CA Intermediate September 2026 Suggested Answers Paper 6 Financial Management and Strategic Management

FOR CA INTERMEDIATE EXAM PREPARATION

CA Intermediate 2026
Suggested Answers ·
Paper 6 Financial
Management and
Strategic Management
EXAM YEAR TYPE

CA Intermediate 2026 Suggested Answers
SUBJECT DATE

Paper 6 Financial Management and Strategic Management September 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

m
m .co
c. o

e m
em l a s
s a g

PAPER – 6: FINANCIAL MANAGEMENT AND
STRATEGIC MANAGEMENT
m
m c. o
.co s e m
em l a
s g
Part I – Multiple Choice Questions

g laScenario - I
Case a
aNPK Ltd. is a Start-up incorporated 2 years ago with a paid up equity capital of
` 20 lakhs and recognised by the Department for Promotion of Industry and
Internal Trade (DPIIT). Start-up India initiative of the Government of India
envisages for building up a robust start-up ecosystem in the country for nurturing
innovation and providing opportunities to budding entrepreneurs. NPK Ltd. has
been engaged in creating innovative solutions for the defence sector. NPK Ltd.,
being an eligible start-up applied for income tax holiday and got 100% tax
exemption on profits for the coming three consecutive years.
m
. co
NPK Ltd. has proposed to invest ` 800 lakh as capital cost in a project having life

s em
of 8 years. It would generate Earnings before Depreciation, Interest and Taxes

l a
(EBDIT) of ` 220 lakh per annum throughout the life of the project. Depreciation
g
a
will be charged under Straight-Line Method and the same is allowable under the
income tax rules. Under Seed Financing Scheme, a financial institution has
sanctioned a loan of ` 800 lakh under a subsidised interest rate of 10 per cent per
annum. The entire loan amount is repayable at the end of the life of the project.
After the three consecutive years of tax holiday, the tax rate applicable for NPK
Ltd. will be 30 per cent.

Year 1 2 3 4 5 6 7 8
PVIF7%,t 0.935 0.873 0.816 0.763
o m
0.713 0.666 0.623 0.582

m PVIF10%, 0.909 0.826 0.751 0.683 0.621 0.564 0.513. 0.467 c
c. o Based on the facts mentioned above relating to NPK Ltd., yousareemrequired
t

em l a to

l as answer the following questions 1 to 5:
a g
ag 1. What will be the after tax cost of debt for the first 3 years and thereafter for
the rest of the life of the project?
(A) 7% for the first 3 years and thereafter 10%.

m .
.co s e m
e m l a
l a s ag
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 1 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(B) 10% for the first 3 years and thereafter 7%.
(C) 10% for the first 3 years and thereafter 13%.
(D) 13% for the first 3 years and thereafter 10%. (2 Marks)
2. What will be the net cash inflow after tax per year for the first three years of
the life of the project?
(A) ` 128 lakh
(B) ` 140 lakh
(C) ` 196 lakh
(D) ` 220 lakh (2 Marks)
3. What will be the net cash inflow after tax per year for 4th year to 8th year of
the life of the project?
(A) ` 128 lakh
(B) ` 144 lakh
(C) ` 184 lakh
(D) ` 193 lakh (2 Marks)
4. What will be the Pay-Back Period of the project?
(A) 3.76 years
(B) 4.86 years
(C) 5.06 years
(D) 5.72 years (2 Marks)
5. What will be the Net Present Value (NPV) of the project?
(A) ` 163.888 lakh
(B) ` 164.488 lakh
(C) ` 362.768 lakh
(D) ` 396.884 lakh (2 Marks)
6. XYZ company Ltd had a current ratio of 2:1 in the year 2025 and working
capital of ` 7,75,000. In the year 2026, it is expected that its current assets

2

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 2 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

will be increased by 15 per cent. The management of the company desires to
change its current ratio from 2:1 in the year 2025 to 2.5:1 in the year 2026.
m
m
What would be the percentage change in current liabilities and working
o c. o
.c
capital from year 2025 to year 2026?
e m
e m
(A) 8% Decrease in current liabilities and 36% Increase in working capital.
l a s
l a s 8% Decrease in current liabilities and 38% Increase in working capital. g
a
g
(B)

a (C) 8% Increase in current liabilities and 38% Increase in working capital.
(D) 8% Increase in current liabilities and 36% Increase in working capital.
(2 Marks)
7. Alpha Ltd. has equity shares of ` 10 each, whose current market price is ` 20
per share. Its paid up capital also consists of 300, 8% Preference shares of
` 100 each. Recent audited accounts show a profit (after 30% tax) of

m
` 2,94,000. Depreciation and amortization amounted to ` 51,000. Cost of

c o
. equity shares of the company?
equity share (Ke) ascertained to be 15%.

e m
What would be the number of outstanding

la s
g
(A) 88,000 shares
(B) 89,000 shares a
(C) 90,000 shares
(D) 98,000 shares (2 Marks)
8. The following information is available from the books of RC Ltd.:
Net profit margin: 10%

m
Total Assets: ` 100,00,000

m .co
c. o
Return on Assets: 15%
m
em se
What would be the total asset turnover ratio?

s g la
la
(A) 1.3

g a
a
(B) 1.5
(C) 1.7
(D) 1.9 (1 Mark)

3

m .
.co s e m
e m l a
l a s ag
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 3 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Case Scenario - II
Jatin opened a shop with a wooden counter and two shelves at the corner of a
narrow lane in a quiet neighbourhood. He sold some basic stationery and grocery
items. Most of his customers were neighbours who appreciated the convenience,
even though the selection of items was limited.
Although Jatin's shop was small, his approach was always customer-centric as he
actively led the efforts on customer prioritization. He analyzed his customers well,
studied their brand preferences and the groceries usually bought by them. He
knew that customers are vital for the shop's existence as they provide revenue
and resultant profits. His shop was known for neat displays, fair prices but more
importantly trusted for transparent quality.
Once during the monsoons, when heavy rains disrupted the retail supply chains,
many larger stores struggled to restock. However, Jatin's shelves remained fuller
than many of them because he had built strong relationship with small suppliers
and partnered with local farmers to source directly. He also offered discounts on
certain items of daily use to his regular customers. As a result, his store gained
popularity and customers even from nearby areas apart from the immediate
neighbourhood also began visiting his store.
To cater to increasing growth, Jatin reinvested his earnings to expand his shelves
by adding fresh vegetables, dairy products & other items of daily requirement and
extended the store hours. With growth as the shop started lacking space, he
acquired an adjacent shop thereby doubling his shop size.
However, with passage of time, competition intensified with big retail chains
opening their supermarkets nearby. The new stores were fully air-conditioned
with bright lights, several options and carried out extensive advertisements.
Again, modern customers also started purchasing groceries through delivery apps
offering discounts and same day delivery. As footfall declined Jatin faced a
decrease in revenue and increasing pressure to modernize operations.
Jatin stayed calm and decided not to compete directly with the large retailers and
the online platforms. He believed the ability to execute and make a real difference
is more important than mere strategizing. Instead he responded by introducing
small but meaningful novel ideas. He decided to provide personalized services to

4

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 4 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

the neighbourhood. He remembered customer preferences and kept a regular

m
track of customers' monthly purchases. He also started taking orders over the

m c. o
phone, popular messaging apps and introduced personalized home delivery for

.co m
the existing elderly customers of the neighbourhood. Customers began preferring

m s e
la
his shop despite higher prices because of its quality and specialized differentiated

s e g
a
offerings.

g l the years Jatin's shop grew in size combining the efficiency of modern retaila
astores with the warmth of a neighbourhood shop. Customers can now find almost
Over

everything they need under one roof.
Based on the above case scenario, choose the correct answer to Q. Nos. 9 to 13.

