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THE INDIAN COMMUNITY SCHOOL, KUWAIT
TIME ALLOWED :3 HOURS NAME OF STUDENT : …………………………………………………
MAX. MARKS : 70 ROLL NO. : ……………….. CLASS/SEC : ……………..
NO. OF PAGES :4
ENTREPRENEURSHIP
General Instructions: This paper contains 24 questions in 5 parts and all questions are compulsory.
Internal choice is given in selected questions.
There is no word limit for Numerical questions.
Part A-This part contains 5 questions carrying 1 mark each Answers to these questions should be from one word to one sentence.
Q1 What is meant by ‘Financial Synergy’? 1
Q2 Differentiate between Capital Budget & Cash budget.
OR
Name the two factors on which the accuracy of Cash Flow Projections depends
upon.
1
Q3
Sharma ltd., are the manufacturers of sports motorcycles. They want to
manufacture low cost scooters using latest technology. For financing the project
they have estimated a capital requirement of Rs.50 lakhs. The company wants to
finance the project by borrowing from a financial institution. Name any two
financial institutions they can approach for the same.
OR
Shillong is famous for its pristine beauty. Ariel Pvt. Ltd. wanted to build an
ecofriendly amusement park which will not only be known for fun activities but
will also educate the public about various sustainable development home projects.
The company felt that it their duty to educate the present generation about Do-it
yourself projects. This will bring awareness about saving our environment for a
better future. The company estimated the project to cost around 15 crore. Which
financial institution should they approach?
1
Q4
List any four advantages of Employees Stock Option Plan.
1
Q5 Name the two forms that merger can take place. 1
CODE :N 066 SERIES : II TERM /FN/ 2018 - 2019
Part B-This part contains 5 questions carrying 2 mark each
Answers to these questions should be in 50 to 75 words.
Q6 Victory Ltd., set up their small manufacturing unit producing bucket seat covers in
the name of ‘Comfy’. The product was a great hit. After sometime, BMW- market
leaders in luxury car manufacturing planned to join hands with Victory Ltd. Such a
deal will allow BMW to obtain better pricing and control over the manufacturing
process. Identify & Explain this type of growth strategy.
OR
Fitness Ltd., a leading manufacturer of athletic shoes decided to join together with
Fizz Up, an energy drink manufacturing company especially for sports people. The
new company, Fitness Up, would help the existing companies to extend their
markets as goodwill of both would be encashed. Identify this type of relationship.
2
Q7 ‘C.L. Chemist’ sells medicines at a discount of 5% on list price. On 1.3.2018
medicines as per details given below were sold by ‘C.L.Chemist’.
No. of customers Per customer billed amount ( )
50 340
45 370
35 650
30 800
25 975
Calculate the average amount of medicines sold per customer.
2
Q8 What is ABC Analysis? 2
Q9 The agarbatti market in India is estimated at whopping Rs.3,500 crore annually and
growing. Indian-made agarbattis are also making rapid inroads into foreign
countries. Agarbatti manufacturing is one of the small scale manufacturing
businesses that show promise of exponential growth over coming years. Karnataka
has been famous for Agarbatti manufacturing due to easy availability of raw
materials. Identify and state any two objectives of the financial institution which
will provide financial aid to this sector.
2
Q10 It is an Organised mechanism meant for effective and smooth transfer of financial
resources from the investors to the entrepreneurs.’
a)Identify the mechanism and lists its different types.
2
Part C-This part contains 7 questions carrying 3 mark each
Answers to these questions should be in about 100 words.
Q11 ‘Kindercare’ is a successful brand name in the field of playschool across the
country. They decided to increase the number of branches all throughout the
country. For this purpose they decided to give exclusive rights to individuals in
return for a regular payment. The various conditions included were:
a. Interested individuals need to have Minimum 2000 feet area and are ready to
invest around 10,00,000.
b. Books and uniform to be procured from Kindercare headquarters only.
c. Content, technical and accounting assistance would be provided.
d. Teacher training for a month.
