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FIN 207

Financial Management

TU BBM · Semester 4 · BBM curriculum effective from 2021

Requirement
required
Credits
3
Questions
17 questions

Chapter-wise questions

17 past questions across 6 units

Open a chapter to study questions grouped by unit and syllabus topic, with step-by-step solutions.

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Unit 1: Unit 2: Financial Planning and Forecasting

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  1. Asked on 2023 Exam[2 marks]2023 paper

    What do you mean by strategic plan?

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    Meaning of Strategic Plan:

    A strategic plan is a comprehensive, long-term roadmap (typically covering 3 to 5+ years) formulated by top executive leadership that defines an organization’s vision, core mission, overriding objectives, and strategic initiatives.

    Key Characteristics in Financial Management:

    • Guides long-term capital allocation, debt/equity capital structure, and corporate expansion.
    • Translates high-level corporate aspirations into operational plans and capital expenditure (CapEx) budgets.
    • Integrates internal corporate capabilities with dynamic external market opportunities and threats.
  2. Asked on 2023 Exam[2 marks]2023 paper

    ABC company has Rs 5 million in sales and Rs 1.7 million in fixed assets. Currently, the company’s fixed assets are operating at 90 percent of capacity. a. What is the company’s full capacity sales? b. What is the company’s target fixed asset-to-sales ratio?

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    Calculation of Full Capacity Sales and Target Fixed Asset-to-Sales Ratio:

    Given Data:

    • Actual Sales = Rs 5,000,000 (Rs 5 million)
    • Net Fixed Assets = Rs 1,700,000 (Rs 1.7 million)
    • Operating Capacity Utilization = 90% = 0.90

    Part (a): Full Capacity Sales

    Full Capacity Sales=Actual SalesCapacity Utilization=Rs 5,000,0000.90=Rs 5,555,555.56\text{Full Capacity Sales} = \frac{\text{Actual Sales}}{\text{Capacity Utilization}} = \frac{\text{Rs } 5,000,000}{0.90} = \mathbf{\text{Rs } 5,555,555.56}

    Part (b): Target Fixed Asset-to-Sales Ratio

    Target Ratio=Fixed AssetsFull Capacity Sales=Rs 1,700,000Rs 5,555,555.56=0.306 (or 30.6%)\text{Target Ratio} = \frac{\text{Fixed Assets}}{\text{Full Capacity Sales}} = \frac{\text{Rs } 1,700,000}{\text{Rs } 5,555,555.56} = \mathbf{0.306 \text{ (or } 30.6\%\text{)}}
  3. Asked on 2023 Exam[6 marks]2023 paper

    The most recent balance sheet of Karki furnishing (Pvt.) ltd is given below: Balance Sheet as of December 31, 2021 balance sheet (in million Rs)

    Cash Rs 100 Account payable Rs 100
    Account receivable 300 Notes payable 50
    Inventory 300 Accruals 50
    Net fixed assets 500 Long term debt 400
    Common stock 300
    Retained earnings 300
    Total assets 1,200 Total liabilities and equities 1,200

    Sales are forecasted to increase from Rs 2,000 million in 2021 to Rs 3,000 million in 2022. The firm’s fixed assets were used at full of capacity during 2021, but its current assets were at their proper levels. The Firm’s after-tax profit margin is forecasted to be 10 percent, and its payout ratio will be 60 percent. a. What is the firm’s additional funds needed (AFN) for the year 2022 b. Prepare Pro forma balance sheet for the firm for the year 2022.

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    Additional Funds Needed (AFN) & Pro Forma Balance Sheet for Karki Furnishing (Pvt.) Ltd:

    Given Data (Rs in Millions):

    • 2021 Sales (S0) = Rs 2,000 million; 2022 Forecasted Sales (S1) = Rs 3,000 million
    • Change in Sales (Delta S) = 3,000 - 2,000 = Rs 1,000 million (Growth g = 50%)
    • Total Assets (A*) = Rs 1,200 million (operated at full capacity, so all assets grow with sales: A*/S0 = 1,200 / 2,000 = 0.60)
    • Spontaneous Liabilities (L*) = Accounts Payable (100) + Accruals (50) = Rs 150 million
    • Non-spontaneous (Notes payable = 50, Long-term debt = 400, Common stock = 300)
    • Net Profit Margin (M) = 10% = 0.10
    • Dividend Payout Ratio (d) = 60% = 0.60; Retention Ratio (b) = 1 - 0.60 = 0.40

    Part (a): Additional Funds Needed (AFN)

    AFN=(A∗S0)ΔS−(L∗S0)ΔS−[M×S1×(1−d)]\text{AFN} = \left(\frac{A^*}{S_0}\right)\Delta S - \left(\frac{L^*}{S_0}\right)\Delta S - [M \times S_1 \times (1 - d)]
    AFN=(0.60×1,000)−(1502,000×1,000)−[0.10×3,000×0.40]\text{AFN} = (0.60 \times 1,000) - \left(\frac{150}{2,000} \times 1,000\right) - [0.10 \times 3,000 \times 0.40]
    AFN=600−75−120=Rs 405 million\text{AFN} = 600 - 75 - 120 = \mathbf{\text{Rs } 405\text{ million}}

    Part (b): Pro Forma Balance Sheet for December 31, 2022

    All assets and spontaneous liabilities grow by 50% (factor of 1.50). Addition to Retained Earnings = Rs 120 million.

    Assets 2021 (Rs M) 2022 (Rs M) Liabilities & Equity 2021 (Rs M) 2022 (Rs M)
    Cash 100100 150150 Accounts Payable 100100 150150
    Accounts Receivable 300300 450450 Notes Payable 5050 5050
    Inventory 300300 450450 Accruals 5050 7575
    Net Fixed Assets 500500 750750 Long-term Debt 400400 400400
    Common Stock 300300 300300
    Retained Earnings (300+120)(300 + 120) 300300 420420
    Subtotal Liabilities & Equity 1,3951,395
    Additional Funds Needed (AFN) 405405
    Total Assets 1,2001,200 1,800\mathbf{1,800} Total Claims 1,2001,200 1,800\mathbf{1,800}