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Internal
Assignment Applicable for December 2017 Examination
Corporate
Finance
Question 1
Lakme India is planning to launch a new
product as “Lakme fair Skin Natural Mousse – Hydrating”. The company is
planning to import machinery costing Rs100 lacs from Japan. The expected life
of the machinery will be 10 years. The selling price per unit will be Rs 1250
and variable cost per unit will be Rs850. Further the company will have to pay Rs25lacs
as fixed cost per annum. The fixed cost includes Rs10 lacs as depreciation. The
company expects to sale 150000 units of the produced per year. Tax rate
applicable is 50 %. The management of the company wants to know the cash flow
associated with the equipment, as the CEO of the company emphasis that it is
necessary to evaluate capital budgeting decisions. Do you agree? Give reasons
supporting your answer and determine the cash flow generated (that is profit
after tax+ depreciation) by the equipment.
Question 2
If you want to run your business
smoothly, you should be capable enough to manage the working capital
requirements of the business in an efficient manner. “Several companies like
Dabur, Dell computers, Cadbury India realized the need of maintain an adequate
level of working capital. Further they also have to identify the different
types of working capital needed in their business at different points of time”.
This is the statement of CEO of M-Mart Ltd who is interviewing you for the
position of finance manager. Do you agree with the statement of the CEO? Give reasons
and conclude the same in an effective manner.
Question 3
Miss Kavvya is a successful entrepreneur
of GEMS Pharma Ltd. The entrepreneur is looking to launch a new sunscreen cream
in the market at a selling price of Rs275 per unit. The fixed cost determined
for producing the product is Rs55700. The variable cost of producing the
product is Rs165 per unit. Miss Kavvya wants to perform the cost volume profit
analysis.
a) Discuss and explain the relevant tool,
formula of CVP analysis applicable in the above mentioned case and how the cost
will be broken down for performing such analysis.
b) If the sales are 800 units then what
will be the profit generated by the business? What would be your advice, if the
fixed cost is Rs95000 instead of Rs55700?
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