9. Assertion (A): Customer analysis is an essential marketing component of
strategic business plans.

m
Reason (R): Consumer decision making is affected by psychological factors
internal to customer.
c. o
(A) Both (A) and (R) are true, and m
s e (R) is a correct explanation of (A).

g
(B) Both (A) and (R) are true, l aand (R) is not the correct explanation of (A).
(C) (A) is true but (R) is a
false.
(D) (A) is false but (R) is true. (2 Marks)
10. Read the following statements from the above caselet:

(i) Jatin started taking orders over phone and introducing personalized
home delivery for elderly customers.

m
c. o
(ii) Jatin acquired the adjacent shop as he lacked space and his store

m
c. o
doubled in size.

s em
em a with small
(iii) Jatin's shelves were always full even during heavy rains as he partnered

s g l
la
with local farmers to source directly and build strong relations

g
suppliers. a
a (iv) Jatin reinvested his earning to expand his store shelves.

5

m .
.co s e m
e m l a
l a s ag
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 5 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Which of the above options may be considered as a Proactive Strategy by
Jatin's shop?
(A) Only (i)
(B) (i) and (iv)
(C) Only (iii)
(D) (i), (ii), (iv) (2 Marks)
11. The strategy adopted by Jatin to compete with large retailers and online
platforms was
(A) Innovation strategy as novel ideas to reach out and service the customers
were introduced.
(B) Stability strategy as Jatin stays with his current business.
(C) Market Development strategy as Jatin introduced personalized home
delivery for the elderly customers.
(D) Product Development strategy like Jatin started taking orders on phone
and messaging apps. (2 Marks)
12. What was the strategy adopted by Jatin and what benefit did he get when he
decided to provide personalized services to the customers of the
neighbourhood?
(A) Differentiation strategy as he was able to enhance brand image.
(B) Focused strategy as he was able keep competitors away by providing
expert services.
(C) Diversification strategy as he was able to expand his business.
(D) Focused differentiation strategy as he was able to build strong customer
loyalty leading to higher profit margins. (2 Marks)
13. Which of the statements below, can be inferred from the reading of the caselet?
(A) Small enterprises cannot compete effectively with big enterprises.
(B) Organizations can plan for all the changes in market dynamics.
(C) Effective leaders thrive in uncertainty with focused execution.
(D) Customers are always cost conscious. (2 Marks)

6

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 6 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

14. "Vanguard Real Estate" is a massive property development firm. The CEO
formulates an aggressive, 15-year strategic plan to build ultra-luxury
m
c. o
skyscrapers across the country. However, this entire 15-year strategy is highly
m
co m
based on one massive, uncontrollable assumption: that the central bank will

m .
keep long-term interest rates below 4%. If interest rates rise above 4%, the
s e
s e
borrowing costs for construction will instantly make Vanguard's business
a g la
l
unviable. Knowing that a 15-year plan cannot simply be set in stone and
a
ag ignored, Vanguard's Chief Financial Officer (CFO) establishes a dedicated
"Risk Management Committee". The job of this committee is also to verify if
the foundational economic assumptions of the 15-year plan remain valid
over time. What specific type of strategic control is the CFO executing?
(A) Strategic Surveillance
(B) Special Alert Control
(C) Implementation Control
m
(D) Premise Control
c. o (2 Marks)
15. A hospital declares that its purposem
e
s of society.
is to deliver accessible and compassionate

l a
healthcare services to all sections
(i) The statement reflectsagthe philosophy of the hospital management that
is perceived by its senior managers.
(ii) The statement provides a glimpse of what the organization would like to
become in future.
(iii) The statement is designed to help potential shareholders and investors
understand the purpose of the firm.

m
(iv) The statement points out a particular direction, charts a strategic path

m
to be followed in future and molding organizational identity.
.c o
c. o Which of the above statements relates to the vision statement ofm
s e the hospital?

s em (A) Only (i)
g l a
gla a
a
(B) (ii) and (iv)
(C) (i) and (iii)
(D) (iii) and (iv) (2 Marks)

7

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 7 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

16. According to the growth matrix proposed by Igor Ansoff, a company selected
a growth option in which its knowledge of customer segment preferences
changed, but product features remain largely unchanged.
Which strategy is most likely being pursued?
(A) Market Development
(B) Product Development
(C) Diversification
(D) Market Penetration (1 Mark)
Answer Key

MCQ No. Correct Option
1. (B)
2. (D)
3. (C)
4. (A)
5. (C)
6. (B)
7. None
8. (B)
9. (A) & (B)
10. (C)
11. (A)
12. (D)
13. (C)
14. (D)
15. (B)
16. (A)

8

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 8 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

Part II – Descriptive Questions

SECTION A: FINANCIAL MANAGEMENT
m
o m c. o
c m
Question No. 1 is compulsory.
. e
emany candidate answers extra question(s)/ sub-question(s) over and glas
Attempt any two questions out of the remaining three questions.

s
la the required number, then only the requisite number of questions firsta
In case,
g
a answered in the answer book shall be valued and subsequent extra
above

question(s) answered shall be ignored.
Working notes should form part of the answer.
Question 1
(a) ABC Company Ltd. has witnessed substantial growth during recent past. On
a year to year basis comparison, it has been observed that in the year

m
co
2025-26, Sales and Earnings before Interest and Taxes (EBIT) of the company

.
would be increased by 10% and 20% respectively coupled with an increase

em
in Earnings Per Share (EPS) from ` 15 to ` 18.

l a s
In the Year 2026-27, the management of the company is planning for an

a g
expansion that will require a capital investment of ` 50,00,000. The
management has decided to raise the amount entirely by issue of 14%
Debentures of ` 100 each at par. The expected EBIT of the company after
expansion will be ` 35,00,000.
Required:
(i) Calculate operating and financial leverage of the company on year to
year basis comparison.

m
c. o
(ii) Determine the amount of debt capital in the capital structure of the
m
c. o
company in the year 2025-26.

s em
em a investment, will
(iii) Calculate financial leverage of the company after expansion.

s (iv) When the cost of debt capital is more than the returnlon
la g
it be beneficial for the company to use debtacapital in its capital
ag structure? (2 + 1 + 1 + 1 = 5 Marks)

9

m .
.co s e m
e m l a
l a s ag
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 9 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(b) GPL Company Limited has furnished the following ratios and information for
the year ended 31st March, 2026.

