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Commerce & Accountancy 2021 Paper I 50 marks Calculate

Paper I — Q8

(a) A company has a capital of ₹ 100 crores with shares of ₹ 100 each. The shares are currently quoted at par in the market. The…

(a) A company has a capital of ₹ 100 crores with shares of ₹ 100 each. The shares are currently quoted at par in the market. The company is planning to declare a dividend of ₹ 6 per share at the end of current financial year which has just started. The rate of capitalisation for the risk class to which the company belongs is 10%. Using Modigliani-Miller (MM) model, answer the following: (i) Calculate the price of the shares at the end of the year, if (1) dividend is declared and (2) dividend is not declared. (ii) Calculate the number of shares to be issued assuming the company pays dividend, has net income of ₹10 crores and make new investment of ₹ 20 crores during the year. (iii) Find out the value of the firm, if (1) dividend is declared and (2) dividend is not declared. (20 marks) (b) Briefly explain the different techniques of inventory management in a manufacturing unit. (15 marks) (c) Discuss the key reforms in banking sector in line with BASEL norms. (15 marks)

हिंदी में प्रश्न पढ़ें

(a) एक कम्पनी की पूँजी ₹ 100 वाले शेयरों के साथ ₹ 100 करोड़ है। आजकल ये शेयर बाजार में सममूल्य पर मिल रहे हैं। कम्पनी चालू वित्तीय वर्ष, जो अभी शुरू हुआ है, की समाप्ति पर ₹ 6 प्रति शेयर लाभांश घोषित करने की योजना बना रही है। कम्पनी जिस जोखिम वर्ग में आती है उसकी पूँजीकरण दर 10% है। मोडिग्लियानी-मिलर (एम० एम०) प्रतिरूप का प्रयोग करके निम्नलिखित के उत्तर दीजिए : (i) वर्ष की समाप्ति पर शेयर की कीमत का परिकलन कीजिए, यदि (1) लाभांश घोषित कर दिया गया है और (2) लाभांश घोषित नहीं किया गया है। (ii) यह मानकर कि कम्पनी ने लाभांश दिया है, उसकी निवल आय ₹ 10 करोड़ है और वह ₹ 20 करोड़ का नया निवेश इस वर्ष करना चाहती है, जारी किए जाने वाले शेयरों की संख्या का परिकलन कीजिए। (iii) फर्म का मूल्य ज्ञात कीजिए, यदि (1) लाभांश घोषित कर दिया गया है और (2) लाभांश घोषित नहीं किया गया है। (20 marks) (b) एक विनिर्माण इकाई में मालसूची प्रबंधन की विभिन्न तकनीकों को संक्षेप में समझाइए। (15 marks) (c) बेसल मानदंडों के अनुरूप बैंकिंग क्षेत्र में प्रमुख सुधारों की विवेचना कीजिए। (15 marks)

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Directive word: Calculate

This question asks you to calculate. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.

See our UPSC directive words guide for a full breakdown of how to respond to each command word.

How this answer will be evaluated

Approach

This question demands precise numerical calculation for part (a) using MM model, followed by explanatory discussion for parts (b) and (c). Spend approximately 40% of time on part (a) given its 20 marks weightage—apply MM formulas step-by-step showing P1 = P0(1+k) - D for dividend scenario and P1 = P0(1+k) for no-dividend, then compute new shares using n = (I - E + nD1)/P1, and demonstrate firm value irrelevance. Allocate 30% each to parts (b) and (c): for (b) enumerate inventory techniques with brief operational context; for (c) structure BASEL reforms chronologically from I to III, linking to Indian banking implementation. Conclude by synthesizing how these three areas—corporate finance, operations management, and banking regulation—reflect integrated financial decision-making.

