profit margin of
approximately 30% through menu engineering and targeted pricing.
In one of its kind, using strategic tools enabled Café Delight to identify
and act on opportunities while mitigating threats, contributing to its long-
term success in the highly competitive restaurant industry.
Based on the above Case Scenario, answer the Multiple-Choice
Questions.
(i) Café Delight effectively leveraged social media and adapted its
pricing strategy as it stepped into which phase of business life cycle
of operations?
(a) Introduction Stage
(b) Growth Stage
(c) Maturity Stage
(d) Decline Stage (2 Marks)
(ii) What stakeholder group did Café Delight engage through targeted
marketing campaigns and community involvement initiatives?
(a) High-power, high-interest stakeholders
(b) Low-power, low-interest stakeholders
(c) Low-power, high-interest stakeholders
(d) High-power, low-interest stakeholders (2 Marks)
(iii) What best describes Café Delight's initial expansion strategy when
it expanded from one café to three in Mumbai?
(a) Aggressive price reduction
(b) Leveraging customer loyalty and word-of-mouth publicity
(c) Extensive online marketing
(d) Embracing global branding strategies (2 Marks)

9
 (iv) At which level of strategic management does Café Delight's
transition from a pocket-friendly pricing model to a skimming
strategy fit?
(a) Corporate level
(b) Business level
(c) Functional level
(d) Operational level (2 Marks)
(v) What type of strategy did Café Delight use to differentiate itself from
competitors in the Indian restaurant industry?
(a) Cost leadership strategy
(b) Focused differentiation strategy
(c) Cost focus strategy
(d) Hybrid strategy (2 Marks)
(B) Compulsory Application Based Independent MCQs
(i) Shamita joined GlobalX Consulting firm as an Analyst in financial
fraud mitigation. In her very first assignment she faced an integrity
dilemma where her subordinates had missed calling out a potential
financial risk which could impact the overall fraud rating of the
organisation. She quickly reached out to her seniors who
appreciated her diligence and immediately reported the same to
senior management. In this scenario which element, soft or hard,
is acting in favor of GlobalX?
(a) Strategy
(b) Systems
(c) Shared Value
(d) Staff (2 Marks)
(ii) Chocopo, an ice cream company run by Shri Shyam Kumar since
1985, now had its management change to his two daughters, who
came in and wanted to experiment with a lot of flavors. They
introduced 21 new flavors in a span of 6 months while not losing
out of 2 legendary flavors of their dad i.e. Stick Kulfi and Mango
Bar. After year 1 of operations, 9 out of the 21 flavors had to be
stopped, while 10 flavors were still kept, extending the
experimentation. The early sense from market was that they would
have to be stopped too, but the sisters decided to extend their
timelines. What category as per BCG Matrix would the 10 flavors
fall into?
(a) Cash Cow

10
 (b) Dog
(c) Question Mark
(d) Star (2 Marks)
(iii) A company negotiating the best prices and quality from its suppliers
to add to customer’s delight is an example of?
(a) Value Creation by improving primary activity
(b) Value Creation by improving support activity
(c) Competitive Advantage Creation
(d) Stakeholder Management (1 Mark)

PART II – Descriptive Questions (35 Marks)

Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.
1. (a) ABC retail chain regularly monitors consumer trends and supply chain
flexibility. The retail chain tracks consumer trends to adjust its offerings,
ensuring they meet customer needs. Simultaneously, it maintains a
flexible supply chain to respond swiftly to demand fluctuations. This
strategy enables ABC retail chain to anticipate market shifts and adapt
to them effectively, ensuring its competitiveness and customer
satisfaction. Which type of strategy is the retail chain employing?
(5 Marks)
(b) A Mumbai-based conglomerate, PQR Ltd., has announced a major
restructuring of its business operations. The company has decided to
split its business into four separate units: Manufacturing, Retail,
Services, and Technology. Each unit will operate as a separate
business, with delegated responsibility for day-to-day operations and
strategy to the respective unit managers. Identify the organization
structure that PQR Ltd. has planned to implement. Discuss any four
attributes and the benefits the firm may derive by using this organization
structure. (5 Marks)
(c) GreenThrift Inc., a sustainable clothing retailer, is experiencing a surge
in popularity due to the growing awareness of environmental issues
among consumers. The company specializes in selling second-hand
clothing and upcycled garments, offering an eco-friendly alternative to
traditional fast fashion.
A major concern for GreenThrift Inc. is the emergence of new
sustainable fashion brands in the market. These brands focus on using
organic and recycled materials, as well as ethical manufacturing
practices, which align with the values of environmentally conscious
consumers.

11
 Identify and explain that competition from new sustainable fashion
brands falls under which category of Porter’s Five Forces Model for
Competitive Analysis? (5 Marks)
2. (a) “Each organization must build its competitive advantage keeping in mind
the business warfare. This can be done by following the process of
strategic management.” Considering this statement, explain major
benefits of strategic management. (5 Marks)
(b) Reshuffle Corp is a company that manufactures and sells office furniture.
They offer a range of products, from desks and chairs to cabinets and
shelves. Recently, the company has been facing increased competition
from online retailers offering similar products at lower prices.
Analyzing the characteristics of products in the furniture industry,
discuss how Reshuffle Corp can differentiate its products to maintain a
competitive edge in the market. (5 Marks)
3. (a) EasyLife Corporation, a leading manufacturer of consumer electronics,
is considering launching a new line of smart home devices. As a strategic
manager, conduct a SWOT analysis for EasyLife Corporation to assess
the feasibility and potential success of this new venture. Consider both
internal and external factors that could impact the success of the new
product line. (5 Marks)
(b) Explain the concept of forward and backward linkages between strategy
formulation and implementation in strategic management, using relevant
examples. How do these linkages impact the overall strategic decision -
making process of an organization? (5 Marks)
4. (a) Define Strategic Performance Measures (SPM). Explain various types of
strategic performance measures. (5 Marks)
(b) StarTech Solutions, an aerospace technology firm, operates in a highly
competitive industry. Despite the fierce competition in the aerospace
sector, StarTech has carved out a niche for itself by focusing on serving
unique, high-end clients. Unlike its competitors, StarTech has chosen
not to diversify its target market and instead specializes in providing
cutting-edge solutions to this niche market.
Identify and explain the strategy adopted by StarTech Solutions. Discuss
the advantages and disadvantages of this strategy.
OR
Strategic alliances are formed if they provide an advantage to all the
parties in the alliance. Do you agree? Explain in brief the advantages of
a strategic alliance. (5 Marks)

12
 PAPER – 6:
FINANCIAL MANAGEMENT AND
STRATEGIC MANAGEMENT

6A: FINANCIAL MANAGEMENT

QUESTIONS

Division A: Case Scenario

Working Capital
1. ArMore LLP is a newly established startup dealing in manufacture of a
revolutionary product HDHMR which is a substitute to conventional
wood and plywood. It is an economical substitute for manufacture of
furniture and home furnishing. It has been asked by a venture capitalist
for an estimated amount of funds required for setting up plant and also
the amount of circulating capital required. A consultant hired by the
entity has advised that the cost of setting up the plant would be ` 5
Crores and it will require 1 year to make the plant operational. The
anticipated revenue and associated cost numbers are as follows:
Units to be sold = 3 lakh sq metres p.a.
Sale Price of each sq mtr = ` 1000
Raw Material cost = ` 200 per sq mtr
Labour cost = ` 50 per hour
Labour hours per sq mtr = 3 hours
Cash Manufacturing Overheads = ` 75 per machine hour

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Machine hours per sq mtr = 2 hours

Selling and credit administration Overheads = ` 250 per sq mtr
Being a new product in the industry, the firm will have to give a longer
credit period of 3 months to its customers. It will maintain a stock of raw
material equal to 15% of annual consumption. Based on negotiation
with the creditors, the payment period has been agreed to be 1 month
from the date of purchase. The entity will hold finished goods equal to 2
months of units to be sold. All other expenses are to be paid one month
in arrears. Cash and Bank balance to the tune of ` 25,00,000 is required
to be maintained.
The entity is also considering reducing the working capital requirement
by either of the two options: a) reducing the credit period to customers
by a month which will lead to reduction in sales by 5%. b) Engaging with
a factor for managing the receivables, who will charge a commission of
2% of invoice value and will also advance 65% of receivables @ 12% p.a.
This will lead to savings in administration and bad debts cost to the
extent of ` 20 lakhs and 16 lakhs respectively.
The entity is also considering funding a part of working capital by bank
loan. For this purpose, bank has stipulated that it will grant 75% of net
current assets as advance against working capital. The bank has quoted
16.5% rate of interest with a condition of opening a current account with
it, which will require 10% of loan amount to be minimum average
balance.
You being an finance manager, has been asked the following questions:
(i) The anticipated profit before tax per annum after the plant is
operational is ……….
(A) 750 Lakhs
(B) 570 Lakhs
(C) 370 Lakhs
(D) 525 Lakhs
(ii) The estimated current assets requirement in the first year of
operation (debtors calculated at cost) is ……….