Inventory Turnover Ratio (Based on cost of goods sold) 8 times
Trade Debtors Velocity 36.5 days
Gross Profit Ratio 25%
Debt Equity Ratio 1:3
Capital Gearing Ratio 40%
Preference Share Capital ` 7,50,000
Additional information:
All sales were on credit. Average Trade Debtors exceeded Average Inventory
by ` 1,81,250. Assume 365 days in a year.
You are required to calculate:
(i) Credit sales
(ii) Cost of goods sold
(iii) Average inventory
(iv) Average Debtors
(v) Proprietary Fund (1 + 1 + 1 + 1 + 1 = 5 Marks)
(c) PQR Company Ltd. has applied for a short term loan to a commercial bank
for financing its working capital requirement.
The following figures for the 12 months ending 31st March, 2026 are given to
ascertain the requirement of working capital of the company on a cash cost basis.

Sales at 2 months credit ` 30,00,000
Materials consumed (suppliers credit is for 2 months) ` 7,50,000
Total wages (Paid at the beginning of next month) ` 6,00,000
Manufacturing expenses outstanding at the end of this year. ` 67,500
These expenses are paid one month in arrears.
Total administration expenses ` 1,95,000
Sales promotion expenses paid quarterly and in advance ` 1,00,000
Rate of gross profit 20%

10

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 10 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

Cash is to be held to the extent of 50% of current liabilities

m
Safety margin to be maintained 15%

m
These will be no work-in-progress
c. o
.co
Stock of Raw Materials and finished goods are kept at one month's
s e m
em
requirement.
la
l a s a g
ag
You are required to prepare an estimate for the requirement of the working
capital of the company on cash cost basis for the period ending
31st March, 2026. (5 Marks)
Answer
(a) (i) Operating and Financial Leverage on a Year-to-Year Basis
% change in Sales = 10%, % change in EBIT = 20%, % change in EPS
= (18 − 15) / 15 = 20%

m in EBIT 20%
Leverage Calculation Ratio

c o
%.Change in Sales 10%
Degree of Operating % Change 2.00

em
=
Leverage (DOL)
Degree of Financial s % Change in EPS 20%
g la % Change in EBIT = 20% 1.00
Leverage (DFL)
a
(ii) Amount of Debt Capital in the capital structure of 2025-26
The Company carried NIL debt / Zero debt / No debt capital in
2025-26.
Or
Since DFL = 1, EBIT equals EBT, i.e. there is no interest burden on the
company, hence no debt capital.
m
m .co
c. o
Or
m
em se
EBIT

la
DFL= EBIT-Int =1.00

las EBIT= EBIT-Int
a g
ag So, Int = 0, so no debt capital.

11

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 11 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(iii) Financial Leverage after expansion (2026-27)
• New Capital Raised via Debt: ` 50,00,000 at 14% debentures
• Interest Expense (I): ` 50,00,000 × 14% = ` 7,00,000
• Expected EBIT: ` 35,00,000
• Therefore EBT = 35,00,000 − 7,00,000 = ` 28,00,000.
EBIT 35,00,000 35,00,000
Financial Leverage (FL): = = = =1.25
EBIT-I 35,00,000-7,00,000 28,00,000

(iv) Use of debt capital when cost of debt exceeds ROI
When the cost of debt (𝐾𝐾𝑑𝑑 ) is higher than the Return on Investment
(ROI), the company experiences unfavorable (negative) financial
leverage. It is not beneficial for the company to use debt capital in its
capital structure. In this scenario, every additional unit of borrowed
capital costs more than the earnings it generates, which dilutes and
reduces the Earnings Per Share (EPS) and Return on Equity (ROE).
(b) Working Note:
1. Calculation Of Credit Sales
Let Credit Sales be S.
Credit Sales × Debtors Velocity S×36.5
Average Debtors = 365
= 365 = 0.10×S
Cost of Goods Sold(COGS) = 0.75S
COGS 0.75S
Average Inventory = = = 0.09375 S
Inventory Turnover 8
Now, Average Debtors-Average Inventory = 1,81,250
So, 0.10 S-0.09375 S = 1,81,250
Or 0.00625 S = 1,81,250
1,81,250
So Credit Sales = 0.00625 = ` 2,90,00,000

(i) Credit Sales (CS) = ` 2,90,00,000
(ii) Cost of Goods Sold (COGS) = 75% × 2,90,00,000 = ` 2,17,50,000
2,17,50,000
(iii) Average Inventory (AI) = 8
= ` 27,18,750

12

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 12 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

(iv) Average Debtors (AD) = 27,18,750 + 1,81,250 = ` 29,00,000

m
(v) Proprietary Fund (PF)

m c. o
c. o
= Preference Share Capital = ` 7,50,000, Debt–Equity Ratio
= 1 : 3, Capital Gearing Ratio = 40% (i.e. 0.4)
e m
e m Let Equity Shareholders' Fund be ` E. l a s
s
la Proprietary Fund (Total Shareholders' Fund) = Equitya g
ag Shareholders' Fund + Preference Share Capital
= E + ` 7,50,000
Debt–Equity Ratio = Debt ÷ Total Shareholders' Fund = 1 : 3
Therefore, Debt = (E + `7,50,000) ÷ 3
Capital Gearing Ratio = (Debt + Preference Share Capital) ÷
Equity Shareholders' Fund

o m
c
Given Capital Gearing Ratio = 40% = 0.4
Therefore, [(E + ` 7,50,000) .÷ 3 + ` 7,50,000] ÷ E = 0.4
Or (E + ` 7,50,000) ÷ s
em
g a
l22,50,000
3 + ` 7,50,000 = 0.4E
E + ` 7,50,000 +a ` = 1.2E
E + ` 30,00,000 = 1.2E
` 30,00,000 = 0.2E
E = ` 30,00,000 ÷ 0.2
E = ` 1,50,00,000
Proprietary Fund = 1,50,00,000 + 7,50,000 = `1,57,50,000
m
m
Alternative Calculation of Proprietary Fund (v):
.co
c. o (v) Proprietary Fund
se
m
s em Capital Gearing Ratio
g la
gla Preference Share Capital + Debentures/Long-term Debt a
a
=
Equity Shareholder Funds

= 40% = 0.40

13

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 13 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Let Equity Shareholders' Funds be E and Long-Term Debt be D.
7,50,000+D
=0.40 ⟹ 7,50,000 + D = 0.40 E---(Equation 1)
E
From the Debt-to-Equity Ratio:
Debt 1
=
Equity Shareholders' Fund 3
1
D = E ⟹ E = 3D
3
Substitute E=3D into Equation 1:
7,50,000+D=0.40(3D)
7,50,000+D=1.20 D
0.20 D = 7,50,000 ⟹ D =` 37,50,000
Then: E = 3 × 37,50,000 = ` 1,12,50,000
"Proprietary Fund" = "Equity Shareholders' Funds“+ ”Preference
Share Capital" = 1,12,50,000 + 7,50,000 = ` 1,20,00,000
(c) Statement of Working Capital requirements (cash cost basis)

(`) (`)
A. Current Assets
Inventory:
7,50,000
- Raw materials- ×1 62,500
12
21,60,000
- Finished Goods- 12 × 1 1,80,000
24,55,000
Receivables (Debtors) - 12 × 2 4,09,167

