Chapter-3 Businessman environment

CH-3(BUSINESS ENVIORNMENT)

Case Studies

1. A recent rate cut in the interest on loans announced by the Banks encouraged Amit, a science student of Progressive School to take a loan from State Bank of India to experiment and develop cars to be powered by fuel produced from garbage. He developed such a car and exhibited it in the Science Fair organised by Directorate of Education. He was awarded first prize for his invention. Identify and explain the dimensions of business environment discussed in the above case. 

2. With change in the consumption habits of people, Neelesh, who was running a sweet shop shifted to chocolate business. On the eve of Diwali he offered chocolates in attractive packages at reasonable prices. He anticipated huge demand and created a website chocolove.com for taking orders online. He got lot of orders online and earned huge profit by selling chocolates. Identify and explain the dimensions of business environment discussed in the above case. 

3. ‘ Understanding of environment by business managers enables them not only to identify and evaluate, but also to react to the forces external to their firms.’ In light of the statement, explain any four points of importance of business environment. 

4. .Accent Electronics Ltd.' was operating its business in Malaysia. The company started exporting its products to India when the Prime Minister announced relaxation in import duties on electronic items. The company appointed retailers in India who had direct online links with the suppliers to replenish stocks when needed.Identify and explain the dimensions of business environment discussed in the above case

5. The court passed an order that all schools must have water purifier for the school children as:

(i) Society in general is more concerned about quality of life;

(ii) Innovative techniques are being developed to manufacture water purifier at competitive rates;

(iii) Incomes are rising and children at home are also drinking purified water. The Government is also showing positive attitude towards the water purifier business.Identify the different dimensions of business environment by quoting from the above details.

6. The court passed an order to ban polythene bags as

(i) These bags are creating many environmental problems, which affect the life of people in general.

(ii) Society, in general, is more concerned about the quality of life. The government decided to give subsidy to jute industry to promote this business. Innovative techniques are being developed to manufacture jute bags at low rates. Incomes are rising and people can afford to buy these bags.

Identify the different dimensions of business environment by quoting the lines from the above particulars.

7. A leading FMCG company manufacturing potato chips as its premium snack feels the need to steer ahead of its competitors. It asks for suggestions from its employess. The employees feel that the market for potato chips as a segment has become commoditised. They suggest that innovation in finger snacks was much more & it would also help the firm overcome the volatility & severe shortage of chips- grade potatoes in India. Besides change in prices of potato often lead to change in profit margins of the firm. Keeping in mind the fact that consumers are health conscious the company executes the suggestions of its employees by introducing variant of finger snacks including multi grain, pulses & regional flavours under its ‘Kingo’ brand. 

(i) Which environment awareness is being identified by the company? 

(ii) Identify the dimension of business environment by quoting from above lines. 

(iii) Define the dimension so identified above. 

(iiii) List any two values shown by the company. 

8. Tara, after completing her MBA, decided to go for a startup. After surveying the market & studying the needs of well informed customers, she decided to start an on- line apparel store rather than going in for brick and mortar clothing store. With Jabong, Myntra and many other fashion on line stores as competitors in the market, she creates a niche market for her firm by providing differentiated services by providing nip & tuck services to its prospective buyers making it a compelling proposition for even those who kept away for fear of having to visit corner alteration shops for a better fit. For this she carried out a survey of what women look for and studied the Indian body types to design the sizes accordingly. The new market conditions required her to hire trained personnel with higher competence & greater commitment so as to wean away customers visiting brick & mortar shops for their made to order & customization services. Quoting the lines from above, identify the impact of government policy change on Tara’s firm.

9. Naman and Govind after finishing their graduation under vocational stream decided to start their own travel agency which will book Rail Tickets and Air Tickets on commission basis.They also thought of providing tickets within ten minutes through the use of internet. They discussed the idea with their Professor Mr. Mehta who liked the idea and suggested them to first analyse the business environment which consists of investors, competitors and other forces like social, political etc.that may affect their business directly or indirectly. He further told them about the technological improvements and shifts in consumer preferences that were taking place and hence theyshould be aware of the environmental trends and changes which may hinder their business performance. He emphasised on making plans keeping in mind the threat posed by the competitors, so that they can deal with the situation effectively.

