If you are preparing for the NMIMS June 2026 assignment, this blog provides clear, step-by-step solutions to important corporate finance questions. The focus is strictly on questions and their solutions, which helps you understand concepts and improve your answer presentation.
Question 1: Working Capital Management Case
Question:
A mid-sized Indian manufacturing firm is experiencing declining profitability despite steady revenue growth. The CFO attributes this to escalating operational costs and inefficient asset utilization, compounded by a recent spike in short-term liabilities. The company is considering introducing automated inventory management and tighter receivables policies, but also faces pressure from suppliers demanding shorter payment cycles. The management team must ensure operational efficiency while maintaining liquidity, without compromising on the firm’s ongoing investment in quality improvements and expanding production capacity. Drawing on working capital management concepts, how should the firm apply cash flow forecasting, inventory control, and receivables management strategies to optimize liquidity and operational efficiency? What specific actions would you recommend to balance short-term obligations and strategic growth initiatives?
Solution:
The firm should adopt an integrated working capital management approach focusing on cash flow forecasting, inventory control, and receivables management. Cash flow forecasting should be implemented through rolling forecasts to anticipate inflows and outflows, helping the firm manage liquidity gaps proactively. Inventory control can be improved using automated systems and techniques like Just-in-Time (JIT) and ABC analysis to reduce holding costs and avoid excess stock. Receivables management should include stricter credit policies, early payment incentives, and digital tracking systems to accelerate collections.
To balance supplier pressure, the firm should negotiate better credit terms or explore supply chain financing. Cost control measures and improved asset utilization must be prioritized to enhance efficiency. At the same time, strategic investments in quality and expansion should continue through phased implementation or long-term financing. This balanced approach ensures liquidity while supporting sustainable growth.
Question 2A: Capital Budgeting (NPV Method)
Question:
An Indian manufacturing firm is evaluating the purchase of a machine costing Rs. 24,00,000 with expected cash inflows over 5 years. Additional working capital of Rs. 4,50,000 is required at the end of Year 1 and will be recovered in Year 5. Tax rate is 30% and cost of capital is 10%. Calculate NPV considering depreciation (SLM) and tax shield.
Solution:
Basic Calculations
- Cost of Machine = Rs. 24,00,000
- Working Capital (Year 1) = Rs. 4,50,000
- Depreciation = 24,00,000 / 5 = Rs. 4,80,000 per year
- Tax Rate = 30%
- Discount Rate = 10%
| Year | Cash Inflow (Before Dep & Tax) | Less Depreciation | Taxable Income | Tax (30%) | PAT | Add Depreciation | Net Cash Flow | WC Adjustment | Final Cash Flow | Discount Factor (10%) | Present Value |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 0 | — | — | — | — | — | — | — | — | -24,00,000 | 1.000 | -24,00,000 |
| 1 | 7,00,000 | 4,80,000 | 2,20,000 | 66,000 | 1,54,000 | 4,80,000 | 6,34,000 | -4,50,000 | 1,84,000 | 0.909 | 1,67,256 |
| 2 | 8,00,000 | 4,80,000 | 3,20,000 | 96,000 | 2,24,000 | 4,80,000 | 7,04,000 | — | 7,04,000 | 0.826 | 5,81,504 |
| 3 | 9,80,000 | 4,80,000 | 5,00,000 | 1,50,000 | 3,50,000 | 4,80,000 | 8,30,000 | — | 8,30,000 | 0.751 | 6,23,330 |
| 4 | 9,00,000 | 4,80,000 | 4,20,000 | 1,26,000 | 2,94,000 | 4,80,000 | 7,74,000 | — | 7,74,000 | 0.683 | 5,28,642 |
| 5 | 8,50,000 | 4,80,000 | 3,70,000 | 1,11,000 | 2,59,000 | 4,80,000 | 7,39,000 | +4,50,000 | 11,89,000 | 0.621 | 7,38,669 |
NPV = 26,39,401 – 24,00,000 = Rs. 2,39,401 (Positive)
Since NPV is positive, the project should be accepted as it adds value to the firm.
Question 2B: WACC and Capital Structure Decision
Question:
Corporate tax rate is 25%. The company is considering two alternative financing scenarios for a major expansion: Scenario A – increase secured debt by Rs. 250 lakh replacing an equal amount of equity; Scenario B – raise preference share capital by Rs. 100 lakh, reducing unsecured debt and equity equally. Assuming the respective costs remain unchanged and all weights are on the new market value proportions, calculate the WACC for each scenario and determine which scenario yields a lower WACC. Show all steps including tax adjustments and market value re-weighting.
Final Note for Students
These solutions are designed to help you understand concepts + write structured answers for exams and assignments. Always remember:
- Show step-by-step calculations
- Write clear explanations in paragraph format
- Link theory with practical application
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