Sales Promotion expenses paid in advance 25,000
` 1,00,000
� ×3 months�
12 months
Cash Balance – 50% Current Liabilities 50% x 1,21,250
2,42,500
Gross Working Capital 7,97,917

14

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 14 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

B. Current Liabilities:

m
Payables:

m c. o
co
7,50,000
- Creditors for materials - ×2 1,25,000

. e m
12

m la s
6,00,000
50,000
e Manufacturing expenses outstanding
Wages outstanding - ×1

s g
12

l a 67,500
a
ag Net working capital (A - B)
2,42,500
5,55,417
Add: Safety margin @ 15% 83,313
Total Working Capital requirements 6,38,730

Working Notes:

(i) Computation of Annual Cash Cost of Production (`)

o m
. c
Material consumed 7,50,000
Wages
m
e x 12)
6,00,000

la s
Manufacturing expenses (67500 8,10,000

a g
Total cash cost of production 21,60,000
(ii) Computation of Annual Cash Cost of Sales: (`)
Total Cash cost of production as in (i) above 21,60,000
Administrative Expenses ` 1,95,000
Sales promotion expenses 1,00,000
Total cash cost of sales 24,55,000

m
co
Since Gross Profit Ratio is 20% on Sales of ` 30,00,000, So, "Cost of Goods
m .
c. o
Sold" = 30,00,000 × (1-0.20) =` 24,00,000". Receivables (Debtors) = Cost of
m
se
Sales (GP-derived) × 2/12 = 24,00,000 × 2/12 = ` 4,00, 000.Working Capital

s em l a
Requirement will be = ` 6,28,187.50 R/off to ` 6,28,188.
g
gla Question 2
a
a (a) A Ltd. and B Ltd. both the companies belong to the same risk-class and are
identical in all respect except that A Ltd. has no debt capital, while B Ltd. has
60,000, 12.5% Debentures of ` 100 each. The earnings before interest and

15

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 15 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

taxes of each company is ` 19,50,000. The equity capitalisation rate of A Ltd.
is 15 per cent. Corporate tax rate is 30 per cent. Considering M-M approach
with tax, you are required to:
(i) Determine the total market value of A Ltd. and B Ltd.
(ii) Calculate equity capitalisation rate of B Ltd.
(iii) Calculate overall cost of capital of A Ltd. and B Ltd. (2 + 2 + 3 = 7 Marks)
(b) The shares of PK Company Limited and BK Company Limited are traded in
the market. Analysts believe that both securities are correctly priced
according to the CAPM. The following information have been provided:

Securities Beta (β) CAPM expected return (Re)
PK Company Limited 0.8 12%
BK Company Limited 1.4 15%

You are required to calculate:
(i) Risk Free Rate (Rf)
(ii) Market Risk Premium (MRP)
(iii) Expected Return on Market Portfolio (Rm) (1 + 1 + 1 = 3 Marks)
Answer
(a) Workings:
Income Statement

A Ltd (`) B Ltd (`)
EBIT 19,50,000 19,50,000
Interest on ` 60,00,000 @ 12.5% – 7,50,000
EBT 19,50,000 12,00,000
Tax @ 30% 5,85,000 3,60,000
Income available to equity holders 13,65,000 8,40,000

(i) Total Market Value of A Ltd and B Ltd
Market Value of A Ltd (Unlevered Firm):
Net income (NI) for equity holders
Market Value of Equity =
Ke

16

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 16 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

Net Income 13,65,000
Market Value of Equity (SA )= Ke
= 0.15 =` 91,00,000

m
c. o
Total Market Value of A Ltd. (VA )=SA +Debt=` 91,00,000+0=` 91,00,000

o m m
c
. of Debt (D)=60,000×100= ` 60,00,000
Market value of B Ltd (levered):

m s e
seAccording to the MM Proposition I with Corporate Taxes: la
Value

la = Value of unlevered firm + Tax Advantage a g
ag
=Vb =VU +(D×t)
So,
VB = 91,00,000+(60,00,000×0.30)=91,00,000+18,00,000 =` 1,09,00,000
The market value of B Ltd is higher than A Ltd by `18,00,000 on account
of the tax shield on interest available to the levered firm.

m
co
(ii) Equity Capitalisation Rate of B Ltd

.
em
Market Value of Equity of B Ltd = Market value of B Ltd – Market value

s
of Debt
= `1,09,00,000 – `60,00,000
g l a
= `49,00,000 a
Interest Expense (I)=60,00,000 × 12.5% = ` 7,50,000
EBT=EBIT-I=19,50,000-7,50,000 = ` 12,00,000
Net Income Available to Equity = EBT×(1-t) = 12,00,000×(1-0.30)
= ` 8,40,000

m
Earnings to Equity 8,40,000
Ke (B Ltd) = KeB = = 49,00,000 = 0.171429 or 17.14%

m .co
SB

c. o se
m
(iii) Overall Cost of Capital of A Ltd and B Ltd

em la
A Ltd (all equity):

las a g
g
Ko = Ke = 15% (equal to its equity capitalisation rate, since there is no

a debt)
B Ltd:
Kd = I(1 – t) = 12.5% (1 – 0.30) = 8.75%

17

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 17 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Components Amount Cost of Weight WACC
(`) Capital % (Ko) %
Equity 49,00,000 17.14 0.4495 7.70
Debt 60,00,000 8.75 0.5505 4.82
Total 1,09,00,000 1.00 12.52

(b) CAPM Equation:
Re = Rf + β × (Rm -Rf )
Given:
• PK Ltd.: 12% = Rf + 0.8 ×(Rm -Rf )---(1)

• BK Ltd.:15%=Rf +1.4×(Rm -Rf )---(2)

Subtracting (1) from (2):
15% -12% = (1.4-0.8) ×(Rm - Rf )
3% = 0.6 × (Rm - Rf )
3%
MRP (Rm - Rf) = = 5%
0.6
Substitute �𝑅𝑅𝑚𝑚 − 𝑅𝑅𝑓𝑓 � = 5% back into (1):
12% = Rf + 0.8 (5%)
12% = Rf + 4% ⟹ Rf = 8%
Expected Return on Market Portfolio:
Rm = Rf + 5% = 8% + 5% = 13%
Question 3
(a) Auto Industries Limited manufactures auto components on lathe machine
which has a book value of ` 1 lakh. The machine being depreciated at 20%
has another five years of its useful life remaining but can be sold for ` 25,000
today. Auto Industries Limited is contemplating to replace this machine with
a new one which delivers more output and is cost efficient too. The cost of
the machine is ` 4 lakh with a life of five years and depreciation of 20%. The
company estimates that with the new machine, it will be able to make extra
sales of ` 0.50 lakh and save cost by ` 0.75 lakh for the next five years. With

18

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 18 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

the increased sales, the requirement of working capital would also change
and the company would need ` 30,000 more.
m
m
At the end of the five years the benefits of increased revenue and decreased
c. o
.co e m
cost will aggregate to ` 50,000 p.a. for indefinite time. The company has

m
WACC of 15% and pays taxes at 25%.
e la s
l a s
Given present value of annuity of ` 1 for 5 years @15% is 3.3521.
a g
ag Present value of ` 1 @15% for 5 year is 0.4971.
th

