Attempt JAIIB AFM Case Study Practice Quiz and Download PDF

Q1. A company is evaluating a capital project requiring an initial investment of ₹12,00,000. The project generates cash inflows of ₹2,50,000 in Year 1, ₹3,50,000 in Year 2, ₹4,00,000 in Year 3, ₹4,50,000 in Year 4, and ₹3,00,000 in Year 5. The cost of capital is 10%. PV factors at 10% are: Year 1 = 0.909, Year 2 = 0.826, Year 3 = 0.751, Year 4 = 0.683, Year 5 = 0.621. What is the NPV of the project?

Q2. An investor deposits ₹60,000 at the end of each year into a fixed deposit account earning 9% per annum for 6 years. The present value annuity factor at 9% for 6 years is 4.486. Management is comparing this with an annuity due arrangement where deposits are made at the beginning of each year. What is the present value of the ordinary annuity?

Q3. A bank is assessing the creditworthiness of a borrower who has applied for a term loan. The borrower’s EBIT is ₹24,00,000, annual interest obligation is ₹6,00,000, principal repayment per year is ₹4,00,000, and the tax rate is 30%. The credit officer uses DSCR to evaluate repayment capacity. What is the Debt Service Coverage Ratio (DSCR)?

Q4. A company’s capital structure consists of equity capital of ₹50 lakh (cost 16%), preference capital of ₹20 lakh (cost 12%), and term debt of ₹30 lakh (pre-tax cost 10%). The corporate tax rate is 35%. Management wants to compute the WACC to evaluate a new project. What is the Weighted Average Cost of Capital (WACC)?

Q5. Using the Capital Asset Pricing Model, a financial analyst is estimating the required return on an equity investment. The risk-free rate is 7%, the expected market return is 15%, and the beta of the security is 1.30. The company’s CFO wants to use this to determine the minimum acceptable return for a new equity-funded project. What is the cost of equity using CAPM?

Q6. A bond with face value of ₹1,000 carries a coupon rate of 9% payable annually. The bond has a remaining maturity of 8 years. The current market yield (YTM) is 7%. Management is comparing this bond with a similar 4-year bond to assess price sensitivity to interest rate changes. Which bond has a higher duration and why?

Q7. A sole trader’s books showed opening capital of ₹3,20,000, drawings of ₹60,000 during the year, fresh capital introduced of ₹40,000, and closing capital of ₹3,80,000 as per the balance sheet. The business also reported total sales of ₹12,00,000 and total expenses of ₹10,50,000 according to the profit and loss account. Management wants to verify net profit using the capital comparison method. What is the net profit as per the capital method?

Q8. A company presents its trial balance as on 31st March. Included in the figures are: insurance paid ₹48,000 covering 12 months from 1st October, rent received in advance ₹36,000 for 9 months from 1st January, and depreciation for the year not yet recorded at 10% on machinery of ₹2,00,000. Management asks the accountant to pass all necessary year-end adjusting entries. What is the net effect on profit after all three adjustments?

Q9. A company’s current assets consist of cash ₹50,000, accounts receivable ₹1,50,000, inventory ₹3,00,000, and prepaid expenses ₹20,000. Current liabilities include trade payables ₹1,40,000, bank overdraft ₹60,000, and accrued liabilities ₹40,000. Management wants to assess both the current ratio and quick ratio. What is the quick ratio of the firm?

Q10. A manufacturing company set labour standards at 3 hours per unit at ₹40 per hour. In the current period, actual production was 600 units. Workers took 1,900 hours at an actual rate of ₹42 per hour. The HR manager wants to identify whether the deviation is due to rate or efficiency. What is the labour efficiency variance?

Q11. A company obtained a term loan of ₹25,00,000 at an interest rate of 12% per annum repayable in 5 equal annual instalments. The EMI structure front-loads the interest component. In the first year, what is the interest component of the annual repayment and the outstanding balance at the end of Year 1 if principal repayment is ₹5,00,000 per year?

Q12. During bank reconciliation, an accountant identified: a cheque of ₹22,000 issued to a creditor has not been presented for payment; the bank credited ₹8,000 as interest on savings account not recorded in cash book; ₹1,500 bank charges have been debited by bank but not recorded; a customer directly deposited ₹15,000 into the firm’s account not reflected in cash book. The cash book balance is ₹95,000. What adjustments should be made to the cash book to arrive at the correct/adjusted cash book balance?

Q13. A newly listed company has an EPS of ₹12 and the market price of its share is ₹180. The company has been growing at 8% annually. Analysts debate whether the stock is fairly valued. A peer in the same sector trades at a P/E of 18. Management wants to assess relative valuation. What is the current P/E ratio and is the stock over- or under-valued compared to the peer?

Q14. A firm uses zero-base budgeting (ZBB) for the first time after years of incremental budgeting. The finance team must justify every expense from scratch. A department head argues that certain fixed overhead costs should be carried forward automatically since they are unavoidable. The CFO disagrees. Which principle best governs ZBB?

Q15. A company issued 1,00,000 equity shares of ₹10 each at ₹15 per share (₹5 premium). It also has 50,000 8% preference shares of ₹100 each and a 10% debenture of ₹20,00,000. Profit after tax is ₹9,00,000. Management wants to compute basic EPS. The tax rate is 30%. What is the basic EPS?

Q16. A company’s trial balance as on 31st March showed: Sundry Debtors ₹6,00,000; Provision for bad debts (opening) ₹30,000. During the year, bad debts written off amounted to ₹20,000. The company maintains provision at 5% on debtors. After writing off bad debts and creating the new provision, what is the charge to the profit and loss account for bad debts and provision?

Q17. Two firms, Alpha and Beta, are in the same industry. Alpha uses straight-line depreciation and Beta uses written-down value method on an asset costing ₹5,00,000 with a 10-year life and 10% rate. After 5 years, the management is comparing profitability and asset values. Which firm shows a higher asset value on the balance sheet after 5 years?

Q18. A GST-registered manufacturer purchases raw materials worth ₹10,00,000 paying 18% GST. He manufactures goods and sells them for ₹15,00,000 charging 18% GST. He also purchases a motor car for ₹5,00,000 paying 28% GST for business use. What is the net GST payable after adjusting eligible input tax credit?

Q19. An assessee earned salary of ₹8,00,000, income from house property ₹1,50,000, short-term capital gain ₹80,000, and long-term capital gain ₹1,20,000 during the financial year. He invested ₹1,50,000 in PPF (eligible under Section 80C) and paid ₹25,000 as medical insurance premium (eligible under Section 80D). What is the gross total income before deductions under Chapter VI-A?

Q20. A company reports book profits of ₹80,00,000 but its taxable income under normal provisions is only ₹20,00,000 due to various exemptions and deductions. The applicable Minimum Alternate Tax (MAT) rate is 15% plus surcharge and cess. The normal tax rate applicable is 30%. Management wants to understand the tax liability. What concept does MAT apply and what is the approximate MAT liability (ignoring surcharge and cess)?