2 MAY 2024 EXAMINATION

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 FINANCIAL MANAGEMENT AND
REVISION TEST PAPER
STRATEGIC MANAGEMENT

(A) 9,42,50,000
(B) 2,17,08,333
(C) 7,25,41,667
(D) 67,08,333
(iii) The net working capital requirement for the first year of operation
is ……….
(A) 9,42,50,000
(B) 2,17,08,333
(C) 7,25,41,667
(D) 67,08,333
(iv) The annualised % cost of two options for reducing the working
capital is ……….
(A) 18.18% and 16.92%
(B) 18.33% and 16.92%
(C) 18.59% and 18.33%
(D) 16.92% and 19.05%
(v) What will be the Maximum Permissible Bank Finance by the bank
and annualised % cost of the same?
(A) 4,55,03,630 and 18.33%
(B) 5,44,06,250 and 18.33%
(C) 4,45,86,025 and 18.59%
(D) 3,45,89,020 and 19.85%
Division B: Descriptive Questions
Ratio Analysis
1. From the following information and ratios, PREPARE the Balance Sheet
as on 31st March 2023 and Income Statement for the year ended on that
date for Limelite & Co.

3 MAY 2024 EXAMINATION

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INTERMEDIATE EXAMINATION

Gross Profit ` 1,20,000

Shareholders’ Funds ` 5,00,000
Gross Profit margin 40%
Net Profit Margin 10%
PBIT to PBT 2:1
Credit sales to Total sales 80%
Total Assets turnover 0.4 times
Inventory turnover (Use sales as turnover) 5 times
Average collection period (a 360 days year) 30 days
Current ratio 2
Operating expenses (excluding interest) ` 60,000
Long-term Debt to Equity 40%
Tax Nil

Cost of Capital
2. Totto Ltd. has following capital structure as on 31 st December 2023,
which is considered to be optimum:

(`)
12% Debenture 4,50,000
10% Preference share capital 1,50,000
Equity shares capital (2,00,000 shares) 24,00,000

The company’s share has a current market price of ` 30.25 per share.
The expected dividend per share in next year is 50 percent of the 2023
EPS. The EPS of last 10 years is as follows. The past trends are expected
to continue:
Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
EPS (`) 1.180 1.311 1.456 1.616 1.794 1.99 2.209 2.452 2.723 3.023

The company can issue 14 percent new debenture and 12 percent new
preference share. The company’s debenture is currently selling at ` 99.

4 MAY 2024 EXAMINATION

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 FINANCIAL MANAGEMENT AND
REVISION TEST PAPER
STRATEGIC MANAGEMENT

The new preference issue can be sold at a net price of ` 9.90, paying a
dividend of ` 1.25 per share. The company’s marginal tax rate is 50%.
(i) CALCULATE the after-tax cost (a) of new debts and new preference
share capital, (b) of ordinary equity, assuming new equity comes
from retained earnings.
(ii) CALCULATE the marginal cost of capital for the new funds raised.
(iii) How much can be spent for capital investment before new
ordinary share must be sold? Marginal cost of capital remains to
be constant. (Assuming that retained earnings available for next
year’s investment is 50% of 2023 earnings.)
(iv) What will be marginal cost of capital (cost of fund raised in excess
of the amount calculated in part (iii) if the company can sell new
ordinary shares of ` 22 per share? Assuming both the cost of debt
and of preference share capital to be constant.
Capital Structure
3. Following data is available in respect of two companies having same
business risk:
Capital employed = ` 3,00,000, EBIT = ` 45,000 and K e = 12.5%

Sources A Ltd B Ltd

Levered Company (`) Unlevered Company (`)
Debt (@10%) 1,50,000 Nil
Equity 1,50,000 3,00,000

An investor is holding 20% shares in levered company. CALCULATE the

increase in annual earnings of investor if he switches his holding from
Levered to Unlevered company.
Leverage
4. From the following financial data of Company A and Company B,
PREPARE their Income Statements.

Company A (`) Company B (`)

Variable Cost 88,000 50% of sales

5 MAY 2024 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Fixed Cost 26,500 -

Interest Expenses 14,000 11,000
Financial Leverage 5:1 -
Margin of Safety - 0.25
Income Tax Rate 30% 30%
EBIT - 14,000

Investment Decisions
5. HMR Ltd. is considering replacing a manually operated old machine with
a fully automatic new machine. The old machine had been fully
depreciated for tax purpose but has a book value of ` 2,50,000 on
31st March. The machine has begun causing problems with breakdowns
and it cannot fetch more than ` 40,000 if sold in the market at present. It
will have no realizable value after 10 years. The company has been
offered ` 1,50,000 for the old machine as a trade in on the new machine
which has a price (before allowance for trade in) of ` 6,00,000. The
expected life of new machine is 10 years with salvage value of ` 35,000.
Further, the company follows written down value method depreciation
@ 10% but for tax purpose, straight line method depreciation is used
considering that this is the only machine in the block of assets. A
working capital of ` 50,000 will be needed and it will be released at the
end of tenth year.
Given below are the expected sales and costs from both old and new
machine:

Old machine New machine

Annual output 60,000 units 80,000 units
Selling price per unit ` 18 ` 18
Annual operating hours 2,800 2,800
Material cost per unit `5 `5
Labour cost per hour ` 50 ` 75
Indirect cash cost per annum ` 1,00,000 ` 1,75,000
From the above information, ANALYSE whether the old machine should be
replaced or not if the opportunity cost of capital of the Company is 10%?

6 MAY 2024 EXAMINATION

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 FINANCIAL MANAGEMENT AND
REVISION TEST PAPER
STRATEGIC MANAGEMENT

The Income tax rate is 30%. Further assume that book profit is treated as
ordinary income for tax purpose.
Also ESTIMATE the internal rate of return of the replacement decision.
All calculations to be calculated to 3 decimal places.
Dividend Decision
6. MCO Ltd. has a paid-up share capital of ` 10,00,000, face value of ` 10
each. The current market price of the shares is `20 each. The Board of
Directors of the company has an agenda of meeting to pay a dividend of
25% to its shareholders. The company expects a net income of
` 5,20,000 at the end of the current financial year. Company also plans
for a capital expenditure for the next financial year for a cost of
` 7,50,000, which can be financed through retained earnings and issue of
new equity shares.
Company’s desired rate of investment is 15%.
Required:
Following the Modigliani- Miller (MM) Hypothesis, DETERMINE value of
the company when:
(i) It does not pay dividend and
(ii) It does pay dividend
Working Capital
7. PQ Ltd. has commenced new business segment in 2023-24. The
following information has been ascertained for annual production of
25,000 units which is the full capacity.
Cost per unit (`)
Material 100
Labour and variable overhead expenses 50
Fixed manufacturing expenses 35
Depreciation 15
Selling expenses (80% variable) 10

7 MAY 2024 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

In the first two years of operations, production and sales are expected to
be as follows:
Year Production (No. of units) Sales (No. of units)
1 12,000 10,000
2 18,000 19,000
The selling price is expected to be ` 250 .
To assess the working capital requirements, the following additional
information is available:

(a) Stock of materials 2 months’ average consumption

(b) Debtors 1.5 month’s average sales.
(c) Cash balance ` 50,000
(d) Creditors for supply of 1 month’s average purchase during
materials the year.
(e) Expenses All expenses will be paid 1 month in
advance during the year.

