CASE STUDY SoLUTIONS

FINANCIAL MANAGEMENT
 CASE STUDY SoLUTIONS

FINANCIAL MANAGEMENT

SECOND EDITION

Gr. CAPT. H. KAUSHAL, VSM (RETD)

MACMILLAN
©Macmillan Publishers India Ltd, 2003, 2010

All rights reserved. No part of this publication may be reproduced or

transmitted, in any form or by any means, without permission. Any
person who does any unauthorised act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.

First published, 2003

Reprinted, 2005-2009 (six imvres.~ions)
Second edition, 2010 Reprinted. 101 1

MACMILLAN PUBLISHERS INDIA LTD

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ISBN 10: 0230-32944-6

ISBN 13: 978-0230-32944-7

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This book is meant for educational and learning pwposes. The author{s) of the book has/have taken all
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 To
My Wife Neena
herself an author of 18 books who taught me
· to accept and love a person as she is. She stood by me
during decades of married life, made tougher by my faults.
 I started teaching Management over 25 years ago. It was easy
to see that number of management concepts appeared very
simple to the students when taught in the classroom.
Application of these very theories often, presented difficulties
while solving practical corporate world problems. Similarly,
management principles were grasped quickly and correctly
·when these were linked to incidents from my work life of 50
years.
Normally, there should be only a small step from such
teaching management principles to solving of case studies.
Unfortunately, it is not so. This is because the technique for
solving case studies is usually not taught in business schools.
There is also an acute shortage of case studies in financial
management, especially with Indian background. Teaching
management by solving case studies has, therefore, been a
casualty. Some institutions have even scraped teaching case
studies because of this shortage!
This book is an attempt at making good this vital
deficiency. Three chapters in Part I deal with theoretical
background of the case studies and general technique of
solving a case study. The rest of the book contains case studies,
divided into five parts. Parts II and III are for self-study. Part
II contains case studies, followed by complete suggested
solutions and a case study for exercise. Part III is to help slow
learners. Complete solutions have been tapered to hints to the
solution. This- part has case studies, hints to the solutions and
a case study for exercise. Part IV contains numerical problems,
which are important for a student of financial management.
viii Preface

Part V consists of many case studies for classroom teaching.

Lastly, Part VI narrates cases needing wider and comprehensive
coverage. These case studies are suitable for tackling by
syndicates. Majority of the case studies have been set in the
Indian environment and only some cases have been based on
foreign surroundings. This is only to expose the readers
appropriately. A serious attempt has been made to cover all
facets of financial management theory through these case
studies. Topics included in the syllabi of some other institutions
like ICWAI, C.A etc have also been covered. A number of
cases have been drawn from the question papers of the
management and financial institutions, universities etc across
the country. This is basically to give confidence to the students
about the type of case studies usually included in the
examination papers. It needs to be emphasized that the case
study solutions are certainly not meant for business schools .
alone; practicing managers and those preparing for allied
institutions will find the book equally useful. Briefly, brushing
up the management principle on which a case study is based
will help, not only in solving the case study but also in
understanding the theoretical concepts better.
I must place on record the help and encouragement given
by many individuals. The foremost must be a number of
persons from the publishers, M/ s. Macmillan (India) Ltd. I
am purposely refraining from naming them. The best and
most profound gratitude must be reserved for my students in
the classrooms, colleagues (seniors, juniors and peers) in
various organizations and many teachers from whom I got
rhis knowledge. A number of friends from different cities have
sent me examination papers and syllabi of the nearby
universities/institutions. I thank them all for the help.
I dedicate this book to my wife Neena Kaushal, herself
a renowned author of 18 books. Our married life, spanning
over four decades, has been no bed of roses by any stretch of
imagination, but without her besides me, I with tones of faults,
would have collapsed. She taught me to love and accept a
person, as she/he is.
H. Kaushal
Financial management has got its rightful place in the hierarchy
of management specializations since about three decades.
Earlier finances were expected to be handled by Chartered
Accountants or people having a commerce background. Many
professionals, from areas like engineering, computers, etc. have
joined the financial management cadre. These individuals have
often learnt one aspect of financial management and continued
to operate in that limited field for many years. It is necessary
for these people to broaden their understanding and learn
about other aspects of financial management, as they become
senior. This book will help them obtain an all round practical
knowledge, by solving the case studies, especially those meant
for self-study.
Similarly, managers rising to senior positions in the
company from various streams like production, marketing,
HRD, etc. are at a disadvantage because their exposure to
financial management is rather limited. It is unfortunate, but
true, that many good, small and medium companies have
had to see evil days because the owners did not have adequate
knowledge about finance. These units were often too small to
afford a finance manager and the owners were not confident
about understanding the intricacies of financial management.
This book could prove useful for such people by showing
them a large number of real life situations, learning to analyze
these problems and finding optimum solutions.
Further, the requirements of management students
specializing in financial management or students preparing
for allied examinations like Chartered Accountancy, ICWA,
x Financial Management in India