Advise the management of the company whether the machine should be
replaced or not? (6 Marks)
(b) The following information is available from RST Company Ltd:

No. of equity shares outstanding 2,50,000 shares
10% long term debt `10,00,000

om
10% Pref. shares of ` 10 each ` 2,00,000
Fixed Cost
. c ` 50,000
em
las
Variable cost ratio 60% of sales

ag
Tax rate 25%

You are required to determine the amount of sale assuming that:
(i) All earnings are wiped out by the payment of interest and preference
dividend; and
(ii) EPS = ` 3 (2+2=4Marks)
Answer

m
(a) Workings:

m c. o
c. o
(A) Depreciation (Straight Line basis, since useful life = 100%/20%
m
seAmount (`)
= 5 years for both machines)

s em Particulars
g la
gla a
Depreciation on Old Machine (20% of `1,00,000) 20,000 p.a.
a Depreciation on New Machine (20% of `4,00,000) 80,000 p.a.
Incremental Depreciation 60,000 p.a.

19

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 19 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(B) Initial (Net) Investment

Particulars `

Cost of new machine 4,00,000
Add: Additional Working Capital required 30,000
Less: Sale value of old machine (25,000)
Net Initial Cash Outflow 4,05,000

(C) Incremental Operating Cash Flow (Years 1 to 5)

Particulars (`)
Extra Sales 50,000
Add: Cost Savings 75,000
Incremental Earnings before Depreciation & Tax 1,25,000
(EBDT)
Less: Incremental Depreciation (60,000)
Incremental Earnings Before Tax 65,000
Less: Tax @ 25% (16,250)
Incremental Earnings After Tax 48,750
Add back: Incremental Depreciation 60,000
Incremental Cash Flow After Tax (Years 1–5) 1,08,750

(D) Terminal Perpetuity Benefit (from Year 6 onwards, indefinitely)

Particulars (`)
Perpetual benefit (increased revenue + decreased cost) 50,000
Less: Tax @ 25% (12,500)
After-tax perpetual annual benefit 37,500
Capitalised Value at end of Year 5 (37,500 ÷ 0.15) 2,50,000

20

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 20 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

Present Value of Incremental Cash Flows

Particulars Amount PV Factor PV
m
m
(`) @15% (`)
c. o
.co
Cash flow Years 1–5 1,08,750 3.3521 3,64,541
s e m
m
e Terminal (perpetuity) value 2,50,000 (PVAF)
la
l a s a g
ag
0.4971 1,24,275
at end of Yr. 5 (PVF, 5th yr.)
Total Present Value of 4,88,816
Inflows
Less: Net Initial Outlay (4,05,000)
Net Present Value (NPV) 83,816

Advise

m
co
Since the NPV is positive, the proposed replacement of the old

.
machine with the new machine is financially viable. Auto Industries

em
Limited is advised to replace the existing machine with the new one.

l a s
g
This question can be solved with the assumption that Tax saving on

a
loss on sale of old machines is recognized at Year 0. Then the solution
will be as below:
(A) Depreciation (Straight Line basis, since useful life = 100%/20%
= 5 years for both machines)

Particulars Amount (`)
Depreciation on Old Machine (20% of 20,000 p.a.
` 1,00,000)
m
m
Depreciation on New Machine (20% of
c. o
80,000 p.a.

c. o m
` 4,00,000)

em
Incremental Depreciation
la se60,000 p.a.
las a g
g
(B) Initial (Net) Investment

a Particulars `
Cost of new machine 4,00,000

21

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 21 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Add: Additional Working Capital required 30,000
Less: Sale value of old machine (25,000)
Less: Tax saving on Short-term Capital Loss on sale (18,750)
of old machine [(1,00,000 – 25,000) × 25%]
Net Initial Cash Outflow 3,86,250

(C) Incremental Operating Cash Flow (Years 1 to 5)

Particulars `
Extra Sales 50,000
Add: Cost Savings 75,000
Incremental Earnings before Depreciation & Tax 1,25,000
(EBDT)
Less: Incremental Depreciation (60,000)
Incremental Earnings Before Tax 65,000
Less: Tax @ 25% (16,250)
Incremental Earnings After Tax 48,750
Add back: Incremental Depreciation 60,000
Incremental Cash Flow After Tax (Years 1–5) 1,08,750

(D) Terminal Perpetuity Benefit (from Year 6 onwards, indefinitely)

Particulars `
Perpetual benefit (increased revenue + decreased 50,000
cost)
Less: Tax @ 25% (12,500)
After-tax perpetual annual benefit 37,500
Capitalised Value at end of Year 5 (37,500 ÷ 0.15) 2,50,000

Present Value of Incremental Cash Flows

Particulars Amount PV Factor PV
(`) @15% (`)
Cash flow Years 1–5 1,08,750 3.3521 (PVAF) 3,64,541

22

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 22 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

Terminal (perpetuity) value 2,50,000 0.4971 1,24,275

m
at end of Yr. 5 (PVF, 5th yr.)

m
Total Present Value of
o
4,88,816
c. o
c
. Net Initial Outlay
Inflows
e m
m la s
seNet Present Value (NPV)
Less: (3,86,250)

la Advise 1,02,566
a g
ag
NPV is positive, the proposed replacement of the old machine with the
new machine is financially viable. Auto Industries Limited is advised to
replace the existing machine with the new one.
Note: If the working capital of ` 30,000 is recovered at the end of
Year 5, the Present Value (PV) of the working capital shall be calculated
as ` 30,000 × 0.4971 = ` 14,913 and NPV will be ` 98,729 and ` 1,17,479

o m
c
respectively.

m .
e
(b) Sales for Given EPS Conditions
Working Note: s
l=a` 1,00,000.
a g
Interest = 10% × 10,00,000
Preference Dividend = 10% × 2,00,000 = ` 20,000.
P/V Ratio (Contribution ratio) = 100% − 60% = 40%. Tax rate = 25%.
(i) Sales at which all earnings are wiped out by Interest and
Preference Dividend (EPS = 0)

Step Amount (`)

m
EAT (= Preference Dividend)
om 20,000
c. 26,667
c. o m
20,000

se 1,26,667
EBT =

em
1-0.25

s EBIT = 1,00,000+26,667
g l a
gla a
Contribution = Fixed Cost + EBIT = 50,000 + 1,26,667 1,76,667
a Sales =
Contribution
=
1,76,667
= ` 4,41,667.50
4,41,668
PV Ratio 0.40

23

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 23 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(ii) Sales at which EPS = ` 3

Step Amount (`)
Earnings for equity = 3 × 2,50,000 shares 7,50,000
EAT = Earnings for equity + Preference Dividend 7,70,000
EAT 7,70,000 7,70,000 10,26,667
EBT = = =
1-t 1-0.25 0.75
EBIT = EBT + Interest 11,26,667
Contribution = Fixed Cost + EBIT = 50,000 + 11,26,667 11,76,667
Contribution 11,76,667 29,41,667
Sales = = = ` 29,41,667.50
PV Ratio 0.40

Question 4
(a) Under which circumstances raising funds through the issue of debentures is
advantageous for a company? Discuss. (4 Marks)
(b) Explain the main features of Miller-Orr Cash Management Model for a
business concern. (4 Marks)
(c) Explain the key responsibilities of a Finance Executive in modern business
world. (2 Marks)
OR
(c) Describe any two features of green bond.
Answer
(a) Circumstances favourable for raising funds through debentures:
1. No dilution of control – Debenture holders are creditors, not owners, so
ownership and voting rights of existing shareholders remain unaffected.
2. Stable and adequate earnings – Suitable when the company has
steady cash flows to meet the fixed interest and repayment obligations.
3. Rising price levels (inflation) – The fixed interest outgo decreases in
real terms as prices rise, benefiting the company.
4. Lower cost of capital – Interest is tax-deductible, and investors accept
lower returns due to lower perceived risk, making debentures cheaper
than equity/preference capital.

