JAIIB Paper 3 Module C Quiz 5

Agency problems occur when managers or agents pursue objectives that diverge from owners’ interests. Governance, incentives, monitoring and transparent reporting can help align interests.

High turnover may reflect efficient inventory management, but it can also signal inadequate stock and lost sales. It should be compared with industry norms and service levels.

ROA evaluates how effectively an entity uses its asset base to generate profit. The precise numerator may be profit after tax, EBIT or another defined measure; use consistent definitions.

Annual coupon = face value × coupon rate = ₹1,000 × 8% = ₹80, before considering tax or payment frequency.

The bank sells USD at its ask/selling rate, ordinarily the higher quoted rate of ₹83.20. The bid/ask convention and transaction direction must always be checked.

DSCR = ₹12 lakh ÷ ₹8 lakh = 1.5 times. A higher ratio indicates a larger cash-flow cushion, though acceptable thresholds depend on the lender and project.

The Nayak Committee approach traditionally estimates working-capital requirement using a percentage of projected annual turnover and considers borrower contribution and bank finance. Current applicability and bank policy should be checked for specific lending cases.

Annuity-due payments occur at the beginning of each period and earn one extra period of interest. Its future value equals the ordinary annuity future value multiplied by (1+r).

Gross profit margin = gross profit ÷ net sales × 100. It reflects pricing, product mix and direct cost control, but does not include all operating and financing expenses.

NPV should use relevant incremental cash flows, generally after tax, including opportunity costs and working-capital effects. Sunk costs are excluded because they cannot be changed by the decision.

For a standard coupon bond trading below face value, yield to maturity is generally above the coupon rate because the investor receives coupons and a gain toward face value at maturity, assuming promised payments occur.

The cash conversion cycle equals inventory days plus receivables days minus payables days. Reducing receivables days shortens the cycle, improving cash conversion, all else equal.

Compound maturity value = Principal × (1 + rate)^years = ₹31,500 × (1 + 5/100)^3 ≈ ₹36,465. Simple interest would produce a different result.

Current ratio = current assets ÷ current liabilities = ₹280,000 ÷ ₹140,000 ≈ 2.00:1. It measures short-term coverage but not the liquidity quality of each asset.

Inventory turnover = cost of goods sold ÷ average inventory = ₹920,000 ÷ ₹360,000 ≈ 2.56 times. Interpret it against industry norms and stock availability.

Debt-equity ratio = debt ÷ equity = ₹1,200,000 ÷ ₹860,000 ≈ 1.40:1. Use a consistent definition of debt when comparing companies.

Current yield = annual coupon ÷ current market price × 100 = ₹106 ÷ ₹1030 × 100 ≈ 10.29%. It excludes any capital gain or loss at redemption.

NPV = −₹380,000 + ₹91,000/1.10 + ₹91,000/1.10² + ₹91,000/1.10³ ≈ ₹-153,696. A positive NPV indicates value creation under the stated assumptions.

Net profit margin = net profit ÷ net sales × 100 = ₹225,000 ÷ ₹1,590,000 × 100 ≈ 14.15%. Check whether the profit measure is before or after tax when comparing ratios.

Receivables turnover = annual credit sales ÷ average receivables = ₹4,800,000 ÷ ₹480,000 ≈ 10.00 times. Faster turnover may indicate stronger collection, subject to credit policy and industry norms.