Q.1 Please write the alphabate of selected
choice in the answer column: (10)
(Answer)
i |
The management needs to consider, interalia, following
factors except one in setting profit objectives:
A) Sales volume that the present operating capacity can produce.
B) Operating capacity necessary to attain the profit objectives.
C) Return on capital employed.
D) Cash flows required to discharge the liabilities. |
|
ii |
Which of the following is not a principal function of the Budget
Committee:
A) Decide on general policies relating to budgeting.
B) Ensure that actual results are within the budget estimates.
C) Approve budgets and receive / analyze budget reports.
D) Request, receive, and review budget estimates. |
|
iii |
The negative GAP position in a bank means that:
A) Its Rate Sensitive Assets exceeds the Rate Sensitive Liabilities.
B) Its Rate Sensitive Liabilities exceeds Rate Sensitive Assets.
C) That the income level of the bank is negatively affected.
D) None of the Above. |
|
iv |
The interpretation of Financial Statements is done through:
A) Measures of profitability and measures of financial viability.
B) Measures of cash and fund flows.
C) Measures of profitability and working capital.
D) None of the above |
|
v |
A discount rate at which the aggregate present value of cash
inflows equals the aggregate present value of cash outflows of
a project is called:
A) Net Present Value (NPV)
B) Internal Rate of Return (IRR)
C) Average Rate of Return (ARR)
D) Discounted Rate of Return (DRR) |
|
vi |
The quantitative technique(s) to measure risk with reference
to capital budgeting is called:
A) Sensitivity Analysis B)
Standard Deviation
C) Co-efficient of Variation D)
All of the above |
|
vii |
The Operating / Cash Cycle refers to the length of time necessary
to complete the following cycle of events:
A) Conversion of cash into inventory, inventory into receivables,
and receivables into cash.
B) Conversion of inventory into sales, sales into receivables,
receivables into cash.
C) Conversion of liquid assets into cash, cash into inventory,
inventory into cash.
D) None of the above. |
|
viii |
Cash flows are inflows and outflows of cash and cash equivalents
arising from:
A) Operating, investing and financing activities.
B) Operating, borrowing and lending activities.
C) Operating, investing and lending activities.
D) None of the above |
|
ix |
Which of the following is not an example of cash flows arising
from investing activities:
A) Cash payments to acquire fixed assets.
B) Cash receipt from disposal of shares.
C) Cash advances and loans made to third party.
D) Cash payments to suppliers for goods and services. |
|
x |
Which of the following is not included in Quick Assets for
calculating Acid Test Ratio
A) Cash and bank balance. B)
Pre-payments to suppliers.
C) Short-term marketable securities. D)
Debtors and receivables. |
|
Q.2 State True or False in the answer column.
Give brief reason for your selection at the space provided
below the question: (10)
(Answer)
i |
Zero-based budgeting is a budget
planning procedure for the evaluation of an organization’s
program and expenditures. |
|
ii |
A Zero-GAP position means that the bank
is not facing any interest rate risk. |
|
iii |
A cash budget involves detailed estimates
of anticipated cash receipts and disbursements for the budget
period or some other specific period. |
|
iv |
A bank can eliminate risk from its operations
by adopting effective risk management techniques. |
|
v |
The essence of the Asset – Liability
Management (ALM) procedure is the planning, directing, and controlling
of the levels, changes, and mixes of various balance sheet accounts. |
|
vi |
Pay-back Period, Return on Investment, and
Discounted Cash Flow are the qualitative techniques used to evaluate
capital budgeting proposals |
|
vii |
Common-size financial statements converts
the absolute sums into more easily understood percentages to some
base amount. |
|
viii |
Dividend policy of a firm revolves around
maximizing the pay out of its shareholders. |
|
ix |
The foremost requirement for evaluation of
any capital investment proposal is to determine the expected cash
flows from such investment proposal. |
|
x |
Interest Coverage Ratio provides an indication
about the solvency position of a firm at a given time. |
|
Q.3 Computational Questions:
i |
An investment of Rs.90,000 in
a machine is expected to produce after-tax cash flow of Rs.20,000
for 8 years. Calculate the Pay Back Period. (01) |
ii |
A project is expected to generate cash inflows
of Rs.22,400 annually for 5 years and has a pay back period of
3.214 years. The discount factors closest to 3.214 for 5 years
are 3.274 (16 percent rate of interest) and 3.199 (17 percent
rate of interest). Calculate the Internal Rate of Return (IRR).
