# Corporate Finance – Sanjana decides to invest in a Recurring Deposit at the rate of Rs. 2,000 per year for 5 years and at Rs. 3000 per year for next 10 year

1.Sanjana decides to invest in a Recurring Deposit at the rate of Rs. 2,000 per year for 5 years and at Rs. 3000 per year for next 10 years. What shall be the value of her investment at the end of 15 years, if the rate of interest is 10%?

If she wants to receive a lumpsum payment of Rs. 1,00,000 at the end of 15 years, what should be the sum invested each year for 15 years at the same interest rate? Calculate showing formula and detailed working. Amounts may be rounded off to nearest rupee. (10 marks)

2. Atharva Textiles is suffering from declining profits, one of the key reasons for which has been pointed out as Inventory Management. The following details are collated by the Finance Manager:

Purchase price per unit is Rs. 1000.

Cost incurred at the time of each order is Rs. 600.

The no. of orders placed in a year are 30.

The firm incurs a cost of 5% to carry Inventory cost.

Average inventory held 2,500 units.

Determine the current Total Inventory Cost.

Also advise what should be the Optimum Order quantity to minimize the cost, if the annual demand for the enterprise is 1, 65,000 units. What shall be the Total Inventory Cost at that level? (10 marks)

3. a) Priya Industries sells their products at Rs. 80 per unit. They incur a Variable cost of Rs. 45 to make the product. Annual credit sales of Priya Limited is 50,000 units. They give a month’s credit and have a closing debtor balance of Rs. 3, 00,000. The Finance manager decides to increase the credit period from existing 30 days to 45 days. They have an increase in sales quantity by 10% with the closing debtors balance going up to Rs. 4, 24,000. Cost of funds for the firm is 20%.

Calculate the investment in additional receivables.

What should be the considerations to assess the effectiveness of the additional credit period? Should Priya Industries continue with the relaxed credit or reinstate it to 30 days? (5 marks)

b) A firm sells 2000 baskets at Rs. 100 each. The Basket has a making charge of Rs. 50 each and a fixed operating cost of manufacture of Rs. 50,000/year. Calculate the Contribution and DOL. Also show the impact if SP increases by 50% on the contribution and DOL. What does the change in DOL signify? (5marks)