JAIIB Paper 3 Module C Quiz 1

Current ratio = Current Assets ÷ Current Liabilities = ₹24 lakh ÷ ₹12 lakh = 2.0. The ratio indicates the rupee amount of current assets available for each rupee of current liabilities. A higher ratio may indicate stronger short-term liquidity, but it should be assessed alongside the quality of inventory and receivables.

Quick assets generally exclude inventory and prepaid expenses because they are less readily available to meet immediate liabilities. Quick assets = ₹30 lakh − ₹8 lakh − ₹2 lakh = ₹20 lakh. Quick ratio = ₹20 lakh ÷ ₹10 lakh = 2:1.

Debt-equity ratio = Debt ÷ Shareholders’ Funds = ₹60 lakh ÷ ₹40 lakh = 1.5. This means the company has ₹1.50 of debt for every ₹1 of shareholders’ funds. Always check the definition used in the question, as some analyses distinguish total liabilities from interest-bearing debt.

ROCE = EBIT ÷ Capital Employed × 100 = ₹18 lakh ÷ ₹120 lakh × 100 = 15%. EBIT is used so that operating return is measured before the effects of interest and tax. Capital employed may be defined as total assets less current liabilities or equity plus long-term debt, depending on the stated convention.

Present value = Future Value ÷ (1 + r)^n = ₹12,100 ÷ (1.10)^2 = ₹12,100 ÷ 1.21 = ₹10,000. Discounting converts a future cash flow into its equivalent value today at the given rate.

For an ordinary annuity, deposits are made at the end of each period. Future value = A × [((1+r)^n − 1) ÷ r] = ₹10,000 × [(1.1^3 − 1) ÷ 0.10] = ₹10,000 × 3.31 = ₹33,100. An annuity due would have each payment made at the beginning of the period and would accumulate to a higher amount.

Annual coupon = 8% × ₹1,000 = ₹80. Current yield = Annual coupon ÷ Current market price × 100 = ₹80 ÷ ₹800 × 100 = 10%. Current yield considers coupon income relative to market price; unlike yield to maturity, it does not incorporate capital gain/loss or the timing of all cash flows.

Bond prices and market yields generally move inversely. When market yields rise, an existing bond’s fixed coupon becomes less attractive compared with newly issued bonds, so its market price usually falls. The size of the price change depends in part on duration, maturity and coupon rate.

A direct quote from the Indian perspective expresses the domestic currency required for one unit of foreign currency. ₹83.20 per US dollar means one US dollar costs ₹83.20. If the rupee weakens against the dollar, this rupee-per-dollar rate generally rises, all else equal.

The forward rate is higher than the spot rate in rupees per dollar (₹82.50 > ₹82.00). This means the US dollar is at a forward premium and the rupee is at a forward discount in this quotation. Do not confuse the direction: the quote is rupees per one dollar.

After-tax cost of debt = Pre-tax cost of debt × (1 − tax rate) = 10% × (1 − 0.30) = 7%. The tax shield reduces the effective cost when interest is deductible and the company can use the deduction. In a real assessment, tax rules and the borrower’s tax position matter.

WACC = (Equity weight × Cost of equity) + (Debt weight × After-tax cost of debt) = (0.60 × 15%) + (0.40 × 8%) = 9% + 3.2% = 12.2%. The weights should normally reflect the capital structure basis specified in the question; market-value weights are commonly preferred in valuation.

NPV = Present value of cash inflows − Initial investment = ₹1,18,000 − ₹1,00,000 = ₹18,000. A positive NPV indicates that the project is expected to add value above the required return, assuming the cash-flow estimates and discount rate are appropriate.

IRR is the discount rate at which the net present value of a project’s cash flows equals zero. It is the rate that equates the present value of inflows with the present value of outflows. For a conventional independent project, IRR is often compared with the required rate of return, but IRR can be misleading for non-conventional cash flows or mutually exclusive projects.

DSCR = Cash available for debt service ÷ Principal and interest due = ₹24 lakh ÷ ₹16 lakh = 1.5. A DSCR of 1.5 means cash available for debt service is 1.5 times the scheduled debt-service obligation. The precise numerator can vary by lending methodology, so use the definition given in the question.

A finance lease substantially transfers the risks and rewards associated with ownership of the leased asset to the lessee, even if legal title does not transfer. The lease is generally non-cancellable for a major part of the asset’s economic life or otherwise structured so that the lessee bears substantial ownership-like risks. Accounting standards may use specific recognition tests and definitions.

A typical operating cycle runs from purchase of raw materials, through production and holding finished goods, to sale and collection from customers. The time between paying suppliers and collecting cash from customers affects the amount of working capital required. The exact cycle varies by business model and credit terms.

The turnover method estimates working-capital needs as a proportion of projected annual turnover, subject to the applicable lending framework and borrower category. In the commonly taught Nayak Committee approach, working capital is assessed at 25% of projected annual turnover, with the borrower’s contribution generally taken as 5% of turnover and bank finance as 20%, subject to applicable instructions and eligibility. The question asks the basis of estimation, not a universal rule for every borrower.

The importer has a future foreign-currency payable and is exposed to a rise in the rupee cost of dollars. Buying dollars forward locks in an exchange rate for the future payment and reduces uncertainty. A forward is an over-the-counter agreement; futures and options can also be used depending on the exposure and objectives.

A call option gives its buyer the right, but not the obligation, to buy the underlying asset at the strike price on or before expiry, depending on whether the option is European- or American-style. The buyer pays a premium for this right. The seller has the corresponding obligation if the option is exercised.