Goods equal to 15% of the year’s production (in terms of physical units)
will be in process on the average requiring full materials but only 40% of
the other expenses.
The management is also of the opinion to make 10% margin for
contingencies on computed figure and value the closing stock at cost of
production.
PREPARE, for the two years:
(i) A projected statement of Profit/Loss (Ignoring taxation); and
(ii) A projected statement of working capital requirements on a cash
cost basis.
Miscellaneous
8. (i) EXPLAIN as to how the wealth maximisation objective is superior to
the profit maximisation objective
(ii) EXPLAIN the importance of trade credit and accruals as source of
working capital. What is the cost of these sources?

8 MAY 2024 EXAMINATION

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 Mock Test Paper - Series I: July, 2024
Date of Paper: 3rd August, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A: FINANCIAL MANAGEMENT
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.
PART I – Case Scenario based MCQs (15 Marks)
Write the most appropriate answer to each of the following multiple choice
questions by choosing one of the four options given. All questions are
compulsory.

Kaivalyabodhi Limited (KbL) has completed 35 years of operations in India. It has

many subsidiary & associate companies in more than 100 countries. KbL’s
business s include home and personal care, foods and beverages, and industrial,
agricultural and other products. It is one of the largest producers of soaps and
detergents in India. The company has grown organically as well as through
acquisitions. Over the years, the company has built a diverse portfolio of powerful
brands, some being household names.
It is planning to acquire one of its competitors named Prestige Limited, which would
enhance the growth of ‘KbL’. The consideration amount will be 1.5X of its average
Market Capitalization. Prestige limited has 1,30,000 outstanding equity shares and
its shares were traded at an average market price of ` 45 as on the valuation date.
The consideration amount will be paid equally in 5 years where the first installment
is to be paid immediately. Prestige Limited has Ko of 15%
KbL will raise the funds required through debt and equity in the ratio of 30:70. Th e
company requires the cost of capital estimates for evaluating its acquisitions,
investment decisions and the performance of its businesses.

1
KbL’s share price has grown from ` 150 to ` 301 in the last 5 years and it will
continue to grow at the same rate. KbL pays dividends regularly. The company has
recently paid a dividend of ` 8. For the calculation of equity, an average of 52 weeks
high market price in the last 5 years is to be considered, which is as follows :
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
MPS 195 MPS 210 MPS 252 MPS 325 MPS 280
Ke calculated as per growth model holds a weight of 0.6.
The company also wishes to calculate the equity’s expectation using CAPM which
holds a weight of 0.4. The risk-free rate is assumed as the yield on long-term
government bonds that the company regards as about 8%. KbL regards the market-
risk premium to be equal to 11 per cent. Its estimation on the Beta is 0.78.
KbL will issue debentures with FV of ` 10,500 which is to be amortised equally over
the life of 7 years. The company considers the effective rate of interest applicable
to an ‘AAA’ rated company with a markup of 200 basis points as its coupon rate. It
thinks that considering the trends over the years, ‘AAA’ rate is 7.5%.
Ignore taxation. Based on the above details, answer the question 1 to 5:
1. Calculate the cost of equity under both the methods
(a) 11%, 16%
(b) 18.65%, 10.34%
(c) 18.65%, 16.58%
(d) 16.5%, 9%
2. Calculate the overall cost of equity
(a) 17.82%
(b) 17.63%
(c) 15.37%
(d) 35.25%
3. Calculate the cost of debt, if the intrinsic value of debenture today is close to
` 9,740
(a) 15%
(b) 12%
(c) 9.5%
(d) 7.5%
4. Calculate the WACC & the amount of purchase consideration
(a) 18%, ` 90,00,000
2
 (b) 15.21%, ` 87,75,000
(c) 16.07%, ` 87,75,000
(d) 15.94%, ` 58,50,000
5. Present Value of Purchase consideration is close to `
(a) 58,83,032
(b) 67,65,487
(c) 57,35,680
(d) 66,58,997 (5 x 2 = 10 Marks)
6. X ltd has actual Sales of ` 20 lakhs and its Break-even sales are at ` 15 lakhs.
The degree of total risk involved in the company is 6.5. Calculate the % impact
on EPS, if EBIT is affected by 12%.
(a) 40%
(b) 78%
(c) 312%
(d) 19.5% (2 Marks)
7. Assuming Ke = 11%, Kd = 8% and Ko = 10%, Debt Equity ratio of the company
(a) 2:3
(b) 3:2
(c) 1:2
(d) 2:1 (2 Marks)
8. Given:
Earnings available to the equity shareholders ` 30 Lakhs,
Cost of equity is 15%,
Debt outstanding ` 150 Lakhs
Value of the firm will be –
(a) ` 200 Lakhs
(b) ` 250 Lakhs
(c) ` 350 Lakhs
(d) ` 300 Lakhs (1 Mark)

3
 PART II – Descriptive Questions (35 Marks)
Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.

1. (a) You are required to CALCULATE the Total Current Assets of Ananya
Limited from the given information:
Stock Turnover = 5 times
Sales (All credit) = ` 7,20,000
Gross Profit Ratio = 25%
Current Liabilities = 2,40,000
Liquidity Ratio = 1.25
Stock at the end is ` 30,000 more than stock in the beginning.
(5 Marks)
(b) Gitarth Limited has a current debt equity ratio of 3:7. The company is
presently considering several alternative investment proposals costing
less than ` 25 lakhs. The company will always raise the funds required
without disturbing its current capital structure ratio.
The cost of raising debt and equity are as follows-
Cost of Project Kd Ke
Upto 5 lakhs 10% 12%
Above 5 lakhs & upto 10 lakhs 12% 13.5%
Above 10 lakhs & upto 20 lakhs 13% 15%
Above 20 lakhs 14% 16%
Corporate tax rate is 30%, CALCULATE:
i) Cut off rate for two Projects I & Project II whose fund requirements
are 15 lakhs & ` 26 lakhs respectively.
ii) If a project is expected to give an after-tax return of 13%, determine
under what conditions it would be acceptable. (5 Marks)
(c) From the following details of X Ltd, PREPARE the Income Statement for
the year ended 31 st December:
Financial Leverage 2
Interest ` 2,000
Operating Leverage 3
Variable Cost as a Percentage of Sales 75%
Income Tax Rate 30%
(5 Marks)

