RBI Questions

Crack Grade B 1
RBI Questions
1. A company booked profit Rs 59,531, incurred interest expense of Rs

3,240, Depreciation of Rs 10,903, and paid taxes of 13,372. Compute Debt
service coverage ratio if Principal repayment for the period was Rs 6,500.
Answer:
Operating Income= 59,531 + 3240 + 10,903 + 13.372 = 87046 (Earning

Before Interest and Tax as well as Depreciation is a non tax item)
Debt Service = 6500 + 3240 = 9740
Debt Service Coverage Ratio = Operating Income/ Debt Service
= 87046/9740 = 8.94
2. From the following particulars found in the Trading, Profit and Loss
Account of A Company Ltd., work out the Operating ratio of the business
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Crack Grade B 2
Answer:
3. A company has capital of Rs. 10,00,000; its turnover is 3 times the

capital and the margin on sales is 6%. What is the Return on Investment.
Answer:

Crack Grade B 3
4. Ram & Company supplies you the following information regarding the
year ended 31st December.
Cash sales Rs. 80,000
Credit sales Rs. 2,00,000
Return inward Rs. 10,000
Opening Stock Rs. 25,000
Closing Stock Rs. 30,000
Gross profit Ratio is 25%
Find out Inventory Turnover.
Answer:

Crack Grade B 4
5. Closing debtors Rs 2,00,000, cash sales 25% of credit sales , excess of
closing debtors over opening debtors Rs 80,000 , Total sales Rs 12,00,000.
Calculate debtors turnover ratio and average collection period.
Answer:
Total sales = 12,00,000
Cash sales = 25% of credit sales
Total sales = cash sales + credit sales
Cash sales = 25 / 125 x 12,00,000 = 2,40,000
Credit sales = 100/125 x 12,00,000 = 9,60,000
Closing debtors = 2,00,000
Opening debtors = 2,00,000 – 80,000 = 1,20,000
Average debtors = opening debtors + closing debtors / 2
= 1,20,000 + 2,00,000 / 2
= 1,60,000
Debtors Turnover Ratio = credit sales / average debtors
= 9,60,000 / 1,60,000 = 6 times
Average Collection Period = 12 / debtors turnover
= 12/6 = 2 times
6. A company has a profit margin of 20% and asset turnover of 3 times.

What is the company’s return on investment?
Answer:
Net profit ratio = 20% (given)
Assets turnover ratio = 3 times (given)
Return on Investment (ROI) = Net Profit ratio x Assets turnover ratio
= 20% x 3 times = 60%

Crack Grade B 5
7. MNP Limited has made plans for the next year 2011-12. It is estimated
that the company will employ total assets of Rs. 25,00,000; 30% of assets
being financed by debt at an interest cost of 9% p.a. The direct costs for the
year are estimated at Rs. 15,00,000 and all other operating expenses are
estimated at Rs. 2,40,000. The sales revenue are estimated at Rs.
22,50,000. Tax rate is assumed to be 40%.
Required to calculate:
(a) Net profit margin
(b) Return on Assets
(c) Asset turnover
Answer:
The net profit is computed as follows:
(a) Net Profit Margin = EBIT (1-t) / Sales x 100
= 5,10,000 x (1 – 0.4)/ 22,50,000 = 13.6%
(b) Return on Assets (ROA)
EBIT (1-t) / Total Assets
= 5,10,000 (1 – 0.4) / 25,00,000
= 3,06,000 / 25,00,000
= 0.1224
= 12.24%
(c) Asset Turnover

Crack Grade B 6
= Sales / Assets
= 22,50,000 / 25,00,000
= 0.9
(d) Return on equity (ROE)
= PAT / Equity
=2,65,500 / 17,50,000
=15.17%
8. The capital structure of Beta Limited is as follows:
Equity share capital of Rs 10 each 8,00,000
9% preference share capital of Rs 10 each 3,00,000
Additional information: Profit (after tax at 35 per cent) Rs. 2,70,000