24

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 24 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS STRATEGIC MANAGEMENT

5. Trading on equity – Beneficial when the company has sufficient fixed
assets to secure the debentures and expects returns higher than the
m
c. o
fixed interest rate, boosting shareholder earnings.

o m m
.c
(b) Main features of the Miller-Orr Cash Management Model:
e
s
m
ecompletely
1. Stochastic
random/unpredictable, unlike simpler models that assume gl
cash flows – The model assumes that net cash flows are
as
g la steady, known cash flows. a
a 2. Three control limits – It sets an upper limit (h), a lower limit (zero),
and a return point (z) between them, within which cash balance is
allowed to fluctuate freely.
3. Transfer on reaching upper limit – When cash balance touches the
upper limit (h), an amount equal to (h – z) is transferred from cash to
marketable securities/investment account.

m
co
4. Transfer on reaching lower limit – When cash balance falls to the
.
lower limit (zero), securities are sold and cash is transferred from the

s em
investment account back to the cash account, restoring the balance to
point z.
l a
g – As long as the cash balance stays between
a
5. No action within limits
the upper and lower limits, no transfer/transaction takes place,
minimising unnecessary transaction costs.
6. Basis for setting limits – The limits are determined based on the fixed
transaction cost of buying/selling securities, the opportunity cost of
holding idle cash, and the degree of variability (fluctuation) in cash
flows.

m
co
7. Realistic and flexible – The model is more practical than simpler cash
m .
c. o m
models as it accommodates random fluctuations and allows the

em se
finance manager to set limits according to the firm's liquidity needs.

s g l a role in the
la
(c) Finance executive of an organisation plays an important

g a
company’s goals, policies, and financial success. His responsibilities include:
a (a) Financial analysis and planning: Determining the proper amount of
funds to employ in the firm, i.e. designating the size of the firm and its
rate of growth.

25

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 25 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(b) Investment decisions: The efficient allocation of funds to specific
assets.
(c) Financing and capital structure decisions: Raising funds on
favourable terms as possible i.e. determining the composition of
liabilities.
(d) Management of financial resources (such as working capital).
(e) Risk management: Protecting assets.
OR
(c) Two features of Green Bonds:
1. Proceeds are earmarked exclusively for "green projects" with positive
environmental/climate impact including the cultivation of eco-friendly
technology.
2. It can be issued by financial, non-financial, or public institutions.
3. These are the most popular ESG bonds.

26

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 26 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS
STRATEGIC MANAGEMENT

Part II – Descriptive Questions

SECTION – B: STRATEGIC MANAGEMENT
m
m c. o
co m
Question paper comprises of 4 questions, Answer Question No. 5 which is

m .
compulsory and any 2 out of the remaining 3 questions.
s e
a s e g la
(a)g Legacy Electronics Ltd. was once a market leader in consumer appliancesa
Question 5
l
a and enjoyed a loyal customer base. However, increased competition,
outdated product offerings, rising costs, and changing consumer
expectations have adversely affected the company's performance. Over the
past five years, the company has reported declining sales, continuous losses,
and reduced market share. Several manufacturing facilities are operating
inefficiently, while financial pressures have limited investment in innovation
and marketing. Concerned about the organization's future, the

m
management team is seeking a structured approach to revive the

c. o
company's performance and restore sustainable profitability.

e m suggest the major components of an
action plan that management s
State the key problems involved and

l a should implement to improve the company's

ag recovery.
condition and achieve long-term (1 + 4 = 5 Marks)
(b) NewGlow Herbals, a company producing premium herbal cosmetics, sold
their products mainly through large supermarket chains and online retail
platforms. Recently the company started facing pressure from major
retailers who demanded a reduction of prices. They argue that since
customers are highly price sensitive they would have to replace NewGlow
Herbals products with cheaper alternative brands. In order to stay
competitive, NewGlow Herbals though reluctant, was forced to reduce the

o m
c
maximum retail prices.
m Identify the competitive force faced by NewGlow Herbals. Whenmis. this force
c. o s e of the
em a3 + 1 = 5 Marks)
evident? How does this force influence the competitive condition
l
las industry?
g
(1 +
a its classroom-based
ag (c) NextPro Education Services has gained popularity through
professional training programs. The organization is considering entering into
international markets through a fully online certification platform. It has
experienced faculty members, a strong reputation, and extensive course

27

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 27 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

content. However, it has limited experience in international operations and
online platform management. The increasing demand for remote learning
creates new growth possibilities, while global competition and changing
learner preferences present challenges. The management seeks a detailed
evaluation before making a strategic decision, through a SWOT analysis
approach.
(i) Briefly describe what SWOT Analysis is.
(ii) Evaluate the factors that can affect the above proposed plan through
the SWOT Analysis framework. (1 + 4 = 5 Marks)
Answer 5

(a) The key problems indicating the need for a Turnaround Strategy in
Legacy Electronics Ltd. are continuous losses, declining sales, reduced
market share, uncompetitive/outdated products, rising costs,
increased competition, changing customer expectations and
inefficient manufacturing facilities. These indicate deterioration in the
company’s competitive and financial position and the need to improve
internal efficiency.
The major components of the action plan for turnaround are:
1. Assessment of current problems: Identify the root causes and
extent of damage and focus resources on areas requiring immediate
corrective action.
2. Analysis and strategic planning: Assess the chances of survival,
identify the viable core business, analyse strengths and weaknesses
and develop a strategic plan with specific goals and functional
actions.
3. Emergency action plan: Take immediate measures to reduce costs,
improve working capital, restructure finances, prune unprofitable
product lines and accelerate high-potential products. Positive
operating cash flow should be established as quickly as possible.
4. Restructuring the business: Review the product mix, core
products, facilities and markets. Inefficient facilities may be closed,
and the company may withdraw from certain markets or reposition its
products. Employee morale should also be strengthened through
appropriate reward and compensation systems.