This alignment of business operations with the business environment will result in better performance.

(i) Identify and state the component of business environment highlighted in the above Para.

(ii) State any two features of business environment as discussed by Professor Mehta with Naman and Govind.

(iii) Also state two points of importance of business environment as stated by Professor Mehta in the above situation.( 1+2+2)

10. Cab service company, Uber had announced that it will now allow private car owners in Delhi to offer rides to passengers. It introduced the new feature from December 16 after Delhi government announced its odd even formula to be implemented from January 1. Fares for shared riders will be 10-30% cheaper, the company had said. It was followed by Ola, that announced that they too would offer ride sharing to passengers in Delhi-NCR. Ola will offer a 50% discount on Ola Share fares over the coming month. Meru cab has also launched its ride sharing features.  It additionally gives customers who opt for the ride-share feature, a fixed 30% discount on the estimated trip fare.

In the above case,

(a) Identify points of importance of business environment highlighted.

(b) State two impacts of change of government policy on business and industry and what actions have been taken by companies in the above case to cope up with these changes?

11. Sunanda Papers decided to set up its industrial unit in backward village of Madhya Pradesh, due to its strategic location i.e. easy availability of wood to make paper.  Moreover, due to unemployment, cheap labour is available in abundance.  The village has no electricity so it decided to tap renewable solar energy in place of using diesel generators to meet its power requirements.  The government offered industrial land at cheaper rate for the development of backward area and also provided subsidy for installing solar panels.  

a) Identify the dimension business environment discussed in above case by quoting the line .

b) Also identify and explain from the given case the two benefits reaped by Sunanda papers by understanding the business environment.  

Chapter-10 financial market

Chapter -10 (Financial Market)

Case Studies

1. Investors in general consider increase in dividend as good news and stock market reacts positively to it. On the other hand, the Companies Act, places certain restrictions on payouts as dividend. To avoid these types of restrictions, the management of Crompton Ltd decided to raise funds through treasury bills, commercial bills etc.

Identify the type of market through which company decided to raise funds. State its two features.

2. Given below are two situation

a) A commercial bank requires funds to maintain CRR.

b) A company requires funds for launching a new product line.

In relation to the above, two situations answer the following questions

i) Which market should the organization approach in relation to A and B.

ii) State any two differences between such types of Market.

3. Few years ago, there were many malpractices and unfair trade practices like price rigging etc. All these had eroded investor’s confidence and multiplied their grievances. To overcome these, Govt. of India decided to set up separate regulatory body for this purpose.

a) Name the separate body set up by Govt. of India and when it was established.

b) Explain the regulatory function performed by it.

4. Supriya’s grandmother who was unwell, called her and gave her a gift packet. Supriya opened the packet and saw many crumpled share certificates inside. Her grandmother told her that they had been left behind by her late grandfather.

As no trading is now done in physical form, Supriya wants to know the process by adopting which she is in a position to deal with these certificates.

a) Identify and state the process.

b) Also give two reasons to Supriya why dealing with shares in physical form had been stopped? 

5. Pradeep Industries is planning to issue equity shares to raise funds worth Rs.1,000 crores for its expansion and growth. The company has 4 directors and each director is suggesting different method for the new issue. Name the market through which directors will offer. If the directors 

     [i] Offer the entire new issue to Life Insurance Company.

    [ii]Issue shares to public via issue houses and stock brokers.

    [iii] First ask existing shareholders to apply for new issue as it is a compulsory requirement under Companies Act.   

6. Saqib Ltd. is a large credit worthy company operating in the Kashmir Valley. It is an export oriented unit, dealing in exclusive embroidered shawls. The floods in the Valley have created many problems for the company. Many craftsmen and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get an uninterrupted supply of raw material, and the duration of the production cycle has also increased. To add to the problems of the organisation, the suppliers of raw material who were earlier selling on credit are asking the company, for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company feels that taking a bank loan is the only option with the company to meet its short term shortage of cash. As a finance manager of the company name and explain the alternative to bank borrowing that the company can use to resolve the crisis     

     

7. Zaira Ltd.' is a large and creditworthy company manufacturing air-conditioned buses for the Indian market. It now wants to export these buses to other countries and decides to invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost, the company decides to tap the money market.