Depreciation Rs. 60,000; Equity dividend paid 20 per cent; Market price of
equity shares Rs. 40.
You are required to compute the following:
 Earnings per shares

 Price-earnings ratio
Answer:
Earnings per equity share
= Earnings available to equity shareholders / Number of equity shares

outstanding
= 2, 43,000 / 80,000
= 3.04 per share
Price-earning (P/E) ratio
= Market price per share / Earnings per share
= 40 / 3.04
Crack Grade B 7
=13.2 times
9. From the following details, calculate interest coverage ratio:
Net Profit after tax Rs. 60,000; 15% Long-term debt 10,00,000; and Tax rate
40%
Answer:
Net Profit after Tax = Rs. 60,000
Tax Rate = 40%
Net Profit before tax = Net profit after tax × 100/ (100 − Tax rate)
= Rs. 60,000 × 100/(100 − 40)
= Rs. 1,00,000
Interest on Long-term Debt = 15% of Rs. 10,00,000 = Rs. 1,50,000
Net profit before interest and tax = Net profit before tax + Interest
= Rs. 1,00,000 + Rs. 1,50,000 = Rs. 2,50,000
Interest Coverage Ratio = Net Profit before Interest and Tax/Interest on

long-term debt
= Rs. 2,50,000/Rs. 1,50,000
= 1.67 times
10. Given the following information:
Revenue from Operations 3,40,000
Cost of Revenue from Operations 1,20,000
Selling expenses 80,000
Administrative Expenses 40,000
Calculate Gross profit ratio and Operating ratio.

Crack Grade B 8
Answer: Gross Profit = Revenue from Operations − Cost of Revenue from
Operations
= Rs. 3,40,000 − Rs. 1,20,000
= Rs. 2,20,000
Gross Profit Ratio = Gross Profit / Revenue from operation × 100
= Rs. 2,20,000 / Rs. 3,40,000 × 100 = 64.71%
Operating Cost = Cost of Revenue from Operations + Selling Expenses +
Administrative Expenses
= Rs. 1,20,000 + 80,000 + 40,000 = Rs. 2,40,000
Operating Ratio = Operating Cost / Net Revenue from Operations × 100
= Rs. 2,40,000 / Rs. 3,40,000 x 100 = 70.59%
11. Compute E.O.Q. for the following: Annual Demand = 5,000 units; Unit
price = Rs 20 ;Order cost =Rs 16 ; Storage rate = 2% per annum ;Interest
rate = 12% per annum; Obsolescence rate = 6% per annum.
Answer:
Carrying cost (C) = Storage rate = 2%
Interest Rate = 12%
Obsolescence Rate = 6%
Total = 20% per annum
√2 x A x O

Crack Grade B 9
C = 20% of Rs 20 =Rs 4 per unit per annum.
EOQ =√ (2 x 5,000 x 16) / 4
=200 units
Total cost:
Purchase price of 5,000 units @ Rs 20 per unit = Rs 1,00,000
Ordering cost = 5000/200 = 25 orders @ Rs 16 = Rs 400
Carrying cost of average Inventory = 200 / 2 =100 units @ Rs 4 = Rs 400
Total cost = Rs 1,00,800
12. Calculate the Economic Order Quantity from the following information.
Also state the number of orders to be placed in a year.
Consumption of materials per annum : 10,000 kg.
Order placing cost per order : Rs 50
Cost per kg. of raw materials : Rs 2
Storage costs : 8% on average inventory
EOQ =
A = Units consumed during year
O = Ordering cost per order
C = Inventory carrying cost per unit per annum.
Economic Order Quantity =√(2 x 10,000 x 50)/2*8/100
=2,500 kg