28

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 28 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS
STRATEGIC MANAGEMENT

5. Returning to normal: Once profitability starts improving, the
company should focus on introducing new products, improving
m
c. o
customer service, increasing market share and developing

o m m
c
alliances to achieve sustainable growth.
. e
em generation, asset liquidation for generating cash, better glas
In addition, the turnaround should emphasize quick cost reductions,

a s
revenue
linternal coordination and, where necessary, changes in topa
g
a management.
(b) The competitive force faced by NewGlow Herbals is Bargaining Power
of Buyers.
The bargaining power of buyers is evident when:
• Buyers have full knowledge of the sources of products and their
substitutes.

m
c. o
• Buyers spend a lot of money on the industry’s products, i.e., they are
big buyers.

e mperceived as critical to the buyer’s
s concentrated than the firms supplying the
The industry’s product is not
a
•

l
needs, and buyers are more
g switch to the substitutes available.
a
product. They can easily
In the given case, the major supermarket chains and online retail platforms
are large and significant buyers of NewGlow Herbals’ products. They can
exert pressure on the company to reduce prices as they have the option of
replacing its products with cheaper alternative brands. Since customers are
highly price sensitive, the retailers can easily threaten to switch to competing
brands, thereby strengthening their bargaining position.
Influence on Competitive Condition of Industry
m
m .co
c. o
The bargaining power of buyers influences not only the prices that
m
se
producers can charge but also, in many cases, the costs and

s em investments of producers, as powerful buyers may demand better
g la
la a
services and terms. Thus, strong bargaining power of buyers puts pressure

ag on producers to offer lower prices and better services, which can
adversely affect their profitability and the competitive condition of the
industry.

29

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 29 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(c) SWOT Analysis is the analysis of an organisation’s Strengths,
Weaknesses, Opportunities and Threats. It is a strategic tool used to
develop a full awareness of the internal and external factors involved in
making a business decision. Strengths and Weaknesses relate to the
internal environment, while Opportunities and Threats arise from the
external environment.
SWOT Analysis of NextPro Education Services

STRENGTH WEAKNESS
• Experienced faculty members • Limited experience in
with professional expertise. international operations.
• Strong reputation in • Limited experience in online
professional training. platform management.
• Extensive course content. • Predominantly experienced in
classroom-based delivery.
• Established presence and • Need to develop capabilities for
credibility in professional managing a fully online
education. international platform.
OPPORTUNITY THREAT
• Increasing demand for • Global competition from
remote learning. established online education
and certification providers.
• Opportunity to enter • Changing learner preferences.
international markets.
• Online platform can help • Rapid changes in technology
reach learners across and online education may
different countries. require continuous adaptation.
• Opportunity to expand the • Competition may make it
organisation’s customer base difficult to establish the
and growth through online platform in international
certification. markets.

Thus, NextPro should leverage its strong reputation, experienced
faculty and extensive course content to exploit the growing
opportunity for remote learning, while addressing its weaknesses in

30

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 30 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS
STRATEGIC MANAGEMENT

international operations and online platform management and
preparing for global competition and changing learner preferences.
m
Question 6
m c. o
.co
(a) A well-crafted corporate mission not only provides an organisation with its
s e m
em la
s
special identity but also serves as a justification for its existence. Elaborate on the

l a
primary reasons why an organisation must establish a mission. Furthermore,
a g
ag
explain how management expert Peter Drucker advises firms to answer the
fundamental question 'what business are we in?' (4 + 1 = 5 Marks)
(b) A company's most profitable business is not receiving the highest
investment allocation, while another less profitable business is receiving
substantial resources. Explain how BCG Matrix may justify such a seemingly
contrasting decision. (4 + 1 = 5 Marks)
Answer

m
co
(a) Primary reasons why an organisation should have a mission: A mission

.
is an answer to the basic question “What business are we in and what

em
do we do?” It gives an organisation purpose, its own special identity,
s
l a
is unique to the organisation and sets it apart/differentiates it from
g
a
its competitors. It is central to strategic planning.
An organisation should have a mission for the following reasons:
• To ensure unanimity of purpose within the organisation.
• To develop a basis or standard for allocating organisational
resources.
• To provide a basis for motivating the use of organisational
resources.
m
m c. o
To establish a general tone or organisational climate and suggest a

c. o
•

em with the
business-like operation.

em To serve as a focal point for those who identify
la s
s g
•

la a
organisation’s purpose and direction.

ag • To facilitate the translation of objectives and goals into a work
structure, involving assignment of tasks to responsible elements
within the organisation.

31

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 31 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

• To specify organisational purposes and translate them into goals so
that cost, time and performance parameters can be assessed and
controlled.
According to Peter Drucker, every organisation must ask and correctly
answer the fundamental question “What business are we in?” The
answer should have a marketing or external perspective rather than
merely describing production or generic business activities. A company’s
business should be defined in terms of the needs it is trying to satisfy, the
customer groups it is targeting and the technologies and competencies it
uses. Thus, the focus should be on the customer need being served
rather than merely the product or activity being produced or
performed.
(b) The BCG Growth-Share Matrix is used for resource allocation in a
diversified company. It classifies different businesses or SBUs on the basis
of market growth rate and relative market share. Market growth rate
indicates market attractiveness, while relative market share indicates the
company’s strength in the market. It classifies business units into four
categories: stars, cash cows, question marks and dogs.
The seemingly contrasting decision of allocating more resources to a less
profitable business can be justified as follows:
• Cash Cows: These are low-growth, high-market-share businesses.
They are established and successful, generate cash and require less
investment to maintain their market share. Therefore, a highly
profitable business may receive less investment if it is a Cash Cow, as
it already generates sufficient cash.
• Stars: These are businesses with high market growth and high
relative market share. They require heavy investment to maintain
their position and finance their rapid growth potential. Therefore,
a less profitable business may receive substantial resources if it is a
Star, as it represents a good opportunity for expansion.
• Question Marks: These are low-market-share businesses in high-
growth markets. They require heavy investment and may initially
have low potential to generate cash. Investment may be made to
increase their market share and turn them into Stars and
subsequently Cash Cows.

32

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 32 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS
STRATEGIC MANAGEMENT

• Dogs: These are low-growth, low-market-share businesses. They

m
generally have limited future prospects and should be minimised

c. o
through divestment or liquidation.
m
.co
Thus, under the BCG Matrix, resource allocation is not based solely on
s e m
em
present profitability. A highly profitable Cash Cow may require less
la
l a s
investment, whereas a less profitable Star or promising Question Mark
a g
ag
may receive greater investment because of its growth potential and
future contribution to the organisation.
Question 7
(a) A company's success depends on how effectively it manages value creation
through various linked activities before the sale, during the sale, and after
the sale. Weakness in any one stage can negatively affect the overall
customer experience. Explain this statement using an appropriate strategic

m
framework. (1 + 3 + 1 = 5 Marks)

. co
(b) In today's competitive landscape, effective strategic leaders must deal with

em
rapid, complex changes and diverse competitive situations. Define what

l a s
constitutes a 'managerial frame of reference' and explain its significance.

a g
Furthermore, list any six specific responsibilities of a strategic leader.
(2 + 3 = 5 Marks)
Answer
(a) The appropriate strategic framework is Value Chain Analysis, developed
by Michael Porter. It is a method of examining each activity in the value
chain of a business to identify how each stage adds or subtracts value
from the end product or service. It helps improve the sequence of
operations, enhance efficiency and create competitive advantage.
o m
m .c
c. o m
The five primary activities in the value chain are:

em
1. Inbound Logistics: Activities concerned with receiving,
distributing inputs to the product or service, such as l a se storing and

las stock control, transportation and warehousing.ag
material handling,

ag 2. Operations: Activities that transform inputs into the final product or
service, such as machining, packaging, assembly and testing.

