Corporate Finance - NMIMS SOLVED ASSIGNMENTS June 2026

 

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Corporate Finance

Jun 2026 Examination

 

 

Q1. A mid-sized Indian manufacturing firm is experiencing declining profitability despite steady revenue growth. The CFO attributes this to escalating operational costs and inefficient asset utilization, compounded by a recent spike in short-term liabilities. The company is considering introducing automated inventory management and tighter receivables policies, but also faces pressure from suppliers demanding shorter payment cycles. The management team must ensure operational efficiency while maintaining liquidity, without compromising on the firm's ongoing investment in quality improvements and expanding production capacity. Drawing on working capital management concepts, how should the firm apply cash flow forecasting, inventory control, and receivables management strategies to optimize liquidity and operational efficiency in this scenario? What specific actions would you recommend to balance short-term obligations and strategic growth initiatives? (10 Marks)

Ans 1.

Introduction

Working capital management is at the heart of a manufacturing firm's ability to sustain operations while growing. When revenue rises but profitability falls, the problem almost always traces back to how efficiently the company manages its current assets and current liabilities. For this manufacturing firm, the simultaneous pressure from supplier payment demands, rising operational costs, and inefficient asset utilization represents a classic working capital crisis. The situation is compounded by the firm's need to invest in quality improvements and capacity expansion at the same time. Resolving this requires not just cost control but a structured reorientation of cash flow management, inventory

 

Q2 (A). An Indian manufacturing firm is evaluating the purchase of a machine costing Rs.24,00,000 with the following expected operational data for 5 years: depreciation is calculated using the straight-line method over 5 years with zero salvage value. The machine will generate incremental cash inflows as per the table below. However, it requires an additional working capital investment of Rs.4,50,000 at the end of Year 1, recoverable fully at the end of Year 5. The firm's cost of capital is 10% p.a. and corporate tax rate is 30%. Using the time value of money, determine whether the investment should be undertaken by calculating the Net Present Value (NPV) of all cash flows (including working capital impacts and tax shields on depreciation). Table: Year | Incremental Cash Inflows (before tax & depreciation) (Rs.): 1 | 7,00,000; 2 | 8,00,000; 3 | 9,80,000; 4 | 9,00,000; 5 | 8,50,000. Show all intermediate calculations in your answer. (5 Marks)

Ans 2(A).

Introduction

Net Present Value (NPV) is a widely accepted capital budgeting technique that evaluates an investment by discounting all future cash flows at the firm’s cost of capital. It considers the time value of money and provides a clear decision rule: a project should be accepted if NPV is positive. In this case, the evaluation must include operating cash flows, depreciation tax shield, working capital investment, and its

 

 

Q2 (B). A firm has the following market values and component costs:

Component	Market Value (Rs. lakh)	Cost (Before Tax)
Equity Share Capital	1050	15%
Preference Share Capital	150	10%
Long-term Secured Debt	750	9%
Short-term Unsecured Debt	100	11%

Corporate tax rate is 25%.

Scenario A: increase secured debt by Rs.250 lakh replacing an equal amount of equity.

Scenario B: raise preference share capital by Rs.100 lakh, reducing unsecured debt and equity equally.

Calculate the WACC for each scenario and determine which scenario yields a lower WACC. Show all steps including tax adjustments and market value re-weighting. (5 Marks)

Ans 2(B).

Introduction

Weighted Average Cost of Capital measures the blended cost of all sources of finance, weighted by their market value proportions. It is the minimum return a firm must earn on its investments to satisfy all capital providers. Debt is cheaper than equity because interest is tax-deductible. Preference capital carries a fixed cost but offers no tax shield. Comparing WACC across financing scenarios helps management identify which structure minimizes the cost of capital and thereby maximizes firm

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