4
2. (a) The financial statements of Gurunath Ltd is furnished below –
Balance Sheet as at 31 st March
Particulars as at 31 st March Note `
I EQUITY AND LIABILITIES:
(1) Shareholders’ Funds: 10,00,000
(2) Non–Current Liabilities: 10% Debt 6,00,000
(3) Current Liabilities 1,56,000
Total 17,56,000
II ASSETS
(1) Non–Current Assets 16,56,000
(2) Current Assets – Trade Receivables 1,00,000
Total 17,56,000
Additional Information:
1. The existing credit terms are 1/10, net 45 days and average
collection period is 30 days. The current bad debts loss is 1.5%. In
order to accelerate the collection process further as also to
increase sales, the company is contemplating liberalization of its
existing credit terms to 2/10, net 45 days.
2. It is expected that sales are likely to increase by 1/3 of existing
sales, bad debts increase to 2% of sales and average collection
period to decline to 20 days.
3. Credit period allowed by the supplier is 60 days. Generally,
operating expenses are paid 2 months in arrears. Total Variable
expenses of the company constitute Purchases of stock in trade
and operating expenses only.
4. Opportunity cost of investment in receivables is 15%. 50% and 80%
of customers in terms of sales revenue are expected to avail cash
discount under existing and liberalization scheme respectively. The
tax rate is 30%.
5. The Company considers only the relevant or variable costs for
calculating the opportunity costs on the funds blocked in
receivables. Assume 360 days in a year and 30 days in a month.
Should the company change its credit terms? (6 Marks)
(b) The following information is given for QB Ltd.
Earnings per share ` 180
Dividend per share ` 45
Cost of capital 17%
Internal Rate of Return on investment 20%
CALCULATE the market price per share using -
(a) Gordon’s formula
5
 (b) Walter’s formula (4 Marks)
3. (a) Parmarth Limited is a manufacturer of computers. Owing to recent
developments in Artificial Intelligence (AI), it is planning to introduce AI
in its computer process. This would result into an estimated
annual savings as follows:
(i) Savings of ` 3,50,000 in production delays caused by inventory
problem.
(ii) Savings in Salaries of 5 employees with an annual pay of ` 4,20,000
per annum
(iii) Reduction in Lost sales of ` 1,75,000
(iv) Gain due to timely billing is ` 3,25,000
The project would result in annual maintenance and operating costs as
follows, which are to be paid in advance (at the beginning)
YEAR 1 2 3 4 5
COST 1,80,000 2,00,000 1,20,000 1,10,000 1,30,000
Furthermore, the new system would need 2 AI specialists' professional
drawing salaries of ` 6,50,000 per annum per person. The purchase
price of the new system for installing AI into computers would involve an
outlay of ` 21,50,000 and installation cost of ` 1,50,000.
75% of the total value for depreciation would be paid in the year of
purchase and the balance would be paid at the end of the 1st year. The
new system will be sold for ` 1,90,000. This is the only asset in the block
for Income tax purpose.
The life of the system would be 5 years with the hurdle rate of 12%.
Depreciation will be charged at 40% on WDV basis, corporate tax rate is
25% and capital gains tax rate is at 20%.
CALCULATE NPV and advise the management on the acceptability of
the proposal. Also calculate ARR & PI. (8 Marks)
(b) DISCUSS the parameters of Lintner’s Model. (2 Marks)
4. (a) DISCUSS the Costs of Availing Trade Credit (4 Marks)
(b) Briefly EXPLAIN the following –
i. Fully Hedged Bonds
ii. Medium Term Notes
iii. Floating Rate Notes
iv. Euro Commercial Papers (4 Marks)
(c) WHAT is the range of DOL? (2 Marks)
OR
DISCUSS the role of a chief financial officer. (2 Marks)

6
 PAPER 6B: STRATEGIC MANAGEMENT
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises case scenario based multiple choice questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case scenario based MCQs (15 Marks)
Question 1. (A) (Compulsory)
1. (A) Kriti Pvt. Ltd. has been importing French gourmet cheeses under the
brand name of 'Fromage' since 2017. The company was amongst the
first in India to introduce innovative unbreakable cheese packaging.
Their affiliate, a French company owning Fromage, had entered into a
progressive deal, wherein products would be sourced to India via their
logistics, and all marketing expenditures would be covered by them.
However, customer management and nationwide distribution would be
taken care of by Kriti Pvt. Ltd. This required an English-speaking skilled
workforce, which has been a constant challenge for the company in
India.
The owners of Kriti Pvt. Ltd. have been regular attendees at industry-
relevant conclaves, both national and international. Leaders of the
company are passionate readers of business magazines. Following that,
it was observed that the recent sentiment of the country towards ‘Vocal
for Local’ could disrupt their French brand’s marketability. An
extraordinary meeting was set up, and the steps ahead were planned.
The outcome of the meeting was to partner with local producers of
traditional Indian cheeses in phase one of the change strategy. For this,
seven state governments were approached. The team was successful in
taking contracts from all the government departments of these seven
states and could position themselves fairly in the market. To fund this
new investment, they have planned to slowly sell off their French
business assets as well as the brand, to probable buyers.
This timely shift is proving to be a game-changer for the company, and
the leadership is quite happy with better than before earnings and a
much greater response from the customers. They find it easier to operate
with domestic producers and vendors, and a sense of patriotism is
instilled in the consumers’ minds.
Based on the above Case Scenario, answer the Multiple-Choice
Questions.
(i) Which of the following actions taken by Kriti Pvt. Ltd. is an example
of a proactive strategy?
(a) Selling off their French business assets.

7
 (b) Responding to the 'Vocal for Local' sentiment by partnering
with local cheese producers.
(c) Managing customer relations and nationwide distribution.
(d) Covering all marketing expenditures for 'Fromage' in India.
(2 Marks)
(ii) Which of the following types of strategic control did the owners and
leadership of Kriti Pvt. Ltd. deploy that eventually turned out to be
one of the most effective strategic decisions for the company?
(a) Premise control
(b) Special alert control
(c) Implementation control
(d) Strategic surveillance (2 Marks)
(iii) ‘Vocal for Local’ is a market sentiment that changed customers’
preferences for the majority of products across all industries. Based
on that, Kriti Pvt. Ltd. gauged the competition it might face in the
coming months and agreed to change its own product. Which of the
following forces, as per Michael Porter’s five forces of competitive
analysis, is most relevant in this case?
(a) Threat of new entrants
(b) Nature of rivalry in the industry
(c) Threat of substitutes
(d) Bargaining power of the buyer (2 Marks)
(iv) Which of the following aspects of value chain analysis was the most
challenging for Kriti Pvt. Ltd. at the time of selling the Fromage
brand?
(a) Manufacturing
(b) Outsourcing
(c) Customer service
(d) Procurement (2 Marks)
(v) To strategically revamp their business, partnerships were done with
Indian local producers from seven states, and to fund it, the existing
arm of the business was to be sold off. Which of the following
strategies has Kriti Pvt. Ltd. opted for?
(a) Turnaround strategy
(b) Divestment strategy
(c) Liquidation strategy

8
 (d) Intensification strategy (2 Marks)
(B) Compulsory Application Based Independent MCQs
(i) TechWave, a software development firm, aims to gain a
competitive edge in the rapidly evolving tech industry. To achieve
this, they focus on building their strength in artificial intelligence (AI)
and machine learning (ML). TechWave invests heavily in R&D,
hires top talent with specialized skills, and forms partnerships with
leading AI research institutions. They also provide continuous
training for their employees to keep them updated with the latest
advancements. By developing these, TechWave can create
innovative AI-driven solutions that differentiate them from
competitors and attract a growing number of clients seeking
cutting-edge technology. What strategy is TechWave using to gain
a competitive edge in the tech industry?
(a) Market segmentation
(b) Diversification
(c) Core competency building
(d) Cost leadership (2 Marks)
(ii) StreamlineCo is examining its internal capabilities to ensure that
employees possess advanced knowledge of emerging
technologies crucial for the company's future success. This
involves investing in specialized training programs and updating job
roles to match the latest industry standards. Which aspect of
StreamlineCo is being enhanced through specialized training and
updated job roles?
(a) Structure
(b) Systems
(c) Skills
(d) Style (2 Marks)
(iii) XYZ Corporation has launched AlphaTech to enter the consumer
electronics industry with a focus on offering high-performance
devices and innovative features at competitive prices. Which
competitive strategy is AlphaTech employing?
(a) Differentiation strategy
(b) Cost leadership strategy
(c) Best-cost provider strategy
(d) Focus strategy (1 Mark)

