MANAV RACHNA INTERNATIONAL SCHOOL SECTOR-14, FARIDABAD

ASSIGNMENT
CLASS-XII
Case Studies – (Chapter - 9) Financial Management

Q. 1. Arun is a successful businessman in the paper industry. During his recent visit to his
friend’s place in Mysore, he was fascinated by the exclusive variety of incense sticks available
there. His friend tells him that Mysore region in known as a pioneer in the activity of Agarbathi
manufacturing because it has a natural reserve of forest products especially Sandalwood to
provide for the base material used in production. Moreover, the suppliers of other types of raw
material needed for production follow a liberal credit policy and the time required to
manufacture incense sticks is relatively less. Considering the various factors, Arun decides to
venture into this line of business by setting up a manufacturing unit in Mysore.
In context of the above case:

1. Identify of the above case:

2. Identify the three factors mentioned in the paragraph which are likely to affect the working capital
requirements of his business.

Q. 2. ‘Adwitiya’ is a company enjoying market leadership in the food brands segment. It’s
portfolio includes three categories in the Foods business namely Snack Foods, Juices and
Confectionery. Keeping in the with the growing demand for packaged food it now plans to
introduce ready-To-Eat Foods. Therefore, the company has planned to undertake investments of
nearly Rs. 450 crores for its new line of business. As per the current financial report, the interest
coverage ratio of the company and return on investment is higher. Moreover, the corporate tax
rate is high.
In context of the above case:

1. As a financial manager of the company, which source of finance will you opt for debt or equity, to raise
the required amount of capital? Explain by giving any two suitable reasons in support of your answer.
2. Why are the shareholder’s of the company like to gain from the issue of debt by the company?

Q. 3. Computer Tech Ltd., is one of the leading information technology outsourcing services
providers in India. The company provides business consultancy and outsourcing services to its
clients. Over the past five years the company has been paying dividends at high rate to its
shareholders. However, this year, although the earnings of the company are high, its liquidity
position is not so good. Moreover, the company plans to undertake new ventures in order to
expand its business.
In context of the above case:

1. Give any three reasons because of which you think Computer Tech Ltd. has been paying dividends at
high rate to its shareholders over the past five years.
2. Comment upon the likely dividend policy of the company this years by stating any two reasons in
support of your answer.
 Q. 4. Bhuvn inherited a very large area of agricultural land in Haryana after the death of his
grandfather. He plans to sell this piece of land and use the money to set up a small scale paper
factory to manufacture all kinds of stationary items from recycled paper. Being an amateur in
business, he decides to consult his friend Subhash who works in a financial consultancy firm.
Subhash helps him to prepare a blue print of his future business operations on the basis of sales
forecast in next five years. Based on these estimates, he helps Bhuvan to assess the fixed and
working capital requirements of business.
In context of the above case:

1. Identify the type of financial service that Subhash has offered to Bhuvan.
2. Briefly state any four points highlighting the importance of the type of financial service identified in
part (a)

Q. 5. ‘Madhur Milan’ is a popular online matrimonial portal. It seeks to provide personalized

match making service. The company has 80 offices in India, and is now planning to open offices
in Singapore, Dubai and Canada to cater to its customers beyond the country. The company has
decided to opt for the sources of equity capital to raise the required amount of capital.
In context of the above case:

1. Identify and explain the type of risk which increases with the higher use of debt.
2. Explain briefly any four factors because of which you think the company has decided to opt for equity
capital.

Q. 6. Wooden Peripheral Pvt. Ltd. is counted among the top furniture companies in Delhi. It is
known for offering innovative designs and high quality furniture at affordable prices. The
company deals in a wide product range of home and office furniture through its eight showrooms
in Delhi. The company is now planning to open five new showrooms each in Mumbai and
Bangalore. In Bangalore it intends to take the space for the showrooms on lease whereas for
opening showrooms in Mumbai, it has collaborated with a popular home furnishing brand,
‘Creations.’

1. Identify the factors mentioned in the paragraph which are likely to affect the fixed capital requirements
of the business for opening new showrooms both in Bangalore and Mumbai separately.
2. “With an increase in the investment in fixed assets, there is a commensurate increase in the working
capital requirement.” Explain the statement with reference to the case above.

Q. 7. Krishna Ltd. is manufacturing steel at its plant at Noida. Due to economic growth, the
demand for steel is also growing. The company is planning to set up a new steel plant at
Gurgaon. It needs Rs. 800 crore to start the new plant. It decides to raise Rs. 300 crore through
debentures, Rs. 200 crore through long-term loan from banks and Rs. 200 crore by issue of
equity share to the public. It decided to finance the remaining amount by utilizing its reserves
and surplus.

1. State the importance of financial planning for this company.

2. What is the capital structure of this company? Explain.
3. Identify the financial decision involved when the company decides to raise Rs. 800 crore from different
sources of funds.
4. How will the dividend decision of Krishna Ltd. be affected? Explain. (6 marks)
 Q. 8. Cost of debt is less than cost of equity. Still a company cannot go with entire debt. Why?
(3 marks)

Q. 9. Amar is doing his transport business in Delhi. His buses are generally used for the tourists
going to Jaipur and Agra. Identify the working capital requirement of Amar giving reason in
support of your answer. Further Amar wants to expand and diversify his Transport business.
Enumerate any four factors that will affect his fixed capital requirements. (3Marks)

Q. 10. Yogesh, a business man is engaged in publishing and selling of Ice-creams. Identify the
working capital requirement of Yogesh giving reason in support of your answer. (1 Mark)

Q. 11. Manish is engaged in business of garments manufacturing. Identify the working capital
requirement of Manish giving reason in support of your answer. (1 Mark)

Q. 12. The directors of a manufacturing company are thinking of issuing Rs. 20 crores worth
additional debentures for expansion of their production capacity. This will lead to n increase in
debt equity ratio from 2 : 1 to 3 : 1. What are the risks involved in it? What factors other than
risk do you think the directors should keep in view before taking the decision? Name any four
factors. (3 Marks)

Q. 13. Amit is running an ‘Advertising agency’ and earning a lot by providing this service to big
industries. State whether the working capital requirement of the firm will be ‘less’ or ‘more’.
Give reason in support of your answer. ( 1 Mark)

Q. 14. Tata International Ltd. earned a net profit of Rs. 50 crores. Ankit the finance manager of
Tata International Ltd. wants to decide how to appropriate these profits. Identify the decision
that Ankit will have to take and also discuss any five factors which help him in taking this
decision. (6 Marks)

Q. 15. Shalini, after acquiring a degree in Hotel Management and Business administration took
over her family food processing company of manufacturing pickles, jams and squashes. The
business was established by her great grandmother and was doing reasonably well. However the
fixed operating costs of the business were high and the cash flow position was week. She wanted
to undertake modernization of the existing business to introduce the latest manufacturing
processes and diversify into the market of chocolates and candies. She was very enthusiastic and
approached a finance consultant, who told her that approximately Rs. 50 lakh would be required
for undertaking the modernization and expansion programme. He also informed her that her
stock market was going through a bullish phase.

1. Keeping the above considerations in mind, name the source of finance Shalini should not choose for
financing the modernization and expansion of her food processing business. Give one reason in support
of your answer.
2. Explain any two other factors, apart from those stated in the above situation, which Shalini should keep
in mind while taking this decision. (6 Marks)