(a) Name and explain the money market instrument the company can use for the above purpose.

(b) What is the duration for which the company can get funds through this instrument ?

(c) State any other purpose for which this instrument can be used.

8. The directors of a company want to modernize its plant and machinery by making a issue of shares. They wish to approach a stock exchange, while the financial manager wishes to approach a consultant for new public issue of shares. Advise the director whether to approach the stock exchange or a consultant for the new public issue of share and why? Also advise about the different methods available for making the new public issue of shares.

9. The Securities and Exchange Board of India has charged A Vellayan, chairman of the Murugappa Group, one of India's leading business conglomerates, and directed the individuals and entities to surrender unlawful gains along with interest, a total amount of Rs 2.15 crore.

The regulator alleged that Vellayan had passed on unpublished price sensitive information pertaining to the acquisition of Sabero Organic Gujarat by group entiry, Coromandel International to some individuals who traded in the shares of Sabero on the basis of that information. 

Identify the malpractice highlighted in above case .

10. A stock exchange maintains complete record of all transactions taking place in different securities every day and supplies regular information on their prices and sales volumes to press and other media. In fact, now-a-days, you can get information about minute to minute movement in prices of selected shares on TV channels like CNBC, Zee News, NDTV and Headlines Today. This enables the investors in taking quick decisions on purchase and sale of securities in which they are interested. Not only that, such information helps them in ascertaining the trend in prices and the worth of their holdings. This enables them to seek bank loans, if required

Identify the function of stock exchange highlighted in above case and explain three other functions

11. In 2nd five year plan. “Industrialisation” was the “Main Focus”. But the major problem was saving and Investment Household used to invest in GOLD & Property only. Government had to take initiative for establishing Infrastructure and other basic industries. With pace of economic development, small savings were promoted by establishing an organised market. This market is regulated by SEBI and hasattributed a lot in economic development.

(i) Identify the market.

(ii) Name two functions of this market. 

12. Rajan had misplaced his number of share certificates while shifting his house.  After a long time he was able to trace his shares certificates.  Now he was facing problem in selling them off.  He shared his problem with one of his relatives who told him that he would now have to get his shares converted into electronic form and put it in an account.

1. Name the account which is required to be opened to deal in shares.

2. With whom will he have to open this account.

3. Also name two organisations which can keep those shares in electronic form.

13. Charu is a chartered accountant in Prakash Ltd. During the course of meeting with directors she came to know that as against the previous years, this year company is going to declare handsome dividend. Offer it is observed that when such news becomes public then the share-market jumps up. Considering it, charu purchased large number of company’s shares before this news reached the public.

(1) Identify type of malpractice used by charu.

(2) Name the authority which regulates such behaviour. Write any three other functions of this authority.

Chapter-9 financial management

Ch-9(Financial Management) Case Studies 

1. 

1. Style Ltd. is a Cosmetics manufacturing company. The company is confused with determining the relative Proportion of various types offunds, Company sells goods on credit basis so they ensure that enough cash is available to cover not only fixed payment obligation but there be sufficient buffer also. It has taken loan from bank to raise shares and Debentures from Public, to take care of unforeseen Circumstances the company has decided not full use of debt. The equity shares of company are more easily sold even at a higher Price and decided the public issue ofshares and debentures have been made under SEBI guidelines. TheCompany has a loyal customer profile because of quality products

1 This above discussion about company leads to various factors that decide how quantum of finance to be raised from various long term sources. Identify them by quoting lines from above  

2. Identify the value being referred above.

2. A company is engaged in the business of manufacturing the auto rickshaw. The company wants to diversify by setting up a separate line for production for manufacturing of the spare parts. For the aforesaid purpose, the company wanted to raise long term funds without diluting its control. It was observed that investors, in general were reluctant to take risk. The company also want to save its heavy tax liability. Suggest a suitable source of raising long term funds. Give three reasons for supporting the alternative you choose.

3. Suman, as a financial manager of the business engaged in the manufacturing of sewing machines want to raise the debt component of the business as its rate of return increase by 5% consistency since last three years. But Mohan, Finance executive has opined that debt component should not be increased as the rate of interest on debt is also increasing by 4% consistently. Mohan also observed that increasing the debt component will increase the financial risk of the company. 

