Question 1)a) Critically evaluate ARR appraisal criterion.
b) Journalize the following transactions. Justify each Debit and Credit transaction with appropriate remarks.
2008, Jan 1 Started business with cash Rs.1,00,000 out of which paid to bank Rs.40,000
2008, Jan 5 Purchased furniture for Rs.10,000 and machinery for Rs.20,000
2008, Jan 7 Sold goods for Rs.16,000
2008, Jan 9 Sold goods to Shiva Rs.24,000
2008, Jan 11 Paid telephone rent for the year by cheque Rs1,000
2008, Jan 13 Amount withdrawn from bank for personal use Rs.3,000
Also prepare ledger entries of cash account only.
Question 2)a) A person buys a machine, makes a down payment of Rs.10,000 and the balance in payments of Rs.8000 per year for five years, starting 3 years from now at an interest rate of 10% per year. What is the cost of this machine?
b) A firms current assets and current liabilities are Rs.1.6 lakhs and Rs.1 lakh respectively. How much can it borrow on a short term basis without reducing the current ratio below 1.25?
Question 3)a) “The longer the maturity of a bond, the greater its price change in response to a given change in the required rate of return”, prove the theorem with a numerical example.
b) The operating and total leverages of a company are 2 and 5 respectively. Total variable costs at the existing level of operations amounts to Rs.6,50,000. Interest expenses and dividend on preference shares are Rs.75, 000 and Rs.36, 000 respectively. Income tax rate is 60%. Determine the sales revenue and fixed operating costs of the company.