MANAGING FINANCIAL PRINCIPLES AND TECHNIQUES: Tata Motors Limited

Task 1

1.Explain the importance of costs in the pricing strategy of Tata Motors Limited. (A.C: 1.1)

2.Design a costing system for use within Tata Motors Limited. (A.C: 1.2)

3.Propose improvements to the costing and pricing systems used by Tata Motors Limited presently, keeping in view the future contingencies. (A.C: 1.3)

Task 2

1.Apply forecasting techniques to make cost and revenue decisions in Tata Motors Limited. (A.C: 2.1)

2.Assess the sources of funds available to Tata Motors Limited. (A.C: 2.2)

Task 3

  1. Explain the advantages and disadvantages of Zero based budgets and its relevance/appropriateness to the Tata Motors Limited. (A.C: 3.1)
  2. Kumar Ltd. wished to arrange overdraft facilities with the bankers during the period May to July 2014. Prepare a cash budget for the above period from the following data, indicating the extent of the bank facilities the company will require at the end of each month. You are also required to show clearly any necessary workings. (A.C: 3.2)

 

Month Sales (Rs.) Purchase (Rs.) Wages (Rs.)
March 148000 134000 11000
April 156000 136000 12000
May 152000 170000 13000
June 144000 180000 12000
July 136000 150000 11000

Notes:

(i) 50% of the credit sales are realized in the month following the sales and the remaining in the second month following. Creditors are paid in the month following the month of purchase.

(ii) Cash at bank on 1.05.2014 is Rs.23,000.

(iii) Assume that payments are made in the month in which the costs are incurred.

Using a flexible budgeting approach, redraft the control statement below based on ‘Absorption’ and ‘Marginal’ costing methods. Assume Selling Price as Rs.150. (A.C: 3.3)

 

  Original Budget Actual Results
Sales units 1400 1500
Costs: Rs. Rs.
Direct Materials 11200 12400
Direct Labour 14800 23800
Variable Overheads 30000 33600
Fixed Overheads 42000 38800
Total Cost 98000 108600

 

  1. Evaluate the differences between the flexed budget and the actual results in Task-3.3. (A.C: 3.4)

Task 4

  1. Recommend processes that could manage cost reduction in Tata Motors Limited. (A.C: 4.1)
  2. Evaluate the potential for the use of Activity Based Costing (ABC) in Tata Motors Limited. (A.C: 4.2)

Task 5

  1. Allwin Ltd. is considering two different projects for investment purpose. The anticipated cash flows of both the projects are given below. The cost of capital of the firm is 10%. You are required to calculate the NPV and IRR of both the projects and interpret the results assuming that the projects Alpha and Beta are (i) independent, (or) (ii) mutually exclusive. (A.C: 5.1)
Particulars Expected Cash Flows
Period Project Alpha Project Beta
0 (50000) (50000)
1 11000 15000
2 13000 14500
3 14000 13000
4 14500 12000
5 15000 11000

Novotel Ltd. is considering a new investment alternative Project-X which incurs an initial investment of Rs. 100,000. The expected cash flows from the project for its life period of 5 years are given below. The cost of capital of the company is 12% and it expects an inflation rate of 10% which affects the cash flows associated with the new investment alternative. Calculate the NPV and IRR of Project-X adjusting inflation factor to the cash flows and interpret the results accordingly. (A.C: 5.2)

Period Expected Cash Flows
0 (100000)
1 24000
2 25000
3 27000
4 32000
5 34000

Tango Ltd. is considering a new investment alternative Project-X which incurs an initial investment of Rs.70,000. The expected cash flows from the project for its life period of 5 years are given below. The company is planning to raise debt capital of Rs.100,000 for proposed project at 10% rate of interest. The cost of capital of the company is 15% and the tax rate applicable is 35%. Calculate the NPV and IRR of Project-X with adjusting the tax advantage on interest payment to the cash flows and interpret the results accordingly.

Period Expected Cash Flows
0 (70000)
1 15000
2 16000
3 17600
4 20000
5 21000

Task 6

  1. You are required to calculate the following financial ratios from Balance Sheet(s) and Profit and Loss Account(s) of Sunfeast Ltd. which are provided below and interpret the results. (A.C: 6.1)

(i)            Current ratio

(ii)           Quick ratio

(iii)          Interest coverage ratio

(iv)         Gross profit ratio

(v)          Net profit ratio

(vi)         Debt-equity ratio

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