Identify and explain this type business opportunity offered by ‘Kindercare’.
OR
3
‘BIG COLA’ is a leading cool drink manufacturing company headquartered in
Delhi. They decided to allow various vendors the opportunity to manufacture and
sell their products in various parts of the country. The company will provide the
raw materials for manufacturing the cool drink. Identify and explain this type of
business opportunity offered by ‘BIG COLA’.
Q12 The villagers of Jamawar have been known for ages for rearing cows. Farmers have
been selling milk to nearby villages. Simi studied up to grade XII in the village
school and when she passed her exams with flying colours her parents sent her to
the nearby city for undergraduate course. While studying there she noticed that the
food habits of people were changing and cheese was used in many products. After
finishing her degree she went back to her village and met the sarpanch. She
explained to him the demand for cheese and if a small scale unit is established in
the village to convert milk into cheese, it might benefit the entire community.
Taking her advice the sarpanch found out the process of turning milk into cheese.
Accordingly, they set up a unit in the village with help from the Government
authorities. The farmers together decided to run the unit and use ecofriendly
methods of production and packaging. They decided to brand their product by the
name, “Organica Cheese”. They also thought of setting aside 2% of the profits for
the establishing health centers for villagers. Keeping in mind the above facts, state
the sentence from the case study explain the types of added value.
OR
Business add values to goods and services by modifying them in a particular way to
create a new product for greater value to customers. Comment on the concept of
value addition from financial and marketing perspective
3
Q13 From the following information, calculate ‘Return on Equity’:
Capital Rs. 6,00,000
10% Loan Rs. 2,00,000
Net profit before interest Rs.1,40,000.
Also, state what is this return on rupees per lakh of equity?
3
Q14 In 2015 Jaya Ltd, started a toy manufacturing unit using robot technology. The toys
manufactured by the company became popular amongst children. But since the cost
of the toys was high, the company could not earn good profit. The business is of
high risk along with higher expected returns. The company wants to increase
production so that they can reduce cost per unit. For this the company wants
additional investment of Rs. 50 lakhs. The company approached Ashok who has
just retired from Indian Space Research Organisation and who is an influential
person.
Ashok agreed to give the loan to the company provided that his loan is converted
into equity shares after two years. The company agreed to Ashok’s proposal.
(a) What type of investor is Ashok?
(b) State any two features of the same.
3
Q15 Following are the balances of current assets and current liabilities of X ltd., Cash –
Rs.20,000; outstanding expenses- Rs.5000; Creditors- Rs.15,000; Debtors-
Rs.50,000; Short term loans- Rs.4000; Short term investments-Rs.30,000; Long
term loans- Rs.1,00,000; Stock-Rs.70,000.
Calculate the gross and net working capital of X Ltd.
3
Q16 State the disadvantages of public Issue.
OR
State the regulatory functions of NABARD.
3
Q17 What are the features of Venture Capital Finance. 3
Part D-This part contains 4 questions carrying 4 mark each
Answers to these questions should be in about 150 words.
Q18 Explain any two advantages and two disadvantages of franchising to franchisee.
OR
Discuss the various types of Acquisitions.
4
Q19 Bal runs an electrical shop in Ahmedabad. The most sold product in his shop is
ceiling fans. The annual demand for fans is 32,000. The annual holding cost per
unit is Rs.192. The cost incurred in placing an order is Rs.3000. Calculate the
Economic Ordering Quantity of Ceiling fans.
4
Q20 The following figures are extracted from the balance sheet of Trisha Ltd.
Net profit after tax: Rs. 2,00,000
Net profit before tax: Rs. 2,80,000
Total Investment(Owned + Borrowed): Rs. 4,00,000 Own funds: Rs.1,00,000
Calculate Return on Investment & Return on Equity for Trisha Ltd.
4
Q21 To regulate and supervise the securities market in India, this statutory body was
constituted in 1998.
(a) Identify this body
(b) Give any three powers of this body.