(04) |
iii |
A company is presently evaluating 5 investment
proposals. Its total capital budget is Rs.700 million. All these
investment proposals are indivisible as well as independent. The
list of proposals alongwith the investment required and the NPV
of the projected cash flows are given below:
(Rs.
in million)
Project
Initial investment NPV
I 220
300
II
240
180
III
320
200
IV
100
60
V
180
200
Which investment proposals should be accepted by the company?
(03) |
iv |
A company has net profit after tax of Rs.10
million. Its Dividend Payout Ratio is 40%, Earnings Per Share
(EPS) of Rs.2 and Price Earning Ratio (P/E) of 10. Calculate the
Retention Ratio and comment the rate. (03) |
v |
A bank has offered a prize scheme on its
credit cards with grand prize of Rs.10 million payable in 20 equal
annual installments starting from 2006. If the prevailing interest
rate is 7 percent, how much will it cost the bank to fund the
grand prize? Show your computation. The relevant present value
interest factor is 10.5940. (04) |
Q.4 Royal Bank Ltd. has the
following maturity distribution of its Rate Sensitive Assets and Liabilities:
(Rs.
in million)
| |
Assets |
Liabilities |
| 0 -3 months |
100 |
90 |
| 3 months – 1 year |
130 |
180 |
| 1 – 3 years |
115 |
160 |
| 3 – 5 years |
155 |
70 |
| Over 5 years |
200 |
50 |
| Total |
700 |
550 |
You are required to:
i) Calculate the GAP in Rate Sensitive Assets
and Liabilities (02)
ii) Briefly comment on the risk profile of Royal Bank
Ltd. and suggest. (08)
Q.5 Royal Manufacturing Co. Ltd. expects
the following results during each of the next four quarters:
(Rs. in 000s)
| |
Quarter |
| |
1 |
2 |
3 |
4 |
| Sales |
7,500 |
10,500 |
18,000 |
10,500 |
Cash payments:
Production costs
Selling, administrative and other costs |
7,000
1,000
|
10,000
2,000
|
8,000
2,900
|
8,500
1,600
|
| Purchase of plant and other fixed assets |
100 |
1,100 |
2,100 |
2,100 |
The debtors at the end of a quarter are one-third
of sales for the quarter. The opening balance of debtors is Rs.3,000,000.
Cash on hand at the beginning of the year is Rs.650,000 and the desired
minimum balance is Rs.500,000. Borrowings are made at the beginning
of quarters in which the need will occur in multiplies of Rs.10,000
and are repaid at the end of quarters. Interest charges may be ignored.
You are required to prepare:
(i) A cash budget by quarters for the year.
(08)
(ii) State the amount of loan outstanding at the end
of the year. (02)
Q.6 ABC Ltd. is contemplating
an increase in the credit period from 30 to 60 days. The average collection
period which is at present 45 days is expected to increase to 75 days.
It is also likely that the bad debt expenses will increase from the
current level of 1 percent to 3 percent of sales. Total credit sales
are expected to increase from the level of 30,000 units to 34,500 units.
The present average cost per unit is Rs.8, the variable cost and sales
per unit is Rs.6 and Rs.10 respectively. Assume the company expects
a rate of return of 15 percent.
Should ABC Ltd. extend the credit period? (10)
Q.7 On July 18, 2006
State Bank of Pakistan issued a circular on cash Reserve Requirement
(CRR) and Statutory Liquidity Requirement (SLR). Given below is an extract
from the BSD circular:
“Further, all time demand and liability except
borrowing from SBP and inter bank borrowing, shall be accounted for
the calculation of time and demand liability for the purpose of CRR
& SLR. The break up of time and demand liabilities to be used for
calculating the required CRR & SLR is given in the relevant annexure.
Moreover, the separate CRA & SCRA in US$ FE-25 deposits would continue
to be maintained at the prescribed rate”
Describe the changes in CRR & SLR introduced by
SBP as also the specific requirements of the above quotation. (20)
Q.8 Develop a business plan for a branch of
a bank operating in a large city. Indicate main assets and liabilities
items with projected figures for 2007 & 2008 worked out on break
even methodology. (15)