commerce, etc. need to be met. These budding financiers must

clear their ideas about theoretical concepts taught in the class
and learn to apply these principles-under zero risk conditions.
This will prepare them to meet the demands expected out of
them in their future.
The aim of this book would be fulfilled if the readers feel
more confident about analyzing problems and finding
solutions to them, after reading this book.
Preface vii
Financial Management in India ix

Part I - Theory and Technique for Solving Case Studies, ·

General Case Studies and Discussions about the Solution
and an Exercise to Understand the Technique
1. Introduction 3
2. Case Study Method 8
3. Steps for Solving a Case Study 17 ·
4. Case No. 1 - General Problem - To Learn the Method of
Solving a Case Study 25
Interview at Mumbai
S. Case No. 1 - Interview at Mumbai 27
Discussions about the Solution
6. Case No. 2 - Case Study for Exercise 33
Could Happen in Real Life!

Part II - Case Studies, Discussions about the Solution

and Case Studies as Exercise for Self-study
7. Case No. 3 - Cash Flow 39
Ranade's Dilemma
8. Case No. 3 -Cash Flow- Rlmade's Dilemma 42
Discussions about the Solution
9. Case No. 4- Case Study for Exercise- Fund Flow 47
Neena's Nest
xii Contents

10. Case No.5- Budgetary Controls 50

The Resignation
11. Case No.5- The Resignation 55
Discussions about the Solution
12. Case No. 6 - Case Study for Exercise - Capital Budgeting 60
Malhotra Wind Power Ltd.
13. Case No. 7- Allocation of Costs 63
The Awadh Meal
14. Case No. 7 -Allocation of Cost - The Awadh Meal 68
Discussions about the Solution
15. Case No. 8 --Case Study for Exercise- Cost Allocation 72
Machine Hour Cost
16. Case No.9- InventJry Management 74
.The Wine Maker
17. Case No. 9 - Inventory Management - The Wine Maker 77
Discussions About the Solution
18. Case No. 10- Case Study for Exercise- Inventory Carrying 82
HML, Bhatinda
19. Case No. 11 -Merger of Companies 85
Detergent Market in India
20. Case No. 11 -Merger of Companies -:Detergent Market in
India 89
Discussions about the Solution
21. Case No. 12- Case Study for Exercise- Mergers 93
AHL, Bangalore
22. Case No. 13- Indirect Taxes: Excercise 95
Jayant's Troubles
23. Case No. 13- Indirect Taxes: Excise- Jayant's Troubles 97
Discussions about the Solution
24. Case No. 14- Case Study for Exercise- Income Tax 100
Different Facets of Income Tax
25. Case No. 15 -Indirect Taxes: Custom Duty 103
Export: That Never Was
26. Case No. 15 -Indirect Taxes: Export Duty - Export: That
Never Was 104
Discussions about the Solution
 Contents xiii

27. Case No. 16- Case Study for Exercise: (MOD VAT) 107
M/S Fairlady Ltd.
28. Case No. 17- Audit 108
Different Aspects of Audit - I
29. Case No. 17- Different Aspects of Audit- I 110
Discussions about the Solution
30. Case No. 18- Case Study for Exercise- Auditing 114
Different Aspects of Audit - II

Part III - Case Studies, Hints to the Solution and Case

Studies for Exercise/ for Self-study

31. Case No. 19- Ratios-based Financial Analysis 119

The Fortune Teller
32. Case No. 19- Ratio-based Financial Analysis- The Fortune
Teller 123
Hints to the Solution
33. Case No. 20- Case Study for Exercise- Ratio-based Financial
Analysis 126
Friends and Competitors
34. Case No. 21 - International Financial Management 128
Investment Strategy
35. Case No. 21 - Internal Financial Management - Investment ·
Strategy 131
Hints to the Solution
36. Case No. 22 - Case Study for Exercise- Capital Investment
Analysis in Foreign Exchange 134
Haryana Cooperative Farm, Sirsa
37. Case No. 23 - Receivable Management 136
Kunti's Game Plan
38. Case No. 23- Bills Receivables- Kunti's Game Plan 140
Hints to the Solution
39. Case No. 24 - Case Study for Exercise - Bills Receivables/
Factoring 142
Massive India Ltd.
 Case Study Solutions Financial
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