Financial Management Past Paper (B.Com Vth Sem) PDF
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HEC Group of Institutions, Haridwar
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This document contains numerical questions on capital budgeting and average rate of return methods for a B.Com Vth sem class. It includes examples of calculations for different methods and provides a comparison between different machines.
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Description: LOGO\_HEC\_GROUP[HEC Group of Institutions, HARIDWAR] [Online Notes for the Subject -- Financial management B.com Vth sem] TOPIC -- NUMERICAL QUESTIONS OF CAPITAL BUDGETING AVERAGE RATE OF RETURN METHOD This method is also known as unadjusted rate of return method. If it is calcula...
Description: LOGO\_HEC\_GROUP[HEC Group of Institutions, HARIDWAR] [Online Notes for the Subject -- Financial management B.com Vth sem] TOPIC -- NUMERICAL QUESTIONS OF CAPITAL BUDGETING AVERAGE RATE OF RETURN METHOD This method is also known as unadjusted rate of return method. If it is calculated on initial investment it is known as return on investment method. Average rate of Return =Average Annual Net Savings / Average Investment x100 If annual cash flow is given : Average rate of return = [Average annual cash flow -- Deprecia]tion x100 Average Investment Average Investment [= Initial Investment + Scrap Value] + Working capital 2 IF WORKING CAPITAL IS GIVEN THEN ONLY IT IS ADDED IF TAX IS NOT GIVEN IN QUESTION ANNUAL SAVINGS AND ANNUAL CASH FLOW IS SAME Question : Acompany is considering the purchase of a machine and mgt. is does not want to purchase machine if its pay back period is more than 3 years and rate of investment is less than 20%. MACHINE- X MACHINE- Y ₹ ₹ Cost of machine 10000 10000 Working life 4 4 Scrap value 1200 400 Annual cash flow : 1^st^ year 2000 3000 2^nd^ 3000 4000 3^rd^ 4000 5000 4^th^ 8000 5000 Evaluate the two proposals and suggest as to which machine should be proposed. SOLUTION: MACHINE - X YEAR CASH FLOW CUMULATIVE CASH \` FLOW 1^st^ 2000 2000 2^nd^ 3000 5000 3^rd^ 4000 9000 4^th^ 9200 18200 (8000+1200) 1. Pay- back Period = [ ] E + [B] C = 3+ [10000 -9000] 8000 = 3 years and 1.5 months 2. Post Pay --back profitability = Total cash Flow -- Initial Investment 3. Average Rate of Return = [Average Annual cash flow -- Dep.] X 100 Average Investment = [4250 -2200] x100 5600 =36.61% Average Annual cash flow = [2000+3000+4000+8000 ] 4 [ ] = ₹ 4250 [ ] Annual Depreciation = [cost of machine -- scrap] Life = [10000 - 1200] 4 = ₹ 2200 Average Investment = [cost + scrap] 2 = [10000+1200] 2 =₹ 5600 Similarly calculate for machine Y and write down the answer.