1) State the condition in which the company should increase the debt component. 

2) Explain the concept which is highlighted in the above situation. 

4. Amar, Akbar and Anthony  are working AAA Enterprises as production manager, finance manager and marketing manager respectively. Recently, the company started facing certain problems. Sometimes, it has ample cash in hand and at bank and sometimes, it fails to meet its day to day obligations also such as payment of telephone and electricity bills, payment to suppliers etc. In such situation, it has to raise funds at higher cost.

a) Which decision is not taken by Akbar properly, when the company is not able to meet its day to day payment obligations?

b) Discuss any four factors that must be considered for taking the decision identified in part a.

6. Y Ltd. has invested Rs. 30 lakh and earns a profit before interest and taxes (EBIT) of Rs. 2 lakh. Tax rate is 30%.

(a) ​Calculate earnings per share (EPS) assuming that there is no debt.

(b)  ​What would be EPS, if total capital of the company includes Rs 10 lakh, 10% Debentures?

(c)  ​Will EPS increase or decrease in case (b)? Explain the reason.   ​​

7. ‘Abhishek Ltd.’ is manufacturing cotton clothes. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of Rs.50 lakhs from I.C.I.C.I. Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement. The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company. 

a) ​Identify the financial decision 

b) ​Quoting the lines from the above discussion, identify and explain any four factors affecting such decision. ​​​​​​

8. ‘R’ Limited is a real estate company which was formed in 1950. In about 56 years of its existence the company has managed to carve out a niche for itself in this sector. Lately, this sector is witnessing a boom due to the fact that the Indian economy is on the rise. The incomes of middle class are rising. More people can afford to buy homes for themselves due to easy availability of loans and accompanying tax concessions.  To expand its business in India and abroad the company is weighing various options to raise money through equity offerings in India. Finance manager of ‘R’ Limited made a blue print of financial requirement of business  and also thinking of Whether to tap equity or debt market, whether to raise money from domestic market or international market or Combination of both? Whether to raise the necessary finance from money market or capital market. 

        Name the financial blue print of company and list its objectives

9. Mr. Udai Kotak holds the designation of Finance Manager in ‘Jai Shree Ram Trading Limited’. Last year performance of his department was as per the expectation. Currently he is busy in preparing financial blueprint of the next five years. To begin with he tried to forecast the sales in the next five years. It is so because it is the sales on which depends the need for fixed and working capital. Thus an estimate was made with regard to both these items. Similarly, he collected data in respect of possible profits in the coming years. In this way, one can know how much of capital will be available from within the business. The rest of the funds will be arranged from outside the business. He is also thinking about the sources of finance to be tapped outside the business.

a) Identify the financial concept as referred to in the above paragraph

b) Explain five points of importance of the financial concept, so identified       

10. Keeping in view the increasing number of cars taking over the Delhi roads, the Delhi Government is organizing Car-Free day campaign -    “Ab Bus Karein”. The government has urged the people of Delhi to refrain from travelling in their cars and two-wheelers and rather use public transport on 22nd of every month. The government also announced that there will be more DTC buses and three-wheelers available to ensure that commuters do not face difficulty. A separate cycle lane was also made for those who use bi-cycles for commuting. The supporters of this campaign demanded for construction of cycle stands in offices, hotels and shopping malls, as they were not    able to get suitable space to park their bi-cycles.

State whether there will be any change in fixed capital requirements of government, offices, hotels, shopping malls etc., due to this campaign. Give reason to justify your answer.

State any two values highlighted in the above case.  

11. Naveen glass ltd is into this business for 20 years. Now due to expansion plans the company needs additional 100 crs. The finance manager is asked to decide about the capital structure after considering the pros and cons of both the sources-Owners fund and borrowed fund. He finds out the following facts. Cash flows of the company are unstable and he is in no mood to choose a source in which high risk is involved. Company also wants to retain control over the management of the affairs of the company. There is a boom period in the economy. The above disclosures lead to various factors which decide how much to finance from equity and how much from debt. The recent companies act has revised the tax on companies to 20% from 15%. Amidst all this the company is also facing heavy operating costs of salaries, rent, premiums etc. Quoting the relevant lines, identify and explain any six such factors