9
 PART II – Descriptive Questions (35 Marks)
Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.
1. (a) Mr. Arun has been hired as the CEO by ABC Ltd, a pharmaceutical
company that has diversified into affordable wellness supplements. The
company intends to launch the HealthPlus brand of supplements. ABC
wishes to enhance the well-being of people with its products that are
beneficial for health and are produced in an environmentally sustainable
manner using natural ingredients. Draft a vision and mission statement
that may be formulated by Arun. (5 Marks)
(b) GreenGardens, a small but growing organic farm, is assessing its
business environment to strategically plan for future growth. The farm
boasts high-quality, pesticide-free crops, but faces challenges with its
limited distribution channels. As the demand for organic products
continues to rise, GreenGardens recognizes the potential to broaden its
market reach. However, unpredictable weather conditions and
competition from larger farms present significant obstacles. To
effectively navigate these challenges and opportunities, GreenGardens
needs to conduct a comprehensive evaluation. Identify the type of
analysis GreenGardens should conduct to strategically plan for its future
growth and outline the grid. (5 Marks)
(c) FreshDelight, renowned for its organic fruit juices, aims to expand its
market presence by identifying emerging markets in countries where
organic products are gaining popularity. To achieve this, FreshDelight
launches targeted marketing campaigns and partners with local
distributors to introduce its juices to these new regions. This strategy
involves adapting product packaging and marketing messages to align
with local preferences and regulations. By entering these new markets,
FreshDelight hopes to increase its customer base and drive sales
growth. What strategy is FreshDelight using to expand its market
presence? (5 Marks)
2. (a) The CEO of a textile mill is convinced that his loss-making company can
be turned around. Suggest an action plan for a turnaround to the CEO.
(5 Marks)
(b) Write a short note on Matrix Structure. (5 Marks)
3. (a) "Understanding the competitive landscape is important to build upon a
competitive advantage". Explain. (5 Marks)

10
 (b) XYZ Corporation operates in a diverse range of industries, including
fashion, lifestyle products, furniture, real estate, and electrical goods.
The company is seeking to hire a suitable Chief Executive Officer. As
the HR consultant for XYZ Corporation, you have been tasked with
outlining the activities involved in the role of the Chief Executive Officer.
Identify the strategic level associated with this role and list the activities
it encompasses. (5 Marks)
4. (a) Buyers can exert considerable pressure on business. Do you agree?
Discuss. (5 Marks)
(b) Major core competencies are identified in three areas - competitor
differentiation, customer value and application to other markets.
Discuss.
OR
What factors should organizations consider when choosing strategic
performance measures, and why are these factors important?
(5 Marks)

11
 Mock Test Paper - Series II: August, 2024
Date of Paper: 23rd August, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE GROUP – II
PAPER – 6A : FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
PAPER 6A: FINANCIAL MANAGEMENT
Time Allowed – 3 Hours (Total time for 6A and 6B) Maximum Marks – 50
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
4. Working note should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of note.
However, in answers to Questions in Division A, working notes are not
required.

PART I – Case Scenario based MCQs (15 Marks)

Write the most appropriate answer to each of the following multiple choice
questions by choosing one of the four options given. All questions are
compulsory.

Mathangi Ltd. is a News broadcasting channel having its broadcasting Centre in

Chennai. There are total 200 employees in the organisation including top
management. As a part of employee benefit expenses, the company serves tea to
its employees, which is outsourced from a third-party. The company offers tea three
times a day to each of its employees. The third-party charges ` 10 for each cup of
tea. The company works for 200 days in a year.
Looking at the substantial amount of expenditure on tea, the finance department
has proposed to the management an installation of a master tea vending machine
from Nirmal Ltd which will cost ` 5,00,000 with a useful life of five years. Upon
purchasing the machine, the company will have to incur annual maintenance which
will require a payment of ` 25,000 every year. The machine would require electricity
consumption of 500 units p.m. and current incremental cost of electricity for the
company is ` 24 per unit. Apart from these running costs, the company will have to
incur ` 8,00,000 for consumables like milk, tea powder, paper cup, sugar etc. The
company is in the 25% tax bracket. Straight line method of depreciation is allowed
for the purpose of taxation.
Nirmal Ltd sells 100 master tea vending machines. Variable cost is ` 4,50,000 per
machine and fixed operating cost is ` 25,00,000. Capital Structure of Mathangi Ltd
and Nirmal Ltd consists of the following –

1
 Particulars Mathangi Ltd. Nirmal Ltd.
Equity Share Capital (Face value ` 10 each) 40,00,000 40,00,000
Reserves & Surplus 25,00,000 50,00,000
12% Preference Share Capital 12,00,000 Nil
15% Debentures 20,00,000 40,00,000
Risk free rate of return = 5%, Market return = 10%, Beta of the Mathangi Ltd. = 1.9
You are required to answer the following five questions based on the above details:
1. If sales of Nirmal Ltd are up by 10%, impact on its EBIT is
(a) 30%
(b) 60%
(c) 5%
(d) 20%
2. Combined leverage of Nirmal Ltd is
(a) 1.63
(b) 2.63
(c) 1.315
(d) 2
3. Discount rate that can be applied for making investment decisions of Mathangi
Ltd is
(a) 12%
(b) 13.52%
(c) 15%
(d) 20%
4. Incremental cash flow after tax per annum attributable to Mathangi Ltd due to
investment in the machine is
(a) ` 2,39,438
(b) ` 1,98,250
(c) ` 98,250
(d) ` 1,31,000
5. Net present value of investment in the machine by Mathangi Ltd is
(a) ` 6,88,522
(b) ` 1,88,522
(c) ` 9,91,250
(d) ` 4,91,250 (5 x 2 = 10 Marks)

2
6. Total Assets & Current liabilities of the Vitrag Limited are 50 lakhs & 10 lakhs
respectively. ROCE is 15%, measure of business operating risk is at 3.5 &
P/V ratio is 70%. Calculate Sales.
(a) 21 lakhs
(b) 30 lakhs
(c) 37.50 lakhs
(d) 40 lakhs (2 Marks)
7. A company has issued bonds with a face value of ` 100,000 at an annual
coupon rate of 8%. The bonds are currently trading at 95% of their face value.
What is the approximate cost of debt for the company before taxes.
(a) 9.00%
(b) 7.65%
(c) 8.00%
(d) 8.42% (2 Marks)
8. A company is considering changing its capital structure by increasing its debt
ratio from 40% to 55%. What is the likely impact on the company’s cost of
equity, assuming all other factors remain constant?
(a) Cost of equity will be unaffected by debt ratio
(b) Cost of equity will remain unchanged
(c) Cost of equity will decrease
(d) Cost of equity will increase (1 Mark)

PART II – Descriptive Questions (35 Marks)

Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.
1. (a) X Ltd is willing to raise funds for its New Project which requires an
investment of ` 84 Lakhs. The Company has two options:
Option I: To issue Equity Shares (` 10 each) only
Option II: To avail Term Loan at an interest rate of 12%. But in this
case, as insisted by the Financing Agencies, the
Company will have to maintain a Debt–Equity proportion
of 2:1.
The Corporate Tax Rate is 30%. FIND out the point of indifference for
the project. (5 Marks)
(b) Mr. Anand is thinking of buying a Share at ` 500 whose Face Value per
share is ` 100. He is expecting a bonus at the ratio 1 : 5 at the end of
the fourth year. Annual expected dividend is 20% and the same rate is
expected to be maintained on the expanded capital base. He intends to
sell the Shares at the end of seventh year at an expected price of ` 900
3
 each. Incidental Expenses for purchase and sale of Shares are
estimated to be 5% of the Market Price. Assuming a Discount rate of
12% per annum, COMPUTE the Net Present Value from the acquisition
of the shares. (5 Marks)
(c) Paarath Limited had recently repurchased 20,000 equity shares at a
premium of 10% to its prevailing market price. The book value per share
(after repurchasing) is ` 193.20.
Other Details of the company are as follows:
Earnings of the company (before buyback) = ` 18,00,000
Current MPS is ` 270 with a P/E Ratio of 18.
CALCULATE the Book Value per share of the company before the re-
purchase. (5 Marks)
2. (a) Sukrut Limited has annual credit sales of ` 75,00,000/-. Actual credit
terms are 30 days, but its management of receivables has been poor,
and the average collection period is about 60 days. Bad debt is 1 per
cent of total sales.
A factor has offered to take over the task of debt administration and
credit checking, at an annual fee of 1.5 per cent of credit sales.
Sukrut Limited estimates that it would save ` 45,000 per year in
administration costs as a result. Due to the efficiency of the factor, the
average collection period would come back to the original credit offered
of 30 days and bad debts would come to 0.5% on recourse basis.
The factor would pay net advance of 80 percent to the company at an
annual interest rate of 12 per cent after withholding a reserve of 10%.
Sukrut Limited is currently financing its receivables from an overdraft
costing 10 per cent per year and will continue to finance the balance fund
needed (which is not financed by factor) through the overdraft facility
If occurrence of credit sales is throughout the year, COMPUTE whether
the factor’s services should be accepted or rejected. Assume 360 days
in a year. (7 Marks)
(b) Determining the amount to be invested in current assets as working
capital is a crucial policy decision for any entity. What FACTORS should
a company consider when deciding the level of investment in working
capital? (3 Marks)
3. (a) Calculate the WACC using the following data by using Market Value
weights:
Particulars `
Equity Shares (` 10 per equity share) 15,00,000
Reserves & Surplus 5,00,000
Preference Shares (` 100 per preference share) 7,50,000
Debentures (` 100 per debenture) 5,50,000
The market prices of these securities are:
4
 Debentures - ` 105 per debenture,
Preference shares - `115 per preference share
Equity shares - ` 27 per equity share
Additional information:
(1) ` 100 FV per debenture redeemable at premium of 10%, 10%
coupon rate, 4% floatation costs, 10-year maturity.
(2) ` 100 FV per preference share redeemable at par, 12% coupon
rate, 2% floatation cost and 10-year maturity.
(3) Equity shares have ` 4.5 floatation cost and market price of 27 per
share.
The last dividend paid by the company was ` 2 which is expected to grow
at an annual growth rate of 9%. The firm has the practice of paying all
earnings as a dividend.
The corporate tax rate is 25%. To calculate the overall cost of debt &
preference shares, take the average of their respective costs using YTM
& approximation method. (6 Marks)
(b) EPL Ltd. has furnished the following information relating to the year
ended 31st March 2023 and 31st March, 2024:
31st March, 2023 31st March, 2024
Share Capital 50,00,000 50,00,000
Reserve and Surplus 20,00,000 25,00,000
Long term loan 30,00,000 30,00,000
• Net profit ratio: 8%
• Gross profit ratio: 20%
• Long-term loan has been used to finance 40% of the fixed assets.
• Stock turnover with respect to cost of goods sold is 4.
• Debtors represent 90 days sales.
• The company holds cash equivalent to 1½ months cost of goods
sold.
• Ignore taxation and assume 360 days in a year.
You are required to PREPARE Balance Sheet as on 31st March 2024 in
following format:
Liabilities (` ) Assets (`)
Share Capital - Fixed Assets -
Reserve and Surplus - Sundry Debtors -
Long-term loan - Closing Stock -
Sundry Creditors - Cash in hand -
(4 Marks)

5
4. (a) The agency problem is one of the key concepts in corporate governance
and financial management. On the light of this statement, EXPLAIN
agency problem, consequences of agency problem and how to
overcome the issue. (4 Marks)
(b) Operating leases and financial leases are traditionally the most important
types of leases in financial management. However, in recent years, other
types of leases have also gained significance due to their unique benefits
and applications. IDENTIFY AND EXPLAIN at least four other types of
leases that have become increasingly important in modern business
practices. (4 Marks)
(c) EXPLAIN the Relationship between EBIT-EPS-MPS (2 Marks)
OR
(c) EXPLAIN Financial Leverage as a ‘Double edged Sword’ (2 Marks)

6
 PAPER 6B: STRATEGIC MANAGEMENT
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises case scenario based multiple choice questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case scenario based MCQs (15 Marks)
Question 1. (Compulsory)
1. (A) Sneha Rao, founder and CEO of DEF Technologies, is renowned for her
technological insight and visionary leadership style. She cultivates a
culture of collaboration, continuous learning, and innovative problem-
solving, encouraging her employees to think outside the box and
embrace new challenges. Her exceptional ability to foresee
technological trends and navigate complex market dynamics has
propelled DEF Technologies to impressive growth over the past decade.
Sneha started DEF Technologies in 2010 as a small software
development firm. With a vision to transform DEF Technologies into a
leading tech company, she initially focused on developing custom
software solutions for local businesses. However, intense competition
and limited market demand led to financial difficulties. Undeterred,
Sneha pivoted the business towards developing cloud-based solutions,
leveraging the growing trend of digital transformation. This strategic shift,
along with aggressive marketing, helped DEF Technologies capture a
significant market share and become a leader in cloud services, setting
new industry standards.
In 2015, Sneha's brother, Raj, joined the company, and together they
crafted an ambitious expansion strategy. DEF Technologies entered the
global market, partnering with international tech firms to launch a new
line of AI-driven cybersecurity solutions. This venture was highly
successful, establishing DEF Technologies as a global brand and a key
player in the cybersecurity industry.
Raj then led the company’s diversification into the healthcare sector with
a new brand, MedTech Solutions. Recognizing the potential for
technology to revolutionize healthcare, Sneha and Raj focused on
developing affordable telemedicine platforms and AI-driven diagnostic
tools. Their approach disrupted the market, providing high-quality
healthcare solutions at lower costs and gaining widespread trust from
healthcare providers and patients alike. MedTech Solutions experienced
rapid growth, especially during the COVID-19 pandemic, as demand for
remote healthcare services surged.
At the beginning of 2023, DEF Technologies launched another new
business, GreenTech Innovations, to address environmental challenges
through technology. DEF Technologies continues to explore new
opportunities and ventures to stay at the forefront of the tech industry.

7
Based on the above Case Scenario, answer the Multiple-Choice
Questions.
(i) Sneha Rao's vision to transform DEF Technologies into a leading
tech company illustrates which type of strategic intent?
(a) Goal
(b) Mission
(c) Vision
(d) Objective (2 Marks)
(ii) Sneha’s leadership style, which promotes collaboration, continuous
learning, and innovative problem-solving, can best be described as:
(a) Transactional leadership
(b) Transformational leadership
(c) Autocratic leadership
(d) Laissez-faire leadership (2 Marks)
(iii) When DEF Technologies expanded into the global market with AI-
driven cybersecurity solutions, which of Porter's Five Forces was
most likely mitigated by forming partnerships with international tech
firms?
(a) Threat of Substitute Products or Services
(b) Bargaining Power of Suppliers
(c) Threat of New Entrants
(d) Intense Rivalry Among Existing Competitors (2 Marks)
(iv) By entering the global market and launching AI-driven
cybersecurity solutions, DEF Technologies pursued which
expansion strategy from Ansoff’s Product-Market Growth Matrix?
(a) Diversification
(b) Market Penetration
(c) Product Development
(d) Market Development (2 Marks)
(v) MedTech Solutions’ focus on developing affordable telemedicine
platforms and AI-driven diagnostic tools reflects which of the
following competitive strategies?
(a) Differentiation strategy
(b) Cost leadership strategy
(c) Best-cost provider strategy
(d) Focus Strategy (2 Marks)