Crack Grade B 10
No. of orders to be placed in a year = Total Consumption of materials per
annum / EOQ
=10000 kg / 2500 kg = 4 Orders per year
13. M/s Kambu Ltd. are the manufacturers of Lamps. The following are the
details of their operation:
Average monthly market demand 2,000
lamps ordering cost Rs. 200 per order
Inventory carrying cost 20% per annum
Cost of lamps Rs. 1000 per lamp
Normal usage 100 lamps per week
Minimum usage 50 lamps per week
Maximum usage 200 lamps per week
Lead time to supply 4 - 6 weeks
Compute from the above :
(i) Economic order quantity.
(ii) Maximum level of stock.
(iii) Minimum level of stock.
(iv) Re-order level of stock.
Economic Order Quantity :
Annual usage of lamps (Co) = Normal usage per week × 52 weeks
= 100 lamps × 52 weeks
= 5,200 lamps.
Ordering cost per order (O) = Rs 200.

Crack Grade B 11
Inventory carrying cost per unit per annum (C ) = 20% of Rs 1000 = Rs 200.
EOQ = 102 units (app)
Maximum Level of Stock
= Re-order level + Re-order quantity – (Minimum usage × Minimum reorder

period)
= 1200 units + 102 units – (50 units × 4 weeks) = 1,102 units
Minimum Level of Stock
= Re-order level – (Normal usage × Normal delivery period) (See Note below)
= 1200 units – (100 units × 5 weeks) = 700 units
Note : Normal delivery period is taken to be average delivery period
Re-order Level of Stock
= Maximum usage × Maximum delivery period = 200 units × 6 weeks =

1,200 units.
14. ABC Ltd., has sales of Rs.10,00,000; Variable cost of Rs. 4,00,000 and
fixed cost of Rs. 2,00,000. It has a long term debt of Rs. 20,00,000 at 10%
rate of interest. Calculate operating, financial and combined leverages.

Crack Grade B 12
Operating Leverage
: Contribution/EBIT = 6,00,000 / 4,00,000 =1.5
Financial Leverage
EBIT/EBT = 4,00,000 / 2,00,000 = 2
Combined Leverage
Or Contribution / EBT = 6,00,000 / 2,00,000 = 3
= DOL*DFL = 1.5 * 2 = 3
15. The following data is available for ABC Ltd. Rs. Sales 7,50,000 Variable
Cost 4,20,000 Fixed Cost 60,000 Debt 4,50,000 Interest on Debt @ 9%
Equity Capital 5,50,000. Calculate ROI, Operating, financial and combined
leverage.
Answer:
Return on Investment
EBIT = Rs. 7,50,000 - Rs. 4,20,000 - Rs. 60,000 = Rs. 2,70,000
ROI = Rs. 2,70,000/ Rs. 10,00,000 * 100 = 27%
Operating Leverage : Contribution/EBIT = 3,30,000 / 2,70,000 =1.22
Financial Leverage : EBIT/EBT = 2,70,000 / 2,29,500 = 1.17
Combined Leverage = 1.17 * 1.22 = 1.43

Crack Grade B 13
16. A retail dealer in garments is currently selling 24,000 shirts annually.

He supplies the following details for the year ended 31st March 2023.
Selling price per shirt: Rs.800
Variable cost per shirt: Rs.600
Fixed Cost:
Staff salaries: Rs.24,00,000
General Office Cost : Rs. 8,00,000
Advertising Cost: Rs. 8,00,000
Calculate Break Even Point and margin of safety in sales revenue and
number of shirts sold.
Answer:
Break Even Point: [units] = Fixed Cost / Contribution per Unit
= Rs. 40, 00, 000/Rs. 200 = 20 000 number of shirts
Note: Contribution per units is selling price – variable cost per unit = Rs.
800 – Rs.
600 = Rs. 200
Break Even Point [sales value] = 20000 units * Rs. 800 = Rs. 1, 60, 00, 000
Margin of safety = Actual Sales – Break Even Sales
= (24, 000 shirts x Rs. 800) – Rs. 1,60,000
= Rs. 1, 92, 00, 000 – Rs. 1, 60, 00, 000 = Rs. 32, 00, 000
Margin of safety [units] = 24, 000 shirts – 20, 000 shirts = 4000 shirts

Crack Grade B 14
17. Find the future value of an annuity of Rs 500 made annually for 7 years
at interest rate of 14% compounded annually. Given that (1.14)7 = 2.5023
18. Which is better investment 3% per year compounded monthly or 3.2%

per year simple interest? Given that (1+0.0025) = 1.0304.