33

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 33 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

3. Outbound Logistics: Activities concerned with collecting, storing and
distributing the finished product to customers, including
warehousing, material handling and transportation.
4. Marketing and Sales: Activities through which consumers are made
aware of the product or service and are able to purchase it, including
advertising, selling and sales administration.
5. Service: Activities that enhance or maintain the value of the product
or service, such as installation, repair, training and provision of spares.
These primary activities are supported by procurement, technology
development, human resource management and infrastructure.
Since the activities are linked and their interactions are a source of
competitive advantage, weakness in any one activity can reduce the value
delivered to customers and adversely affect the overall customer
experience and competitive position.
(b) A managerial frame of reference is the set of assumptions, premises and
accepted wisdom that bounds a manager’s understanding of the
company, the industry in which it competes, and the core competencies
that it exploits in pursuit of strategic competitiveness and above-
average returns. In other words, it is the foundation on which a manager’s
mindset is built.
In today’s competitive landscape, strategic leaders must adapt their
frames of reference to deal with rapid, complex and diverse competitive
situations. Competitive battles are not merely between companies or
products, but also between mindsets or managerial frames. Hence, an
effective strategic leader must be capable of dealing with cognitively
complex situations, change and uncertainty.
Responsibilities of a Strategic Leader:
1. Making strategic decisions.
2. Formulating policies and action plans to implement strategic
decisions.
3. Ensuring effective communication in the organisation.
4. Managing human capital, which is perhaps the most critical strategic
leadership skill.

34

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 34 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS
STRATEGIC MANAGEMENT

5. Managing change in the organisation.
6. Creating and sustaining a strong corporate culture.
m
m c. o
co
7. Sustaining high performance over time.
. e m
m
Thus, strategic leadership skills represent important resources that affect
e la s
l a s
company performance and need to be developed for the company’s
a g
g 8
future benefit.
aQuestion
(a) "A core competency for a firm is whatever it does best." Explain the concept of
core competency. What are the conditions required to be met for a company to
regard its competence as core competency? (2 + 3 = 5 Marks)
(b) For any organization undergoing a digital transition, change management is
crucial. Define what digital transformation enables an organization to do,
and define the process of change management itself. Furthermore,
m
co
enumerate the five specific ways a properly implemented change
.
em
management strategy can help an organization, and explain why change

s OR
management gains more importance in current times. (1 + 3 + 1 = 5 Marks)

g l a
a
(b) Explain what SPM is and how it helps eliminate silos within an
organization. Describe the specific insights provided by various strategic
performance measures. (2 + 3 = 5 Marks)
Answer

(a) A core competency is the collective learning in an organisation,
particularly the coordination of diverse production skills and
integration of multiple streams of technologies. It is a combination of
m
m
skills, techniques, resources and capabilities that enables a firm to
.co
c. o perform an activity better than its competitors and gain competitive
se
m
em la
advantage. Thus, a core competency for a firm is “whatever it does

las best.”
g
According to C.K. Prahalad and Gary Hamel, aacompetence can be
ag regarded as a core competency when the following three conditions are
satisfied:

35

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 35 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

1. Competitor Differentiation: The competence should be unique and
difficult for competitors to imitate. It should enable the company to
perform significantly better than its competitors and sustain its
competitive position.
2. Customer Value: The competence should provide a fundamental
benefit to customers and have a real impact on their choice to
purchase the company’s product or service. The differentiation offered
must be valued by the customer.
3. Application to Other Markets: The competence should be applicable
across the organisation and capable of opening up potential
markets. It should not be restricted to one particular skill, product or
area of expertise.
If these three conditions are met, the company can regard its
competence as a core competency.
(b) Digital transformation is a process of organisational change that enables
an organisation to use technology to create new value for customers,
employees and other stakeholders.
Change management is the process of planning, implementing and
monitoring changes in an organisation. It helps organisations achieve
their objectives while reducing risks and disruptions.
Ways in which Properly Implemented Change Management Helps an
Organisation
A properly implemented change management strategy can help an
organisation to:
1. Specify the parameters and goals of the digital transformation.
2. Determine which procedures and tools need to be modified.
3. Make a plan for implementing the improvements.
4. Involve staff members and parties involved in the transformation
process.
5. Track progress and make required course corrections.
Importance of Change Management in Current Times
Change management gains more importance in current times because
organisations are required to manage new technology, emerging

36

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 36 of 38

m
m .co
c. o

e m
em l a s
s a g
FINANCIAL MANAGEMENT AND
SUGGESTED ANSWERS
STRATEGIC MANAGEMENT

market opportunities and changing customer preferences. Modern
firms must continuously modify their management techniques and
m
c. o
approach change in a proactive and organised manner to improve their

o m m
c
chances of success.
. s e
em and helps organisations successfully integrate new digital la
Thus, change management is a crucial component of digital

l a s
transformation
a g
ag
systems and achieve the intended benefits.
Or

Strategic Performance Measurement (SPM) is a method that increases
line executives’ understanding of an organisation’s strategic goals and
provides a continuous system for tracking progress towards these
objectives using clear-cut performance measurements.
Strategic Performance Measures and the Insights They Provide

m
co
Strategic performance measures are key indicators used to track the
.
effectiveness of strategies and support informed decisions regarding

s em
resource allocation. They provide the following insights:
1.
g l a
Financial Measures: Measures such as revenue growth, Return on
a
Investment (ROI) and profit margins provide an understanding of the
organisation’s financial performance and its ability to generate profit.
2. Customer Satisfaction Measures: Measures such as customer
satisfaction, customer retention and customer loyalty provide insight
into the organisation’s ability to meet customer needs and provide high-
quality products and services.
3. Market Measures: Measures such as market share, customer
m
c. o
acquisition and customer referrals provide information about the

m
c. o
organisation’s competitiveness in the marketplace and its ability to
attract and retain customers.
em
em l a s
s ag insight into the
4. Employee Measures: Measures such as employee satisfaction,

gla turnover rate and employee engagement provide

a organisation’s ability to attract and retain talented employees and create
a positive work environment.

37

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 37 of 38

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

5. Innovation Measures: Measures such as R&D spending, patent
applications and new product launches provide insight into the
organisation’s ability to innovate and create new products and services
that meet customer needs.
6. Environmental Measures: Measures such as energy consumption,
waste reduction and carbon emissions provide insight into the
organisation’s environmental impact and efforts to operate in a
sustainable manner.
Thus, strategic performance measures provide a snapshot of
organisational performance, enabling leaders to assess whether
strategies are aligned with goals and objectives and to make necessary
adjustments for improved performance.
SPM helps to eliminate silos by establishing a common language
among all divisions of the organisation, enabling them to communicate
openly and productively. Thus, it promotes better coordination and
alignment towards common strategic objectives.

38

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 38 of 38