8
 (B) Compulsory Application Based Independent MCQs
(i) A traditional desi ghee company modernized its production and
introduced pro-biotic desi ghee, facing initial market doubts.
Aggressive marketing campaigns highlighted its benefits, gaining
acceptance. During which stage of the product life cycle did the
desi ghee company face doubts but gained acceptance through
aggressive marketing campaigns?
(a) Introduction stage
(b) Growth stage
(c) Maturity stage
(d) Decline stage (2 Marks)
(ii) ValueMart is a discount retail chain that targets budget-conscious
consumers by offering a wide range of products at the lowest
possible prices. The company achieves this by sourcing goods in
bulk, negotiating lower prices with suppliers, and maintaining lean
operations. ValueMart's goal is to dominate the market by attracting
price-sensitive customers from competitors. Which of Michael
Porter’s Generic Strategies is ValueMart primarily employing?
(a) Differentiation
(b) Focused Cost Leadership
(c) Cost Leadership
(d) Focused Differentiation (2 Marks)
(iii) A women’s clothing brand recognized new opportunities and
researched emerging trends and consumer preferences. They
introduced a new clothing line, received positive feedback from
initial trials, and grew through strategic partnerships and targeted
advertising. What strategic choice best describes this approach?
(a) Product Development
(b) Market Development
(c) Market Penetration
(d) Diversification (1 Mark)

PART II – Descriptive Questions (35 Marks)

Question No. 1 is compulsory.
Attempt any two questions out of the remaining three questions.
1. (a) TechNova, a leading software development firm known for its cutting-
edge operating systems, is developing a groundbreaking new platform.
ElectroWave, an emerging player in the electronics and hardware
industry, specializes in manufacturing advanced devices. TechNova and
ElectroWave have decided to join forces to design innovative laptops

9
 and smartphones, aiming to tap into new markets and broaden their
business horizons. What kind of external growth strategy is being
considered by TechNova and ElectroWave? (5 Marks)
(b) Vikram Patel owns a chain of ten bookstores across the Mumbai region.
Three of these stores were launched in the past two years. He has
always believed in strategic management and enjoyed robust sales of
books, magazines, and educational materials until about five years ago.
However, with the increasing preference for online shopping, the sales
at his physical stores have declined by approximately sixty percent over
the last five years. Analyze Vikram Patel's current position in light of the
limitations of strategic management. (5 Marks)
(c) Orion Tech Solutions Pvt. Ltd. is renowned for its ability to launch
groundbreaking software products. Despite the relaxed and casual work
environment at Orion, there is a strong commitment to meeting
deadlines. Employees at Orion believe in the "work hard, play hard"
ethic. The company has shifted from a formal, hierarchical structure to a
more results-oriented approach. Employees are deeply committed to the
company’s strategies and work diligently to achieve them. They
safeguard innovations and maintain strict confidentiality and secrecy in
their operations. Their work culture is closely aligned with the
organization's values, practices, and norms. What aspects of an
organization are being discussed? Explain. (5 Marks)
2. (a) Analyze the role of Key Success Factors (KSFs) in determining
competitive success within an industry. (5 Marks)
(b) What are distribution channels, and why is analyzing them crucial for
business expansion? Describe the three main types of channels
explaining their roles in ensuring products reach customers efficiently
and with the necessary support. (5 Marks)
3. (a) What is a strategic vision, and what are the essential components that
make it an effective tool for guiding an organization's future? (5 Marks)
(b) Which strategy is implemented by redefining the business, by enlarging
its scope of business and substantially increasing investment in the
business? Explain the major reasons for adopting this strategy.(5 Marks)
4. (a) Describe the principal aspects of strategy-execution process, which are
included in most situations. (5 Marks)
(b) How does the PESTLE framework assist in analyzing the macro-
environment?
OR
A manufacturing company is in direct competition with fifteen companies
at the national level. The head of marketing department of this company
wishes to study the market position of rival companies by grouping them
into like positions. Name the tool that may be used by him/her. Explain
the procedure that may be used to implement the techniques. (5 Marks)

10
 PAPER – 6:
FINANCIAL MANAGEMENT AND
STRATEGIC MANAGEMENT

6A: FINANCIAL MANAGEMENT

QUESTIONS

Division A: Case Scenario

Investment Decision
1. Mr. Ronak, a doctor by profession, has his own private hospital at Goa
having specialization in cardiac treatments. However, now-a-days, Goa
not only being a place for the tourists, but is also a place for business
delegates, cultural people, politicians, students and other classes of
people. Gradually, Goa is opening new windows for businesses and
getting recognition as an important tourist and leisure hub in South
West India.
There are a number of hotels and resorts at Goa. However, the need still
exists for more hotel services, in particular with the excellent service, and
because of the large number of visitors from all over the country and all
walks of life always favour Goa state for their recreation.
Mr. Ronak although being a doctor by profession is contemplating to
establish a five-star hotel at Goa. The hotel will consist of 5 floors. The
hotel will include 40 normal rooms and 8 deluxe suites, as well as a
restaurant and couple of conference rooms with a small wedding hall on
the ground floor. Following are the estimated occupancy rate including
 FINANCIAL MANAGEMENT AND
REVISION TEST PAPER
STRATEGIC MANAGEMENT

fare composition in the Table 1. Being a five-star hotel, breakfast would

be complementary but lunch and dinner are on a-la-carte basis.
Table 1: Hotel accommodation, estimated occupancy rate and fare.

Types of Facility Numbers Occupancy Average Growth

Rate Rent Per Rate in
Room Per Rent
Day
Normal Room 40 33% or 120 Days ` 8000 12%
Deluxe Suites 8 33% or 120 Days ` 25,000 9%
Conference with 2 40 days ` 3,00,000 9%
Wedding Hall
Restaurant 1 All days ` 27,000 sales 8%
per day

For the sake of simplicity in calculation, growth rate to be applied only

once after completion of 10 years.
The estimated cost of land will be ` 250 million and the construction
cost will be ` 100 million. The estimated salvage value at the end of
15th year will be 25% of the cost of construction. The cost of furniture
will be of ` 1,50,000 for each normal room and ` 3,80,000 for each
deluxe suite. The cost of the furniture for the conference room with
wedding hall will be ` 7,00,000 each and for restaurant it will be
10,00,000. In addition, the hotel will require 4 elevators at different
locations and will be costing around ` 35,00,000 each. The cost of
buying and installing electronic appliances like TV sets, Air conditioners,
Fridge etc. will be around ` 35 million. Elevators would be depreciated at
a rate of 5% p.a. Electronic appliances will have a salvage value of 15%
of its acquisition cost at the end of 15 years.
The hotel will be built by renowned builder named ‘Harihar
Infrastructure’. The builder estimated that building will survive for 15
years. The required furniture will be supplied by the local reputed
furniture company named Veru Furnishings Ltd. They ensured that
furniture will go for 10 years very smoothly. At the end of tenth year,
new furniture for normal rooms and deluxe suites will be bought and old

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furniture for the same will be sold by the hotel owner. The owner of the
hotel estimates that he would be able to purchase the required furniture
at 15% higher price than the previous purchase price. The salvage values
of the furniture at the end of tenth year will be 5% of their purchase
prices with no book value remaining. Furniture at restaurant, conference
and wedding hall will not require any major changes as such except for
minor renovation which will cost ` 20,00,000 in total at the end of
12th year. Any scrap generated on account of such renovation will be
sold at ` 1,75,000.
In order to boost the tourism industry at Goa, the state govt will be
granting subsidy of 15% on the initial capex incurred, it will be paid at
the time of cost incurred and additional subsidy of 10% on annual
revenue expenses for the first 3 years of operation, but will be credited
directly in the bank account only at the end of 5th year and the same
shall be non-taxable.
The total annual recurring expenses will be ` 1,80,00,000/-. It includes
salaries to managers, staff and employees, utilities expenses, house
keeping and security services’ contract, AMC for electronic appliances,
restaurant supplies and materials, other miscellaneous expenses, etc.
After the end of 10 years, annual recurring expenses will increase at a
rate of 10% which is to be applied once. Furthermore, the hotel
authority is determined to provide the best and professional hotel
services to the clients by offering training to the employees. They
decided to spend ` 5,00,000 per year for the purpose of training of the
employees.
The hotel project will be entitled to enjoy tax holiday for the first five
years after which the corporate tax rate of 25% will also be applied for
the hotel. The Cost of equity for the company is 12% and the estimated
hurdle rate by considering the structure of capital of the proposed hotel
is fixed at 15%.
(Depreciation to be taken on SLM basis and assume 360 days in a
year. Ignore depreciation on furniture used in restaurant,
conference and wedding hall)

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Based on above, please answer to the following MCQs.