(c) State any one value which the statutory body as identified in (a) above tires to
inculcate among the members of the securities market
4
Part E-This part contains 3 questions carrying 6 mark each
Answers to these questions should be in about 200 words.
Q22 Explain the requirements for value chain management. 6
Q23 AL-Ghanim Electronics Ltd., are the manufacturers of ‘Air Conditioners’ and ‘Air
Purifiers’. Their fixed costs are Rs.32,00,000 per year. The sales price and variable
cost per unit of ‘Air conditioners’ and ‘Air purifiers’ are given below:
Air Conditioners Air Purifiers
Sales Price 20,000 5,000
Variable cost 15,000 3,000
During the year the company could sell 1000 Air conditioners and 1500 Air
purifiers and could not break even. The Air conditioners and Air purifiers were sold
in the proportion of 2:3 throughout the year.
Calculate break even in units as well as in rupees
6
Q24 Explain the functions of IFCI.
OR
State the functions of SFCs.
6
ANSWER KEY
1 This is the direct result of financial factors such as lower taxes, higher debt
capacity or better use of idle cash for which two or more firms merge
together.
1 Mark
2 Capital budget is used to determine whether an organisation’s long term
investment plans are worth pursuing, whereas cash budget determines when
income will be sufficient to cover expenses and when the company will need
to seek outside financing.
OR a. Period b. Horizon.
1 Mark
3 Industrial Development Bank of India; Small Industries Development Bank
of India; Industrial Finance Corporation of India; Industrial Credit and
Investment Corporation of India (Any two)
OR TFCI- Tourism Finance Corporation of India
1 Mark
4 Advantages of ESOP:- Higher Efficiency;
Low labour turnover;
Better industrial locations;
Low flotation cost;
Wider higher generation of funds (Any four)
1 Mark
5 Amalgamation,Absorption. 1 Mark
6 Vertical merger:-A Merger between two companies producing different goods or services for one specified finished products is termed as a vertical merger.
OR Product Extension Merger:-This Merger takes place between two business organisations that deal in products which are related to each other and operate in the same market.
2 Marks
7 No. of customers Per customer Billed
Amt
Total
billed amount 50 340 17,000
45 370 16,650
35 650 22,750
30 800 24,000
25 975 24,375
1,04,775
Average Total Billed Amount =Total Billed Amount
Total Number of customers
= 1,04,775
185
= 566.35/-
2 Marks
8 ABC analysis:- 2 Marks
The inventory control technique known as ABC analysis builds on Pareto's
Principle. In ABC analysis, a company reviews its inventory and sorts all SKUs into three categories, called "A" , "B" and "C" items. The typical breakdown might
look like this: "A" inventory: 20 percent of SKUs, 80 percent of value. "B"
inventory: 30 percent of SKUs, 15 percent of value. "C" inventory: 50 percent of
SKUs, 5 percent of value. Again, a particular company's numbers may be different, but we should be able to discern a similar kind of pattern.
9 SIDBI objectives i. Initiate steps for technological upgradation, and modernization of existing units. ii. expand channels for marketing of SSI sector products in India and abroad. iii. Promote employment - oriented industries (Any two)
2 Marks
10 The mechanism is Capital Market: Capital Market provides a platform to raise productive capital. It plays a very vital role of a financial intermediary. Different types of capital market are: i)Primary market:-Market for newly issued securities. ii)Secondary Market:-Market for existing securities.
2 Marks
11 Business format franchise opportunity- In this approach, a company provides a business owner with a proven method for operating using the name and trademark of the company. The company also provides significant amount of assistance.
OR Manufacturing franchise opportunity: It provides an organization with the right to manufacture a product and sell it in the public, using the franchisor’s name and trademark.
3 Marks
12 a. Quality added value- ‘Brand their product by the name, ‘Organica Cheese’. - It is basically adding convenience, ease of use or other desirable characteristics that customers value b. Cause related value- ‘setting aside 2 % of the profits for the health issues’- it is a social marketing strategy where business contributes part of the revenue for a cause. c. Environmental added value- ‘ecofriendly methods of production and packaging’- employ methods or systems that do not harm the society.
