Professional Documents
Culture Documents
FM 06
FM 06
FM 06/eFM 06
Note:
2. LT Overseas Ltd. Has recently leased machinery costing Rs. 390 lakh on the following
terms:
Lease term : 5 years
Lease Rental: Rs. 300/ Rs. 1000 per annum
The incremental borrowing rate for MIC is 18%. Can the transaction be classified as a
finance lease if the useful life of the equipment is six years?
3. What is financial instrument? How do you differentiate between a cash instrument and
a derivative instrument?
4. A cooperative bank wishes to buy 91 days Treasury bills maturing on Dec 6 , 2012 on Oct
12, 2011. The rate quoted by the seller is Rs. 99.1489 per Rs. 100 face values. What is
the yield to maturity?
6. What is the difference between green field’s investment and brown field investments?
10. Why was the RBI formed? Explain 5 functions that it performs?
The board had advised the management to go on a cost saving mode. All capital
expenditure decisions were put on hold. However the production department had been
able to convince management on replacing a few machines. They insisted that these
machines would be more efficient. Thus would save on to operational costs.
Our new CFO Mr. Raghu Ram was known to take all decisions after due diligence. He was
asked to prepare a report and recommend whether the machines should be leased or
purchased. Mr. Raghu after having discussed basic modalities about the machines had
given me the responsibility to present report on one of the machines, the testing
machine.
The testing machine was to cost Rs. 3,50,000. The equipment has an estimated
economic life of 5 years. As per the Income tax rule, we could write down depreciation
of 25 percent. The lease rentals offered by the company Rs. 1,20,000 per year.