(i) The amount of net initial investment required is:
(a) ` 41.044 Crores
(b) ` 34.887 Crores
(c) ` 6.156 Crores
(d) ` 40.74 Crores
(ii) NPV of the project is:
(a) ` 7.0532 Cr
(b) ` 8.4029 Cr
(c) ` 8.4935 Cr
(d) ` 2.4700 Cr
(iii) Pay Back period of the project to recover the initial investment is:
(a) 5.12 years
(b) 12.02 years
(c) 11.80 years
(d) 4.46 years
(iv) Estimated Recurring accounting profit/(loss) for first three years are:
(a) ` 7.0928 Cr p.a
(b) ` 6.9078 Cr p.a
(c) ` 6.9937 Cr p.a
(d) ` 9.6120 Cr p.a
(v) IRR of the project is:
(a) 16.25%
(b) 19.39%
(c) 15%
(d) 12%

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Ratio Analysis
2. KT Ltd.’s opening stock was ` 2,50,000 and the closing stock was
` 3,75,000. Sales during the year were ` 13,00,000 and the gross profit
ratio was 25% on sales. Average accounts payable are ` 80,000.
Creditors Turnover Ratio =?
(a) 13.33
(b) 14.33
(c) 14.44
(d) 13.75
Leverage
3. A firm has sales of ` 75,00,000, variable cost of ` 42,00,000 and fixed
cost of ` 6,00,000.
It has a debt of ` 45,00,000 at 9% and equity of ` 55,00,000. Does it have
favourable financial leverage?
(a) ROI is less than interest on loan funds and hence it has no
favourable financial leverage.
(b) ROI is equal to interest on loan funds and hence it has favourable
financial leverage.
(c) ROI is greater than interest on loan funds and hence it has
favourable financial leverage.
(d) ROI is greater than interest on loan funds and hence it has
unfavourable financial leverage.
Division B: Descriptive Questions
Ratio Analysis
4. Following are the data in respect of LP enterprises for the year ended
31st March, 2024:
Debt to Total assets ratio : 0.40
Long-term debts to equity ratio : 30%
Gross profit margin on sales : 20%

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Accounts receivables period : 36 days

Quick ratio : 0.9
Inventory holding period : 60 days
Cost of goods sold : ` 64,00,000

Liabilities ` Assets `

Equity Share Capital 20,00,000 Fixed assets

Reserves & surplus Inventories
Long-term debts Accounts receivable
Accounts payable Cash
Total 50,00,000 Total

Required:
COMPLETE the Balance Sheet of LP enterprises as on 31st March, 2024.
All calculations should be in nearest Rupee. Assume 360 days in a year.
Cost of Capital
5. BS Ltd. has the following capital structure at book-value as on 31st
March, 2024:

Particulars (`)
Equity share capital (10,00,000 shares) 3,00,00,000
11.5% Preference shares 60,00,000
10% Debentures 1,00,00,000
4,60,00,000

The equity shares of the company are sold for ` 300. It is expected that
the company will pay next year a dividend of ` 15 per equity share,
which is expected to grow by 5% p.a. forever. Assume a 35% corporate
tax rate.

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Required:
(i) COMPUTE weighted average cost of capital (WACC) of the
company based on the existing capital structure.
(ii) COMPUTE the new WACC, if the company raises an additional ` 50
lakhs debt by issuing 10 years 12% debentures but the yield on
debentures of similar maturity and risk class is 13%; flotation cost
is 2%. Face value of the debenture is `100. This would result in
increasing the expected equity dividend to ` 20 and leave the
growth rate unchanged, but the price of equity share will fall to
` 250 per share.
Capital Structure
6. Company XYZ is unlevered and has a cost of equity of 20 percent and a
total market value of ` 10,00,00,000. Company ABC is identical to XYZ in
all respects except that it uses debt finance in its capital structure with a
market value of ` 4,00,00,000 and a cost of 10 percent. FIND the market
value of equity, weighted average cost of capital and cost of equity of
ABC if the tax advantage of debt is 25 percent.
7. The following data relate to two companies belonging to the same risk
class:

Particulars A Ltd. B Ltd.

Expected Net Operating Income ` 18,00,000 ` 18,00,000
12% Debt ` 54,00,000 -
Equity Capitalization Rate - 18

Required:
(a) DETERMINE the total market value, Equity capitalization rate and
weighted average cost of capital for each company assuming no
taxes as per M.M. Approach.
(b) DETERMINE the total market value, Equity capitalization rate and
weighted average cost of capital for each company assuming 40%
taxes as per M.M. Approach.

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Leverage
8. Following data of PC Ltd. under Situations 1, 2 and 3 and Financial Plan
A and B is given:
Installed Capacity (units) 3,600
Actual Production and Sales (units) 2,400
Selling price per unit (`) 30
Variable cost per unit (`) 20
Fixed Costs (`): Situation 1 3,000
Situation 2 6,000
Situation 3 9,000
Capital Structure:

Particulars Financial Plan

A B
Equity ` 15,000 ` 22,500
Debt ` 15,000 ` 7,500
Cost of Debt 12% 12%

Required:
(i) CALCULATE the operating leverage and financial leverage.
(ii) FIND out the combinations of operating and financial leverage
which give the highest value and the least value.
Dividend Decision
9. The following information is taken from Gamma Ltd.
Net Profit for the year ` 30,00,000
12% Preference share capital ` 1,00,00,000
Equity share capital (Share of ` 10 each) ` 60,00,000
Internal rate of return on investment 22%
Cost of Equity Capital 18%

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Retention Ratio 75%

CALCULATE the market price of the share using:
(1) Gordon's Model
(2) Walter's Model
Working Capital
10. TMT Limited is commencing a new project for manufacture of electric
toys. The following cost information has been ascertained for annual
production of 60,000 units at full capacity:

Amount per unit (`)

Raw materials 20
Direct labour 15
Manufacturing overheads:
`
Variable 15
Fixed 10 25
Selling and Distribution overheads:
`
Variable 3
Fixed 1 4
Total cost 64
Profit 16
Selling price 80

In the first year of operations expected production and sales are 40,000
units and 35,000 units respectively. To assess the need of working
capital, the following additional information is available:

(i) Stock of Raw materials 3 months consumption.

(ii) Credit allowable for debtors 1½ months.
(iii) Credit allowable by creditors 4 months.

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(iv) Lag in payment of wages 1 month.

(v) Lag in payment of overheads ½ month.
(vi) Cash in hand and Bank is expected to be ` 60,000.
(vii) Provision for contingencies is required @ 10% of working capital
requirement including that provision.

You are required to PREPARE a projected statement of working capital

requirement for the first year of operations. Debtors are taken at cost.
11. Banu Limited is considering relaxing its present credit policy and is in
the process of evaluating two proposed policies. Currently, the firm has
annual credit sales of ` 225 lakhs and accounts receivable turnover ratio
of 5 times a year. The current level of loss due to bad debts is ` 7,50,000.
The firm is required to give a return of 20% on the investment in new
accounts receivables. Policy option II requires a manager to manage the
receivables with salary of ` 50,000 per month. The company’s variable
costs are 60% of the selling price. Given the following information, which
is a better option?
(Amount in lakhs)

Present Policy Policy

Policy Option I Option II
Annual credit sales (`) 225 275 350
Accounts receivable 5 4 3
turnover ratio
Bad debt losses (`) 7.5 22.5 47.5

Miscellaneous
12. (a) EXPLAIN the advantages and disadvantages of both profit
maximization and wealth maximization goals
(b) EXPLAIN in brief the features of various types of preference shares.

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