OR Business add values to goods and services by modifying them in a particular way to create a new product of greater value to customers. Added value, from a financial point of view, represents the difference between the value of goods and services that are used as inputs to a production process and the value of the outputs of that process. Added value, from a marketing perspective, means adding value that turns a commodity into a branded product. Branded products and services can also have value added by enhancing their design, characteristics or range of features.
3 MARKS
13 Return on Equity:-Net Income/Equity *100 Capital=6,00,000 Loan @ 10%=2,00,000 Net profit before Interest=Rs 1,40,000 Interest=Rs 20,000
3 Marks
ROE= 1,20,000/40,000 x100=30% i.e, for every rupee of own money invested the owner made 30 paisa oe 0.30 Rupee. Rupees per lakh of equity=0.30* 1,00,000 =Rs 30,000.
14 (a) Angel Investor
(b) Features (Any two)
1. Most angel investors are current or retired executives, business owners or
high net worth individuals who have the knowledge, expertise, and funds that
help start-ups match up to industry standards.
2. As angel investors bear extremely high risk and are usually subject to
dilution from future investment rounds. They expect a very high return on
investment.
3. Apart from investing funds, most angels provide proactive advice, guidance,
industry connections and mentoring start-ups in its early days.
4. Their objective is to create great companies by providing value creation, and
simultaneously helping investors realize a high return on investments.
5. They have a sharp inclination to keep abreast of current developments in a
particular business arena, mentoring another generation of entrepreneurs by
making use of their experience
3 Marks
15 Gross Working capital = Sum total of all Current Assets
= Cash + Debtors + Short term investment + Stock
= 20,000+50,000+30,000+70,000= Rs.1,70,000
Net working capital = Current Assets-Current Liabilities
Current Liabilities = Outstanding expenses + Creditors + Short term loans
= 5000 + 15,000 + 4000= Rs. 24,000
Net working capital = 1,70,000-24,000= Rs. 1,46,000
3 Marks
16 Drawbacks/ Disadvantages of Public Issue:-
While there are benefits to going public, it also means additional obligations and reporting requirements such as:
Increasing accountability to public shareholders
Need to maintain dividend and profit growth trends
Becoming more vulnerable to an unwelcome takeover
Need to observe and adhere strictly to the rules and regulations by governing bodies
Increasing costs in complying with higher level of reporting requirements
Relinquishing some control of the company following the public offering
Suffering a loss of privacy as a result of media interest OR
Regulatory Functions Of NABARD: 1) NABARD is empowered to undertake inspection of RRBs and Cooperative Banks, other than the Primary Cooperative Banks. 2) To open a new branch, a recommendation of NABARD is imperative by RRBs orCooperative Banks to seek permission from RBI.
3 Marks
3) RRBs and Cooperative Banks, along with RBI, are required to file returns and documents with NABARD
17 Features of venture – capital Venture capital can best be characterized as a long-term investment discipline, usually occurring over a five-year period that helps in the creation of:
a) early-stage companies,
b) the expansion and revitalization of existing businesses, and c) the financing of leveraged buyouts of existing divisions of major or privately
owned enterprises.
Thus, venture capital finance has the following features:
1) It is basically equity finance in relatively new companies. 2) It is long-term investment in growth-oriented small or medium firms.
3) Venture capitalist not only provide capital but also business skills to investee
firms. 4) It involves high risk-return spectrum.
5) It is a subset of private equity.
6) The venture capital institutions have a continuous involvement in the business
after making the investment. 7) Such institutions disinvest the holdings either to the promoters or in the market
3 Marks
18 Advantages: (Any two) a. Product acceptance : The franchisee usually enters into a business that has an accepted name, product or
service. The franchisee does not have to spend resources trying to establish the
credibility of the business. That credibility already exists based on the years the
franchise has existed. 2. Management expertise
Another important advantage to the franchisee is the managerial assistance
provided by the franchisor. Each new franchisee is often required to take a training program on all aspects of operating the franchise. This training could include
classes in accounting, personnel management marketing and production.
