Explain Why you agree or disagree with the following statements...

2 Explain Why you agree or disagree with the following statements. The answer should not be more than 3 sentences. Be specific in your answer and write only the most relevant explanations

1. A firm should select the capital structure that is fully levered 
2. Leveraged beta represents a fundamental operating risk.
3. MM Proposition I with no tax supports the argument that a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.

 

Q No 5 The opening cash balance on 1^st Jan was expected to be Rs. 30,000. The sales budget was as follows:

November                               Rs.       80,000

December                                            90,000

January                                                75,000

February                                              75000

March                                                  80000

 

Analysis of records shows that debtors settle according to the following pattern: 60% within the month of sales, 25% the month following, 15% the month following.

 

Extracts from the purchases budget were as follows:

December                                Rs.60000

January                                         55000

February                                       45000

March                                           55000

All purchases are on credit and experience shows that 90% are settled in the month of purchases and the balance settled the month after.

Wages are Rs.15000 per month and overheads of Rs.20,000 per month (including Rs.5000 depreciation) are settled monthly.

Taxation of Rs.8000 must be settled in February and the company will receive a settlement of an insurance claim of Rs.25000 in March.

 

Required: Prepare a cash budget for Jan, Feb, and March