Management Consulting/International business


Sardar Hakim wrote at 2014-06-16 07:44:28
CASE -1 (20 Marks)

Joan, an employee of Great American Market, was warned about her excessive absenteeism several

times, both verbally and in writing. The written warning included notice that "further violations will

result in disciplinary actions," including suspension or discharge.

A short time after the written warning was issued, Joan called work to say she was not going to be in

because her babysitter had called in sick and she had to stay home and care for her young child. Joan's

supervisor, Sylvia, told her that she had already exceeded the allowed number of absences and warned

that if she did not report to work, she could be suspended. When Joan did not report for her shift,

Sylvia suspended her for fifteen days.

In a subsequent hearing, Joan argued that it was not her fault that the babysitter had canceled, and

protested that she had no other choice but to stay home. Sylvia pointed out that Joan had not made a

good faith effort to find an alternate babysitter, nor had she tried to swap shifts with a co-worker.

Furthermore, Sylvia said that the lack of a babysitter was not a justifiable excuse for being absent.


1. Was the suspension fair?

2. Did Joan act responsibly?

3. Should she be fired?

CASE-2 (20 Marks)

You own a cement company, and deal with most the local contractors for cement, sand, etc. You have

a reputation of high quality products, and for good customer service with your customers. Your

foreman has just run the standard quality control tests you have performed regularly on your products.

When the test results are ready, you discover that the new batch of product is 9% less durable than

your usual material. It is still well above all industry standards and meets all building codes and

requirements for the purposes for which it is intended, but it is, nevertheless, not up to your usual

standards. Throwing it away would cost your company many thousands of dollars.

You decide to sell the cement anyway.


1) Should you tell your customers?

2) Should you discount the price?

3) Should you tell your employees, so they will be knowledgeable with the customers?

4) Would you use this cement on foundations for your own house?

Page 2 of 3

CASE-3 (20 Marks)

Fred, a 17-year employee with Sam's Sauna, was fired for poor job performance and poor attendance,

after accruing five disciplinary penalties within a 12-month period under the company's progressive

disciplinary policy. A week later, Fred told his former supervisor that he had a substance abuse


Although there was no employee assistance program in place and the company had not been aware of

Fred's condition, their personnel director assisted Fred in obtaining treatment by allowing him to

continue receiving insurance benefits and approved his unemployment insurance claim.

Fred subsequently requested reinstatement, maintaining that he had been rehabilitated since his

discharge and was fully capable of being a productive employee. He pointed to a letter written by his

treatment counselor, which said that his prognosis for leading a "clean, sober lifestyle" was a big

incentive for him. Fred pleaded for another chance, arguing that his past problems resulted from drug

addiction and that Sam's Saunas should have recognized and provided treatment for the problem.

Sam's Saunas countered that Fred should have notified his supervisor of his drug problem, and that

everything possible had been done to help him receive treatment. Moreover, the company stressed that

the employee had been fired for poor performance and absenteeism. Use of the progressive discipline

policy had been necessary because the employee had committed a string of offenses over the course of

a year, including careless workmanship, distracting others, wasting time, and disregarding safety rules.


1) Should Fred be reinstated?

2) Was the company fair to Fred in helping him receive treatment?

3) Did the personnel director behave ethically toward Fred?

4) Did he act ethically for his company?

5) Would it be fair to other employees to reinstate Fred?

CASE-4 (20 Marks)

In January of last year, the S.S. Vulgass, an oil tanker of the Big Dirty Oil Company ran around in the

area just north of Vancouver, spilling millions of gallons of crude into the waters and onto the beaches

of British Columbia and southern Alaska. The damage to the beaches and wildlife and consequently to

the tourist industry, the ecology and the quality of life of the local residents is incalculable, but in any

case will require many millions of dollars for even the most minimal clean-up.

The ship struck a small atoll, well-marked on the navigational maps, but it was a dark night and the

boat was well off course. On further investigation, it was discovered that the Captain of the Vulgass,

Mr. Slosh, had been drinking heavily. Leaving the navigation of the ship to his first mate, Mr. Mudd,

he retired to his cabin, to "sleep it off." Mr. Mudd had never taken charge of the ship before, and it is

now clear that he misread the maps, misjudged the waters, maintained a speed that was inappropriate

and the accident occurred. Subsequent inquiries showed that Captain Slosh had been arrested on two

drunk driving convictions within months of the accident. The Vulgass itself, a double-hulled tanker,

was long due for renovation and, it was suggested, would not have cracked up if the hull had been

trebly reinforced, as some current tankers were.

Page 2 of 3

R. U. Rich, the Chief Executive Officer of Big Dirty Oil declared the accident a "tragedy" and offered

two million dollars to aid in the clean up. The Premier of British Columbia was outraged.

Environmental groups began a consumer campaign against Big Dirty Oil, urging customers to cut up

and send in their Big Dirty Oil credit cards in protest. In a meeting to the shareholders just last month,

CEO Rich proudly announced the largest quarterly profit in the history of the Big Dirty Oil Company.

He dismissed the protests as "the outpourings of Greenies and other fanatics" and assured the

shareholders that his obligation was, and would always be, to assure the highest profits possible in the

turmoil of today's market.


1) The question is, who is responsible?

2) Against whom should criminal charges be leveled?

