Investment AnalysisProblem: A company propose to Purchase a machinery for

Rs.1,00,000. The life of the machinery is 5 years. The Cash inflow of the machinery is as follows.

Year Cash Inflow Cash Outlay 0 - 1,00,0001 25,000 20,0002 30,000 --3 35,000 --4 40,000 --5 45,000 -- In the Fifth year scrap of the machinery was Rs.15,000 Calculate the 1. NPV and 2. Profitability Index.

Investment AnalysisSolution:Year Cash P.V.Factor Present Inflow Value of Cash inflow1 25,000 0.909 22,7252 30,000 0.826 24,7803 35,000 0.751 26,2854 40,000 0.683 27,320 Out lay calculation5 45,000 1,00,000+ (20,000x.909) + 15,000 0.621 37,260 1,00,000 +18,180 --------------- 1,18,180 Total Present Value of Inflow1,38,320 Total Present Value of Outlay1,18,180 -------------- 20,140 - NPV --------------

Investment Analysis Total Present Value of Cash InflowProfitability Index: ------------------------------------------------- Total Present Value of Cash Outlay

1,38,320Profitability Index = ---------------- = 1.17 or 117 1,18,180

Break Even Point• 1. From the following particulars, calculate the break even point

• Variable cost per unit = Rs.12

• Fixed expenses = Rs.60,000

• Selling price per unit = Ra.18

• Solution:

•  

• BEP (Units) = Fixed cost

• Contribution per unit

•  

• (Selling Price – Variable Cost = Contribution)

• Rs.18 – Rs.12 = 6)

• Rs.60,000 / Rs.6 = 10,000 units

• B.E.P. Sales = 10,000 x Rs.18 = Rs.1,80,000

BEP

• . A Company estimates that next year it will earn a profit of Rs.50,000. The budgeted fixed costs and sales are Rs.2,50,000 and Rs.9,93,000 respectively. Find out the break-even point for the company.

• • Solution :• B.E.P. (in units) = F x S• Contribution• • • Contribution = S – V = F + P• F + P = Rs.2,50,000 + Rs.50,000 = Rs.3,00,000• • B.E.P. Sales = 2,50,000 x 9,93,000• 3,00,000• • = Rs.8,27,500•

BEP• 3. From the following particulars, find out the selling price per unit if

B.E.P. is to be brought down to 9,000 units.• • Variable cost per unit Rs.75• Fixed expenses Rs,2,70,000• Selling price per unit Rs.100•

BEP Solution: Let us assume that the contribution per unit at B.E. sales of 9,000 is x• • B.E.P. = Fixed Cost• Contribution per unit• • Contribution per unit is not known. Therefore • 9,000 units = 2,70,000• x• • 9,000 x = 2,70,000• • x = 30• • Contribution is Rs.30 per unit, in place of Rs.25. Therefore, the selling

price should have been Rs.105 i.e. Rs.75 + Rs.30.•

Ratio Analysis

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

Ratio Analysis

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

Ratio Analysis

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

Ratio Analysis

• Solution: • • (i) Current Ratio = Current Assets • Current Liabilities• Current Assets = Stock + Sundry Debtors + Bills Receivable +

Cash at Bank• = (2,00,000+1,00,000+10,000+40,000) = Rs 3,50,000• Current Liabilities = Sundry Creditors + Bills Payable • = (1,00,000+50,000) = Rs.1,50,000• Current Ratio = 3,50,000 = 2.33 :1• 1,50,000•

Ratio Analysis

• (ii) Quick Ratio = Liquid Assets • Current Liabilities• Quick Assets = Sundry Debtors + Bills

Receivable + Cash at Bank• = (1,00,000+10,000+40,000) = Rs 1,50,000• Quick Ratio = 1,50,000 = 1:1• 1,50,000

Ratio Analysis

• (iii) Inventory to Working capital = Inventory• Working Capital• Inventory = Stock = Rs.2,00,000• Working capital = Current Assets – Current

Liabilities• = Rs.3,50,000 – Rs.1,50,000 = Rs.2,00,000• Inventory to Working capital = 2,00,000 = 1:1

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

(V) Proprietary Ratio = Shareholders’ Fund• Total Assets• = 2,70,000 = 0.32:1• 8,40,000• • (vi) Capital gearing Ratio = Fixed interest bearing

securities• Equity Share capital• Fixed interest bearing securities = only debentures =

Rs.4,20,000• Capital gearing Ratio = 4,20,000 = 2.1:1• 2,00,000•

Ratio Analysis

• (vii) Current Assets to Fixed assets = Current Assets • Fixed Assets• = 3,50,000 = 0.71:1• 4,90,000