Problem 1.6 The Prudential Company has investigated the profitability of its assets and the cost of its funds. The results indicate: (i) Current Assets earn 1% (ii) Fixed Assets Return 13% (iii) Current Liabilities Cost - 3% (iv) Ave cost of LTF 10% Liabilities Amount Assets Amount CLs LTFs 5000 CAs 35000 FAs 10000 30000 Total (a) What is the net profitability? 40000 Total 40000 (b) The Company is contemplating lowering its NWC to Rs.3500 by (i) either shifting Rs. 1500 of CA to FA OR (ii) shifting of Rs. 1500 of its LTFs into CLs. Workout the probability for each of these alternatives, which do you prefer? Why? (c) Can both these alternatives be implemented simultaneously? How would it affect the net profitability? Problem 1.7 The Hypothetical Ltd., has investigated the profitability of its assets and the cost of its funds. The results indicate: (i) Current Assets earn (ii) Fixed Assets Return (iii) Current Liabilities Cost (iv) Ave cost of LTF Liabilities CLs LTFs 6% 13% 3% 10% Amount Assets Amount 10000 CAs 20000 70000 FAs 60000 Total (a) What is the net profitability? 80000 Total 80000 (b) The Company is contemplating lowering its NWC to Rs.7000 by (i) either shifting Rs. 3000 of CA to FA OR (ii) shifting of Rs. 3000 of its LTFs into CLs. Workout the probability for each of these alternatives, which do you prefer? Why? (c) Can both these alternatives be implemented simultaneously? How would it affect the net profitability?