3. Capital requirements Starting a new venture can be costly in terms of both time and money. The
franchise offers an opportunity to start a new venture with up-front support that
could save the entrepreneur's significant time and possibly capital.
4. Knowledge of the market Any established franchise business offers the entrepreneur years of experience
offered to the franchisee that details the profile of the target customer and the
strategies that should be implemented once the operation has begun. This is particularly important because of regional and local differences in markets.
5. Operating and structural controls
Two problems that many entrepreneurs have in starting a new venture are
maintaining quality control of products and services and establishing effective managerial controls. And this can be overcome with the help of franchising.
Disadvantages: (Any two) 1. Right and the only way of doing things: Entering into a franchise contract limits the degree of freedom for the franchise. As such, one gets an over-guided and
over-influenced degree of control exerted by the franchisor. This results in losing
the freedom to innovate to some extent.
4 Marks
2. Continuing cost implication: Over and above the original franchise fee and
royalties, a percentage of revenue gets shared perpetually with the franchisor. The franchisor may also charge additional amounts towards sharing the cost for
services provided such as advertising and training.
3. Risk of franchisor getting bought: The franchisee faces serious problems and
difficulties when the franchisor either fails or gets bought out by another company. 4. Inability to provide services: The disadvantages to the franchisee usually centre
around the inability of the franchisor to provide services advertising and location.
When promises made in the franchise agreement are not kept, the franchisee may be left without any support in important areas
OR
Types
There are four types of acquisitions:
1. Friendly acquisition
Both the companies approve of the acquisition under friendly terms. There is no
forceful acquisition and the entire process is cordial.
2. Reverse acquisition
A private company takes over a public company.
3. Back flip acquisition A very rare case of acquisition in which the purchasing company becomes a
subsidiary of the purchased company.
4. Hostile acquisition
Here, as the name suggests, the entire process is done by force. The smaller company is either driven to such a condition that it has no option but to say yes to
the acquisition to save its skin or the bigger company just buys off all its share,
thereby establishing majority and hence initiating the acquisition.
19 Economic Ordering Quantity = √2PD/𝐶 Where; 2 is constant D= Annual demand P= cost of placing the order C= Inventory holding cost/ carrying cost Thus as : annual demand(D)= 32,000 Order cost(P) = Rs. 3,000 Annual carrying cost of 1 unit(C) = Rs. 192 EOQ = √2 ∗ 3,000 ∗ 32,000/ 192 = √1,92,00,00,00/192 = √10,00,000 =1000 Units
4 Marks
20 Return on Equity = Net profit after tax ∗100 /Equity = 2,00,000/1,00,000 ∗100 = 200 % Return On Investment=Net profit after tax*100/Capital Employed =2,00,000/4,00,000*100 =50%
4 Marks
21 a. Securities and Exchange Board of India
b. For the discharge of its functions efficiently, SEBI has been vested with the
following powers: (Any three)
To approve by-laws of stock exchanges, SEBI
To enquire the stock exchange to amend their by-laws.
4 Marks
Inspect the books of accounts and call for periodical returns from recognized
stock exchanges.
Inspect the books of accounts of financial intermediaries.
Compel certain companies to list their shares in one or more stocks
exchanges.
Levy fees and other charges on the intermediaries for performing its
functions.
Grant license to any person for the purpose of dealing in certain areas.
Delegate powers exercisable by it.
Prosecute and judge directly the violation of certain provisions of the
Companies Act.