Crack Grade B 15
19. Find the present value of Rs 10,000 to be required after 5 years if the
interest rate be 9%. Given that (1.09)5 = 1.5386.
20. An investor buys put option at premium of Rs 20 with a strike price of

Rs 520. Each option contract is normally of 100 underlying shares. The
price was Rs 460 upon the expiry of the call option, calculate the investor’s
capital gain.

Crack Grade B 16
21. Mr. X Purchased one 3-month call option with a premium of Rs 30 and
an exercise price of Rs 550. Delta Corporation’s stock’s current price is 500.
Determine profit or loss, if the price of Delta Corporation’s falls at Rs 350
after 3 months.

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Crack Grade B 1

1. A company booked profit Rs 59,531, incurred interest expense of Rs

Operating Income= 59,531 + 3240 + 10,903 + 13.372 = 87046 (Earning

Debt Service = 6500 + 3240 = 9740

Debt Service Coverage Ratio = Operating Income/ Debt Service

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3. A company has capital of Rs. 10,00,000; its turnover is 3 times the

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Cash sales Rs. 80,000

Credit sales Rs. 2,00,000

Return inward Rs. 10,000

Opening Stock Rs. 25,000

Closing Stock Rs. 30,000

Gross profit Ratio is 25%

Find out Inventory Turnover.

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Total sales = 12,00,000

Cash sales = 25% of credit sales

Total sales = cash sales + credit sales

Cash sales = 25 / 125 x 12,00,000 = 2,40,000

Credit sales = 100/125 x 12,00,000 = 9,60,000

Closing debtors = 2,00,000

Opening debtors = 2,00,000 – 80,000 = 1,20,000

Average debtors = opening debtors + closing debtors / 2

Debtors Turnover Ratio = credit sales / average debtors

= 9,60,000 / 1,60,000 = 6 times

Average Collection Period = 12 / debtors turnover

6. A company has a profit margin of 20% and asset turnover of 3 times.

Net profit ratio = 20% (given)

Assets turnover ratio = 3 times (given)

Return on Investment (ROI) = Net Profit ratio x Assets turnover ratio

= 20% x 3 times = 60%

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(a) Net profit margin

(b) Return on Assets

(c) Asset turnover

The net profit is computed as follows:

(a) Net Profit Margin = EBIT (1-t) / Sales x 100

= 5,10,000 x (1 – 0.4)/ 22,50,000 = 13.6%

(b) Return on Assets (ROA)

EBIT (1-t) / Total Assets

= 5,10,000 (1 – 0.4) / 25,00,000

(c) Asset Turnover

(d) Return on equity (ROE)

8. The capital structure of Beta Limited is as follows:

Equity share capital of Rs 10 each 8,00,000

9% preference share capital of Rs 10 each 3,00,000

Additional information: Profit (after tax at 35 per cent) Rs. 2,70,000

You are required to compute the following:

 Earnings per shares

Earnings per equity share

= Earnings available to equity shareholders / Number of equity shares

= 3.04 per share

Price-earning (P/E) ratio

= Market price per share / Earnings per share

9. From the following details, calculate interest coverage ratio:

Net Profit after Tax = Rs. 60,000

Tax Rate = 40%

= Rs. 60,000 × 100/(100 − 40)

Interest on Long-term Debt = 15% of Rs. 10,00,000 = Rs. 1,50,000

= Rs. 1,00,000 + Rs. 1,50,000 = Rs. 2,50,000

Interest Coverage Ratio = Net Profit before Interest and Tax/Interest on

= Rs. 2,50,000/Rs. 1,50,000

10. Given the following information: