9871 255 244

CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

LIST OF FAVOURITE SFM EXAMINATION QUESTIONS
This is the list of fav ques which examiner use as filler. According to opinion of author these ques
cover 10 16 marks of sfm cover.
This list is diff from list of important ques of each chap

Q1

The 6 month forward price of a security is Rs 208.18. The borrowing rate is 8% p.a
payable with monthly rests. What should be the spot price? N06 derivative Q64 pg 2.2

Q2

Calculate the price of 3 months PQR futures, if PQR (FV Rs 10) quotes Rs 220 on NSE
and the 3 months future price quotes at Rs 230 and the one month borrowing rate is given
as 15% and the expected annual dividend yield is 25% p.a payable before expiry. Also
examine the arbitrage opportunities
N08 (derivative Q74 pg 2.3)

Q3

A company is long on 10MT of copper @ Rs 474 per Kg (spot) and intends to

remain
so for the ensuing quarter. The standard deviation of changes of its spot and future prices
are 4% and 6% respectively, having correlation coefficient of 0.75.What is its hedge ratio?
What is the amount of the copper future it should short to achieve a perfect hedge?
May-12 5 marks
derivative Q100 pg 2.10

Q4

On Jan 28, 2005 an importer customer requested a Bank to remit Singapore $(SGD)
25,00,000 under an irrevocable L.C. However due to Bank strikes , the bank could affect
the remittance only on Feb 4,2005.
The inter Bank market rates were as follows
Bombay US$ 1
London 1
London 1

28 jan
Rs 45.85/ 45.90
US$ 1.7841/1.7850
SGD 3.1575/3.1590

4 feb
Rs 45.91/ 45.97
US$ 1.7765/1.7775
SGD 3.1380/3.1390

Bank wishes to retain an exchange margin of 0.125% on SGD. How much does the
customer stand to gain or lose due to the delay? (calculate rates in multiples of .0001)
(May 05), N11, M14

( forex Q17 pg 3.4)

Q5

You sold HKD 1 Lac value spot to your customer at Rs 5.70 & covered yourself in London
market on the same day, when the exchange rates were
US $ 1
=
HK $ 7.5880 7.5920
N05
Local interbank market rates for US $ were
Spot US $ 1 = Rs 42.70 42.85
(forex Q149 3.46)
Calculate cover rate & ascertain the profit or loss in the transaction. Ignore brokerage

Q6

Spot
Canadian $ 0.665/DM
Interest Rate (DM) =
3 months forward Canadian $ 0.670/ DM
Interest Rate ( can$)=
Explain arbitrage?
(Forex Q86 pg 3.22)

7%
9%

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Q7

CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

XYZ Ltd. is considering merger with ABC Ltd. XYZ Ltd.'s shares are currently traded at Rs.
25. It has 2,00,000 shares outstanding and its earning after taxes (EAT) amount to Rs.
4,00,000. ABC Ltd. has 1,00,000 shares outstanding, its current market price is Rs. 12.50
and its EAT is Rs. 1,00,000. The mergerwill be effected by means of a stock swap
(exchange). ABC Ltd. has agreed to a plan under which XYZ Ltd. will offer the current
market value of ABC Ltd.'s shares.
(i)

What is the pre-merger Earnings Per Share (EPS) and P /E ratios of both the
companies?

(ii)

If ABC Ltd.'s P /E ratio is 8, what is its current market price? What is the
exchange ratio? What will XYZ Ltd.'s post merger EPS be ?

(iii)

What must the exchange ratio be for XYZ Ltd.'s pre-merger and post-merger
EPS to be the same?
(M05)
(merger Q7 pg 4.3)

Q8

An investor is holding 1,000 shares of Fatless company. Presently the rate of dividend being
paid by the company is Rs 2 per share and the share is being sold at Rs 25 per share in the
market. However, several factors are likely to change during the course of the year as
indicated below:
Existing
Revised
Risk free rate
12%
10%
(portfolio q75 pg 5.17)
Market risk premium
6%
4%
value
1.4
1.25
Expected growth rate
5%
9%
In view of the above factors whether the investor should hold or sell the shares?

Q9

On the basis of following informationCurrent dividend (D0)

Rs 2.50
Discount rate
10.50%
Growth rate
2%
a. Calculate the present value of stock of ABC Ltd.
N07, M02, N12
b. Is its stock overvalued if stock price is Rs 35, ROE 9% and EPS Rs 2.25? show
detailed calculation
(div Q28 pg 6.7)

Q10 A share of Tension-free Economy Ltd. is currently quoted at, a price earning ratio of
7.5times. The retained earning per share being 37.5% is Rs. 3 per share. Compute:
1.
The company's cost of equity, if investors expect annual growth rate of 12%.
2.
If anticipated growth rate is 13% p.a., calculate the indicated market price, with
same cost of capital.
3.
If the company's cost of capital is 18% and anticipated growth rate is 15% p.a.,
calculate the market price per share, assuming other conditions remain the same
( div Q36 pg 6.9)
Q11 A company has a book value per share ofRs. 137.80. Its return on equity is 15% and it
follows a policy of retaining 60% of its earnings. If the Opportunity Cost of capital is 18%,
what is the price of share today? M02
(div Q11 pg 6.3)
Q12 A company is presently working with an earnings before interest and taxes (EBIT) of Rs 45
lakhs. Its present borrowings are:
(Rs Lakhs)
12% term loan
150
Working capital:
Borrowing from bank at 15%
100
Public deposit at 11%
45
2

CA PRAVINN MAHAJAN SFM CLASSES 9871 255 244

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CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

The sales of the company is growing and to support this the company proposes to
obtain additional borrowing of Rs 50 lakhs expected to cost 16%. The increase in
EBIT is expected to be 16%. Calculate the change in interest coverage ratio after
additional borrowings and commitment
(Q8 misc pg 13.3)
Q13

ABC Company is considering acquisition of XYZ LTD which has 1.5 crores shares
outstanding and issued. The market price per share is Rs 400 at present. ABCs
average cost of capital is 12%. Vailable information from XYZ indicates its expected
cash accruals for the next 3 years as follows: year 1 Rs 250 crores, Year 2 Rs 300
crores, Year 3 Rs 400 crores. Calculate the range of valuation that ABC has to
consider
( val of bs q3 pg 12.2)

X Ltd reported a profit of Rs 65 Lakhs after 35% Tax for the financial year 2007 08.
An analysis of the accounts revealed that the income included extra-ordinary items Rs
10 lakhs and an extra-ordinary loss of Rs 3 lakhs. The existing operations, except for
the extra-ordinary items, are xpected to continue in the future. In addition, the results
of the launch o a new product are expected to be as follows
Rs lakhs
Sales
60
Material costs
15
Labour costs
10
Fixed costs
8
You are required to
a. Compute the value of the business, given the capitalization rate is 15%
b. Determine the market price per equity share, with X Ltds share capital being
comprised of 1,00,000 11% preference shares of Rs 100 each and 40,00,000 Equity
shares of Rs 10 each, and PE ratio being 8 times M09 (val of bs Q2 pg 12.1)

Q14

Q15

A has invested in 3 mutual fund scheme as per details below:

N04, N09
MF A
MF B
MF C
Date of investment
01.12.03
01.01.04
01.03.04
Amount of investment
Rs 50,000 Rs 1,00,000 Rs50,000
NAV at entry date
Rs 10.50
Rs 10
Rs 10
Dividend received upto 31.03.04
Rs 950
Rs1,500
nil
NAV as at 31.03.04
Rs 10.40
Rs 10.10
Rs 9.80
What is the effective yield on per annum basis in respect of each of the 3 schemes to
Mr A upto 31.03.04
( Mutual fund Q10 pg 9.3)

Q16

Based on the credit rating of bonds, Mr Z has decided to apply the following discount
rates for valuing bonds
Credit Rating
Discount Rate
AAA
364 day T-Bill+ 3% Spread
AA
AAA + 2% spread
A
AAA + 3% spread
He is considering to invest in AA rated, Rs 1,000 face value bond currently
selling at Rs 1,025.86. The bond has five years to maturity and the coupon rate on the
bond is 15% p.a. payable annually. The next interest payment is due one year from
today and the bond is redeemable at par. (Assume 364 day T- bill rate to be 9%)
You are required to calculate the intrinsic value of the bond for Mr Z. Should
he invest in the bond? Also calculate the current yield and the YTM of the bond.
(BONd val Q31 pg 8.5)

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Q17

CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

Agrani Ltd. Is in the business of manufacturing bearings. Some more product lines are
being planned to be added to the existing system. The machinery required may be
bought or may be taken on lease. The cost of machine is Rs 40,00,000 having a useful
life of 5 years with the salvage value of Rs 8,00,000. The full purchase value of
machine can be financed by 20% loan repayable in 5 equal installments due at the end
of each year.
Alternatively, the machine can be procured on a 5 years lease, year end lease
rentals being Rs 12,00,000 p.a. The company follows the WDV method of Depriciation
@ 25%. Companys tax rate is 35% and cost of capital is 16%:
i.
Advise the company which option it should choose- lease or borrow.
ii.
Assess the proposal from lessors point of view examining whether leasing the
machine is financially viable @ 14% cost of capital
(Detailed working notes should be given. Calculations can be rounded off to Rs. Lakhs)

(leasing Q5 pg 7.2)

CA PRAVINN MAHAJAN SFM CLASSES 9871 255 244

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CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

Solutions to list of favourite questions

Q1

Value of future = cost of asset + cost to carry asset

208.18 =

x(1+

208.18 =

x(

208.18 =
X

0.08
12

)6

12.08 6
)
12

CA FINAL SFM / IPC COST-FM by

CA PRAVIIN MAHAJAN
9871255244

1.0066)6

x(
208.18

(1.0066)6
208.18
X
=
= 200.173
1.040
Stock price is Rs 200.173
Spot price + carrying cost dividend
=
220 + 220 x 0.15 x 0.25 10 x 0.25
=
220 + 8.25 2.5
=
Rs 225.75

Q2

Value of future =

Q3

A company is long on Copper to the amount of 10 x 1000 x 474

4
Hedge ratio = = r
= 0.75 = 0.5 0r 50%

47,40,000

To obtain perfect hedge Company will short Copper future for

47,40,000 x 0.5 = 23,70,000
An importer requested Bank to remit SGD$ 25,00,000 on 28 Jan 2005, However due to bank strike
Bank was able to remit payment on 4th Feb.

Q4

Since Importer has to buy SGD $, thus from cross rate

relevant rate is Ask rate

Amount to be paid for purchasing 25,00,000 SGD $ if bank had remitted on 28th jan 2005.
On 28th jan 2005 importer could purchase SGD $ at

45.90 x 1.7850 x 3.1575

=
=

25.948219
+ Exchange margin 0.125 %
+ 0.032435
25.980654
Payment to be made for remitting 25,00,000 SGD on 28th Jan 2005
25,00,000 x 25.980654 = Rs 649,51,635

Amount actually paid for purchasing 25,00,000 SGD $ on 4th jan 2005.
On 4th 2005 importer could purchase SGD $ at

=
+ Exchange margin 0.125 %

45.97 x 1.7775 x 3.1380

=
=

26.039412
+ 0.032549
26.071961

Payment made for remitting 25,00,000 SGD on 4th Feb 2005

25,00,000 x 26.071961 = Rs 651,79,903
Thus net loss to importer due to delay in payment = 651,79,903 - 649,51,635
= Rs 2,28,268

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Q5

CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

Trader sold HKD 1,00,000 @ 5.70 / HKD

Trader also covered himself in london market i.e he book a contract to purchase
1,00,000 HKD in London
Statement of profit
Amount received on sale of HKD, 1,00,000 x 5.70
5,70,000
Amount payable on Purchase of 1,00,000 HKD

= 42.85 x

1
7.5880

= 5.647 / HKD

5,64,700
5300

Profit on cover deal

Q6

Spot rate

Can $ 0.665 per DM

3
12
3
0.07 x
12

1+0.09 x
Synthetic forward rate

0.665 x
=

3 month forward rate

0.665 x

1+
1.0225

1.0175
can $ 0.6682678 per DM

Can $ 0.670 / DM

Synthetic rate is less than forward rate. Investor will borrow can $ and deposit DM
-

Suppose investor borrowed 1,00,000 can $ @ 9% p.a for 3 months

Amount payable after 3 months 1,00,000 x 1.0225 = can $ 1,02,250
He will convert 1,00,000 Can $ into DM @ can $ 0.665 / DM
1,00,000
He will receive
= 1,50,375.938 DM
0.665
He will deposit DM 1,50,375.938 DM @ 7% for 3 months and receive
1,50,375.938 x 1.0175 = DM 1,53,007.5187 DM
He will purchase DM at 3months forward rate of can$ 0.670 / DM
He will receive 1,53,007.5187 x 0.670 = Can $ 1,02,515.0375 per DM
After repayment of amount borrowed, net profit is
1,02,515.0375 1,02,250
=

Q7

265.0375 can $

XYZ
25
2,00,000
4,00,000

MP
No. of shares
Earnings

ABC
12.50
1,00,000
1,00,000

XYZ
a. Pre merger EPS
Pre merger PE ratio

Total earnings

4,00,000

No.of shares
MP

2,00,000
25

EPS

b. If ABC ltd PE ratio is 8, its MP will be

MP
=
=

PE x EPS
8x1 =

ABC

=2
= 12.5

1,00,000
1,00,000
12.5
1

=1
= 12.5

Rs 8

CA PRAVINN MAHAJAN SFM CLASSES 9871 255 244

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CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

Exchange ratio of the basis of MP

post merger EPS

MP of ABC

25

= 0.32 : 1

Combined earnings

No.of shares after acquisition

4,00,000 + 1,00,000

2,00,000+1,00,000 x 0.32

=
c.

MP of XYZ

Rs 2.16

for XYZ ltds pre merger and post merger EPS to be same, Exchange ratio should be on the
basis of EPS
Exchange ratio =

EPS of ABC
EPS of XYZ

= 0.5 : 1

= i.e 0.5 share in XYZ for 1 share in ABC

Q8

D0 = 2 P0 = 25
Required Return
P0

(.)
..

= RF + (RM - RF)
= 12 + 1.4 (6) = 20.4%

=
=

= R 13.63

Existing price is more than equilibrium price, so currently share is overvalued

Revised RR
Required Return
= RF + (RM - RF)
= 10 + 1.25(4) = 15%
P0

(.)

= (. .) = 36.33

Existing price is less than revised equilibrium price, so currently share is undervalued,
Investor should hold the share.
Q9

a.

Current market price of share is present value of all future dividends.

P0

=
=

i.

1

2.5 ( 1.02 )
0.1050 0.02

Rs 30

According to PE model
BV

=
EPS / ROE
=
2.25 / 0.09
=
25
MP
=
35
Since MP > BV so share is overvalued
ii.

PRAVINN
MAHAJAN
CA CLASESS

Earning Price Model

P0

=
=

1

2.25 ( 1.02 )
0.09 0.02

Rs 32.786

If Current market price per share is Rs 35 , share is overvalued

Q10

PE ratio = 7.5
Retained earnings
Total earnings

Rs 3 (37.5%)
3
= Rs 8 per share

i.

PE x EPS

MP

0.375

Div per sh = 8 3 = 5

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CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

=
=
KE

=
=
ii.

P0

=
=
=

iii.

P0

=
=
=

Q11

7.5 x 8
Rs 60
1

+ g

0
5(1.12)
60

+ 0.12

21.33%
1

5(1.13)
.2133 .13

Rs 67.80
1

5(1.15)
0.18 .15

Rs 191.67

MP per share according to Gordon Model

Book value per share =
Rs 137.80
Return on Equity
=
15%
Thus earnings
=
15% x 137.80
=
Rs 20.67
DP Ratio

=
=
P0

PRAVINN
MAHAJAN
CA CLASESS

1 - 0.6
0.4 or 40%
( 1 )

.
20.67 ( 1 0.6 )

0.18 0.6 0.15

Rs 91.87

MP per share according to Walter Model

+
P0

( )

8.268 +

0.15
( 20.67
0.18

8.268)

0.18

Rs 103.35

MP per share according to perpetual growth model

P0

0.18 0.09

=
Q12

8.27

Rs 91.89

statement of current interest obligation

12% term loan
18
15% bank loan
15
11% public deposits
4.95 37.95
Interest coverage ratio =

45
37.95

= 1.19

Interest obligation after additional borrowing = 37.95 + 8 = 45.95

Interest coverage ratio after additional borrowing

45 (1.16)
45.95

1.14

Due to additional borrowings intt covrg ratio is reduced by 4.20 %

8

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Q13

CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

Range of valuation of company refers to Maximum and minimum value of business

Minimum value of business means premerger value of business i.e 1.5 cr x 400
600 cr
Maximum value of business is present value all future cash flows
1
250
0.893
223.25
2
300
0.797
239.1
3
400
0.712
284.84
747.15

Q14

Current value of business is capitalised value of all future maintainable profits

Statement of FMP

b.

PAT
PBT
Extrordinary income
Extraordinary exp
Income of new project
FMP before tax
Tax 35 %
FMP after tax

65
100
(10)
3
27
120
42
78

Value of business

78
0.15

FMP
Pref dividend
Profir for equity
No. of shares
EPS
MP

78
(11)
67 lac
40 lac
67
= 1.675
40

= EPS X PE
=
1.675 x 8
=
13.4

Q15

A
50,000
10.50
4761.905
950
0.1995
122

Amount of Investment
NAV at entry date
Number of units purchased
Dividend
Dividend per unit
Period of investment
(days)

Return on M.F =
A

B
1,00,000
10
10,000
1500
0.15
91

C
50,000
10
5,000
nil
nil
31

+ +

10.40 + 0.1995 10.50
10.50

0.0995

10.50

0.9476

Annual =
B

= 520

10.10 + 0.15 10
10
Annual =

122
0.25
10
2.5
91

x 100

0.9476

x 365 = 2.835%

x 100

x 365 =

= 2.5%
10.03%

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CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

C

9.80 + 0 10
10

(.20)

10
2

Annual =

Q16

31

x 100

x 365 =

(2) %

(23.548)%

Z is considering investment in AA rated bonds.

Discount rate of AA rated bond =
AAA + 2 % spread
=
364 T- bill + 3% spread + 2% spread
=
9% + 3% + 2%
=
14%
Current market price of bond is =
1025
Rate of Interest
=
15%
Value of bond or current market price of bond is present value of all future cash outflows of the
bond at Expected rate of return or cost of capital. It is also known as Intrinsic value or equilibrium
price.
Value of the bond
=
P.V of all cash outflow
Current market price

P.V of Interest at 14%

For 5 years

P.V of redeemable
amount of bond @ 14% for 5th year

=
150 x 3.433
+
1000 x 0.519
=
514.95
+
519
=
1033.95
Intrinsic value of the bond is more than current market price, investor should buy this bond.
Current yield of the bond is interest earned on Bond on its current market price
Current Yield

150

1025.86

14.62%

YTM is the rate of return on bond if it is purchased at current market price and held till the date of
maturity. It is the rate at which present value of cash outflows of the bond is equal to present value of
cash inflows or current market price of the bond.

+
2

+
Approximate YTM

10001025.86
5
1000 + 1025.86
2

150 +
=

YTM of bond
Present value of Cash outflow at 14%
=
P.V of interest @ 14% for 5 years
+
=
150 x 3.433
+
=
514.95
+
=
1033.95
Present value of cash outflows at 15%
=
P.V of interest @ 15% for 5 years
=
150 x 3.352
=
502.8
=
999.8

10

= 14.29%

P.V of redeemable value @ 14%

1000 x 0.519
519

+
+
+

P.V of redeemable value @ 15%

1000 x 0.497
497

CA PRAVINN MAHAJAN SFM CLASSES 9871 255 244

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CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

YTM is the rate at which present value of cash outflow is equal to present value of cash inflows i.e
present value of cash outflow = Rs 1025.86
For Present value of cash outflow of 1033.95
Rate is 14%
For Present value of cash outflow of 999.8
Rate is 15%

For present value of cash outflow of 1025.86 , rate is

=

14%

8.09
34.15

1033.95 . 14%
1025.86
?
999.80 . 15%

x1

14.237%

For change in PV of (1033.95 999.80) 34.15

change in rate is 1%.
For change in PV of (1033.95 1025.86) 8.09
Change in rate (from 14%) is
8.09
14% +
x1
34.15

Q17

Agrani ltd needs a machine costing Rs 40,00,000. Company has 2 options

Option 1
Acquire the Machine on Lease at an annual lease rent of Rs12,00,000
Lease Rent p.a
Tax saving on lease rent

Rs 12,00,000
12,00,000 x 0.35

4,20,000

Statement of Present value of cash outflows

(if Asset is taken on lease)

Lease Rent
Tax Savings on
lease rent

Amount

Period

Present value

1 5 end

Factor
@ 16%
3.274

12,00,000
4,20,000

1 5 end

3.274

13,75,080

39,28,800

Present Value of Cash outflow

Option 2

Purchase the asset by borrowing from bank

Amount of Loan
=

25,53,720
Rs 40,00,000 @ 20%

Loan is payable in 5 equal Installments. Amount of each installment is :

Amount x factor (5 yrs, 20% )

Amount x 2.991
Amount

Year
1end
2end
3end
4end
5end

= 40,00,000
= 40,00,000
= 13,37,345

Statement of Principal and Interest

Installment
Interest
Principal
@ 20%
13,37,345
8,00,000
5,37,345
13,37,345
6,92,531
6,44,814
13,37,345
5,63,568
7,73,777
13,37,345
4,08,813
9,28,532
13,37,345
2,21,813
11,15,532

Principal
Outstanding
34,62,655
28,17,841
20,44,064
11,15,532
-

Tax saving
on intt @ 35%
2,80,000
2,42,386
1,97,249
1,43,085
77,635

(13,37,345 11,15,532)

11

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CA FINAL SFM CLASSES by CA PRAVIIN MAHAJAN

Depreciation @ 25% p.a WDV basis
Cost
40,00,000
Tax saving on dep @ 35%
Dep 1 year
10,00,000
3,50,000
30,00,000
Dep 2nd yr
7,50,000
2,62,500
22,50,000
Dep 3rd yr
5,62,500
1,96,875
16,87,500
Dep 4th yr
4,21,875
1,47,656
12,65,625
Dep 5th yr
3,16,406
1,10,742
WDV after 5 years
9,49,219
Salvage value after 5 yrs
8,00,000
Capital loss
1,49,219
Tax savings on cap loss
52,226
(1,49,219 x 0.35)
Net salvage value
8,00,000 + 52,226 =
8,52,226

Statement of Present value of cash outflow if Loan is taken from Bank

Amount
Period
Installment (Principal
+ interest)
Tax savings on
Interest and dep

factor
@ 16%

Present
value

13,37,345

1 5 end

3.274

43,78,468

6,30,000

1e

0.862

(5,43,060)

0.743

(3,75,130)

(2,80,000 + 3,50,000)

504,886

2e

(2,42,386 + 2,62,500)

3,94,124
2,90,741
1,88,377
8,52,226

(2,52,633)
(1,60,490)
(89,667)
Salvage value
(4,05,660)
25,51,828
Present value of Cash ouflow in loan option is lower than present value of cash outflow in lease
option, so company should purchase the asset by borrowing from Bank
b.

3e
4e
5e
5e

(0.641)
(0.552)
(0.476)
(0.476)

Evaluation of Proposal from the point of view of lessor, If lessors cost of capital is 14%
Lessor will receive Lease rent and pay tax on such lease rent
Lessor will claim depreciation on asset and tax saving on such depreciation and will claim
salvage value
Cash outflow will be purchase price of machine.
Statement of NPV of Lessor @ 14%
Amount
Period
factor
Present
@ 14%
value
Present value of cash inflows
Lease rent (net of tax)
12,00,000 (1 0.35)
7,80,000
1 5e
3.433
26,77,740
Tax savings on Depreciation
3,50,000
1e
0.877
3,06,950
2,62,500
2e
0.769
2,01,863
1,96,875
3e
0.675
1,32,891
1,47,656
4e
0.592
87,412
1,10,742
5e
0.519
57,475
Salvage value
8,52,226
5e
0.519
4,42,305
Cash Inflows
39,06,636
Present value of cash outflows
Purchase price of machine
40,00,000
0
1
40,00,000
NPV
(93,364)
Since NPV of lease is negative, so lessor should not lease the Asset

12

CA PRAVINN MAHAJAN SFM CLASSES 9871 255 244