Power to impose monetary penalties. (c) Discipline; Honesty (Any other relevant value)
22 Six requirements for value chain management:- Value chain managers are always looking for ways to improve the company's processes. 1. Coordination and collaboration
To increase efficiency within an organization, coordination and collaboration is essential.Coordinate work groups to ensure efforts are not duplicated. Utilize the theory that the whole is greater than the sum of its parts by collaborating with other groups and individuals to achieve a common goal. 2. Technology investment
Technology plays a large role in manufacturing and distribution. With outdated technology, such as old computers or machinery, an organization's competitiveness is weakened due to a loss in productivity. 3. Organizational process
In value chain management, every aspect of an organization's process is identified. Improvement in processes through better technology and greater procedural knowledge is important to the present and future success of a company. 4. Leadership
Strong leaders are crucial to the success in value chain management. Good leaders earn the respect of their employees through sound management practices. Conflict management, motivation and direction are traits that strong leaders display. 5. Employee/human resources
A central hub of information on benefits, company policies, hiring and conflict management is also necessary for a corporation to function properly. Without a knowledgeable and active human resources department, employees may feel they don't have a voice within the company. Many times, an employee is hesitant to go directly to the supervisor with issues; a human resources employee can act as a liaison in many situations. 6. Organizational culture and attitudes
Organizations that foster strong cultural identity with positive attitudes tend to attract and retain top employees. Regular corporate sponsored
6 Marks
activities are suggested to help build cultural unity and keep attitudes positive while boosting productivity.
23 Air Conditioners Air Purifiers Sales price per unit 20000 5000
Less: Variable cost per unit 15000 3000
--------------------------------------------------
Contribution margin per unit 50002000
× sales mix percentage 2/5 3/5
Rs.2000 Rs.1200
Weighted average CM per unit----------Rs.3200 (2000+1200)
Break-even point in units of sales mix = Total fixed cost/ weighted average CM
per unit
Rs. 32,00,000/ Rs.3200 = 1000 units
Break-even point in units
Air Conditioners Air Purifiers
Sales mix ratio
× total break even units (2/5×1000) (3/5×1000) Product units at break-even 400 units 600 units
Break even in Rupees (400×20,000) (600×5000)
Rs. 80,00,000 Rs.30,00,000
6 Marks
24 Functions of IFCI:-
The main functions of I.F.C.I. are as under:
i) Granting loans and advances for the establishment, expansion,
diversification and modernization of industries in corporate and co-
operative sectors.
ii) Guaranteeing loans raised by industrial concerns in the capital market,
both in rupees and foreign currencies.
iii) Subscribing or underwriting the issue of shares and debentures by
industries. Such investment can be held up to 7 years.
iv) Guaranteeing credit purchase of capital goods, imported as well as
purchased within the country.
v) Providing assistance, under the soft loans scheme, to selected industries
such as cement, cotton textiles, jute, engineering goods, etc.
vi) Providing technical, legal, marketing and administrative assistance to
any industrial concern for the promotion, management and expansion of the
industrial concern.
vii) Providing equipment (imported or indigenous) to the existing industrial
concerns on lease under its 'equipment leasing scheme'.
viii) Procuring and reselling equipment to eligible exiting industrial
concerns in corporate or co-operative sectors.
ix) Rendering merchant banking services to industrial concerns
OR
Functions Of SFCs:-
1) Grant of loans and advances to or subscribe to debentures of, industrial
concerns repayable within a period not exceeding 20 years, with option of
conversion into shares or stock of the industrial concern.
2) Guaranteeing loans raised by industrial concerns which are repayable
6 Marks
within a period not exceeding 20 years.
3) Guaranteeing deferred payments due from an industrial concern for
purchase of capital goods in India.
4) Underwriting of the issue of stock, bonds or debentures by industrial
concerns.
5) Subscribing to, or purchasing of, the stock, shares, bonds or debentures
of an industrial concern subject to a maximum of 30 percent of the
subscribed capital, or 30 percent of paid up share capital and free reserve,
whichever is less.
6) Act as agent of the Capital government, State government, IDBI, IFCI or
any other financial institution in the matter of grant of loan or business of
IDBI, IFCI or financial institution.
7) Providing technical and administrative assistance to any industrial
concern or any person for the promotion, management or expansion of any
industry.
8) Planning and assisting in the promotion and development of industries.