Attempt all the questions.
Section-A
Question1) One of the fastest growing industries in the last twenty years is the memory chip industry, that supplies memory chips for personal computers and other electronic devices. Yet average profitability for this industry has been very low. Using industry analysis framework, list all potential factors that may describe this apparent contradiction.
Question2) ABC Company recognizes revenue at the point of shipment. Management decides to increase sales for the present quarter by filling all customer orders. Describe what impact this decision would have on:
• Days’ receivable for the present quarter
• Days’ receivable for the next quarter
• Sales growth for the present quarter
• Sales growth for the next quarter
• Return on sales for the present quarter
• Return on sales for the next quarter
SECTION B
Case Study: Tarapore Company Limited
Shareholder’s equity section of Tarapore Company Limited on March 31, 2009 was as follows:
Share Capital
10% Preference Shares, Rs 100 Par Value, 5000 shares Rs 5,00,000
Equity Shares, Rs 10 Par Value, 5000 shares authorised and
3,00,000 shares issued and fully paid up Rs 30,00,000
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35,00,000
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Reserves and Surplus
Capital Redemption Reserve Rs 4,00,000
Share Premium 9,00,000
Revaluation Reserve 7,00,000
General Reserve 10,00,000
Profit and Loss Appropriation Account 17,00,000
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47,00,000
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Total Shareholder’s Equity 82,00,000
___________
On May 5, board of directors decided to recommend a dividend of 10 percent on preference as well as equity share capital. Net profit for the year had been transferred to retained earnings from which dividend would be paid.
Questions
1. Calculate book value per share on March 31, 2009 (Hint: the estimated liability for payment of dividends must be deducted from retained earnings.)
2. Tarapore Company’s equity share was quoting at Rs 120 on the balance sheet date.
3. Can the company raise additional equity? If yes, how much?
4. What was the maximum ratio of bonus issue the company could have made on the balance sheet date? The company will like balance of Rs 6,50,000 to be left in the retained earnings after the bonus issue.