Key points expected

  • Part (a)(i): Calculate P1 = ₹104 when dividend declared (₹100×1.10 - ₹6) and P1 = ₹110 when no dividend (₹100×1.10), showing ex-dividend price adjustment
  • Part (a)(ii): Compute new shares = 15,38,462 (or 15.38 lakhs) using n = (₹20cr - ₹10cr + ₹6cr)/₹104, with clear algebraic derivation
  • Part (a)(iii): Demonstrate firm value = ₹110 crores in both scenarios, proving MM dividend irrelevance proposition with arbitrage mechanism
  • Part (b): Explain EOQ, ABC analysis, JIT, VED analysis, and Safety Stock with brief manufacturing applicability—minimum 4 techniques
  • Part (c): Discuss BASEL I (1988, 8% CAR), BASEL II (three pillars, 2004), BASEL III (post-2008, capital buffers, leverage ratio, LCR/NSFR) with RBI adoption timeline
  • Part (c): Cite Indian context—RBI's implementation of BASEL III by March 2019, additional CCB requirements, and impact on PSBs

Evaluation rubric

DimensionWeightMax marksExcellentAveragePoor
Demand-directive understanding20%10Correctly interprets 'calculate' for part (a) by showing all MM formula derivations and numerical workings; treats 'explain' for (b) and 'discuss' for (c) appropriately with technique enumeration and reform analysis respectively; maintains directive-appropriate depth throughoutIdentifies correct directives but applies them inconsistently—may calculate without showing formulas, or explain techniques superficially without manufacturing context, or list BASEL norms without analytical discussionMisreads directives—attempts purely descriptive answer for (a) without calculations, or provides only bullet points without explanation for (b) and (c); confuses 'discuss' with 'enumerate'
Content depth & accuracy25%12.5Part (a): All three calculations mathematically precise with correct MM propositions—P1=₹104/₹110, new shares=15.38 lakhs, firm value ₹110cr constant; Part (b): 4+ inventory techniques with formulas (EOQ=√2AO/C) and operational implications; Part (c): BASEL I/II/III chronology with specific ratios (CET1, Tier 1, leverage ratio, LCR, NSFR) and RBI implementation datesPart (a): Correct final answers but missing intermediate steps or formula statements; Part (b): 2-3 techniques named without formulas; Part (c): BASEL III discussed but I and II mentioned cursorily; minor numerical errors in calculationsPart (a): Fundamental errors—uses wrong discount rate, confuses P0 with P1, or applies dividend growth model instead of MM; Part (b): Generic inventory discussion without named techniques; Part (c): Conflates BASEL norms with BASEL Committee functions; significant calculation errors
Structure & flow20%10Clear tripartite structure with visible sub-part headings (a)(i)-(iii), (b), (c); within (a), sequential working from share price to new issue to firm value; logical progression in (c) from BASEL I→II→III with Indian adoption; effective use of tabular presentation for calculationsAll parts addressed but poor visual separation—calculations buried in paragraphs, or (b) and (c) merged without clear demarcation; some sub-parts (especially a-ii) located inconsistentlyDisorganized response—parts addressed randomly, calculations scattered, missing sub-part (a)(ii) entirely or placed after (c); no headings or numbering; illegible numerical presentation
Examples / case-law / data15%7.5For (a): Explicit citation of MM (1961) irrelevance proposition with arbitrage illustration; For (b): Manufacturing examples (automotive JIT like Maruti, pharma ABC analysis); For (c): Specific RBI circular dates (DBOD.No.BP.BC.98/21.06.201/2011 for BASEL III), Indian bank CAR data post-implementation, or comparison with global SIFI requirementsGeneric mention of 'RBI guidelines' without specificity; manufacturing context implied but not exemplified; MM model named but no year or arbitrage mechanism referencedNo examples, case references, or data points; completely theoretical treatment; or irrelevant examples (e.g., discussing inventory in retail for manufacturing question)
Conclusion & analytical edge20%10Synthesizes across parts: notes how MM's capital structure irrelevance parallels inventory optimization's value-add neutrality, and how BASEL reforms address systemic risk that MM assumes away; evaluates limitations—MM's perfect market assumptions vs. Indian dividend tax reality, or BASEL III's procyclicality critique; forward-looking mention of BASEL IV or India's scale-based banking regulationBrief per-part conclusions without cross-linkage; restates main findings without critical evaluation; no recognition of model limitations or contemporary relevanceNo conclusion; or abrupt ending with final calculation; or irrelevant conclusion on unrelated financial management topics; purely descriptive without any analytical synthesis

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