3) What should be done, if anything, to punish the corporation itself?

4) What about the CEO?

Sardar Hakim wrote at 2014-06-16 07:46:00
N.B.: 1) Attempt any Four Questions

2) All questions carries equal marks.

(A). (1).Mr. Nimish holds the following portfolio. (10 marks)

Share Beta Investment

Alpha 0.9 Rs.12, 00,000

Beta 1.5 Rs. 3, 50,000

Carrot 1.0 Rs. 1, 00,000

What is the expected rate of return on his portfolio, if the risk rate is 7 per cent and the

expected return on the market portfolio is 16 per cent?

(A). (2). A share is selling for Rs.60 on which a dividend of Rs.4 per share is expected at the end

of the year. The expected market price after dividend declaration is to be Rs.70. Compute the

following: - (10 marks)

(i) The return on investment ® in shares.

(ii) Dividend yield

(iii) Capital Gain Yield

(B) DIC Ltd. provides the following data: (20 marks)

Comparative trial balance

March 31 year 2 March 31 year 1 Increase(Decrease)

Debit Balance 20 10 10

Cash Rs.190 Rs. 90 Rs.100

Working capital (other than cash) 100 200 (100)

Investment (Long term) 500 400 100

Building and equipment 40 50 (10)

Total 850 750 100


Accumulated Depreciation 200 160 40

Bonds 150 100 50

Reserves 350 350 ---

Equity Shares 150 140 10


Total 850 750 100

Income Statement

For the period ending March 31, year 2

(Amount in Rs lakh)

Sales Rs.1000

Cost of Goods Sold 500

Selling Expense Rs.50

Administrative Expenses 50 100

Operating Income 400

Other charges

Gain on sale of building and equipment Rs 5

Loss on sale of investments (10)

Interest (6)

Taxes (189) (200)

Net Income after taxes 200

Notes: (a) The depreciation charged for the year was Rs.60 Lakh

(b) The Book value of the building and equipment disposed was Rs 10 Lakh


Prepare a Cash Flow Statement (Based on AS-3)

(C). (1). A. Ltd. produces a product which has a monthly demand of 4,000 units. The product

requires a component X which is purchased at Rs.20. For every finished product one unit of

component is required. The ordering cost is Rs.120 per order and the holding cost is 10 per

cent per annum. (10 marks)

You are required to calculate:

(i) Economic order quantity

(ii) If the minimum lot size to be supplied is 4, 000 units, what is the extra cost, the

company has to incur?

(iii) What is the minimum carrying cost, the company has to incur?


(C). (2). 4. Master Tools Ltd. Is currently operating its business at 75% level, producing 38275 units of

a tools component and proposes to increase capacity utilization in the coming year by 33 1/3 % over the

existing level of production. (10 marks)

The following data has been supplied:

(1)Unit cost structure of the product at current level:


Raw Material 5

Wages 2

Overheads 3

Fixed Overhead 2

Profit 3



(i) Raw Material will remain in stores for 1 month before issued for production. Material will

remain in process for further 1 month. Suppliers grant 4 months credit to the company.

(ii) Finished goods remain in godown for 2 months

(iii) Debtors are allowed credit for 2 months.

(iv) Lag in wages and overheads payments in 1 month, and these expenses accrue evenly

throughout the production cycle.

(v) No increase either in cost of inputs or selling price is envisaged

You are required to prepare a Projected Profitability statement and the Working Capital

Requirement at new level, assuming that a minimum cash balance of Rs.20000 has to be maintained.

(D). A stock is currently trading for Rs.29. The risk less interest is 7 % p.a continuously

compounded. Estimate the value of European call option with a strike price of Rs.30 and a time

of expiration of 4 months. The standard deviation of the stock’s annual return is 0.45. Apply BS

model. (20 marks)


(E). Following is the EPS record of AB Ltd over the past 10 years. (20 marks)

Year EPS Year EPS

10 Rs.30 5 Rs.16

9 20 4 15

8 19 3 14

7 18 2 18

6 17 1 (12)

(i) Determine the annual dividend paid each year in the following cases:

(a) If the firm’s dividend policy is based on a constant dividend payout ratio of 40 per cent

for all years

(b) If the firm pays at Rs 10 per share, and increases it to Rs 12 per share when earnings

exceed Rs.14 per share for the previous 2 consecutive years.

(c) If the firm pays dividend at Rs 7 per share each except when EPS exceeds Rs 14 per

share, when an extra dividend equal to 80 per centof earnings beyond Rs.14 would be


(ii) Which type of dividend policy will you recommended to the company and why?

(F). (1). A US MNC has its subsidiary in India. The subsidiary has issued 15 pr cent preference

shares of the face value of Rs.100, to be redeemed at year-end 9. Flotation costs are expected to

be 5 per cent; these costs can be amortized for tax purpose during 8 years at a uniform rate.

The corporate tax rate is 35 per cent. Determine the costs of preference shares from the

perspective of the subsidiary. (10 marks)

(F). (2) The US inflation rate is expected to be Rs.3 per cent annually and that of India is

expected to be 4.5 per cent annually. The current spot rate of US $ in India is Rs.47.4060/US $.

(10 marks)

Find the expected rate of US $ in India after one year and after 5 years from now using

purchase power theory of exchange rate.

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