Galaxy Ltd. is a newly incorporated company and it would like to purchase raw materials from domestic sources as well as from other countries under Letter of Credit (LC). On the basis of the following information, calcul

CS Professional · Strategic Management and Corporate Finance · PYQS · June 2024
Galaxy Ltd. is a newly incorporated company and it would like to purchase raw materials from domestic sources as well as from other countries under Letter of Credit (LC). On the basis of the following information, calculate the limit for Letter of Credit (LC) for the Financial Year 2024-25: (i) Estimated Raw Material purchase for FY 2024-25 ₹ 480 crore (ii) Estimated purchase under Letter of Credit (LC) for FY 2024-25 (90%) ₹ 432 crore (iii) Of which import of Raw Material under Letter of Credit (30%) ₹ 129.60 crore (iv) Lead Time: Domestic Import 1.5 months 2.5 months (v) Transit Time: Domestic Import 1.5 months 2.5 months (vi) Credit (Usance) Period available: Domestic Import 2 months 5 months

Answer & Explanation:

Answer 5(c) Galaxy Ltd. (Amount in ₹ Crore) Calculation of Inland Letter of Credit (ILC) Calculation of Foreign Letter of Credit (FLC) A Annual Raw Material Consumption for FY 2024-25 480 B Estimated purchase under Letter of Credit (LC) for FY 2024-25 (90%) 432 C Annual Raw Material Procurement through ILC/FLC 302.40 129.60 D Monthly Consumption (C/12) 25.20 10.80 E Lead Time (Time from order placement to shipment) 1.5 months 2.5 months F Transit Time 1.5 months 2.5 months G Credit (Usance) Period Available 2 months 5 months H=E+F+G Total Period 5 months 10 months I=D×H LC limit Required for FY 2024-25 126 108

Topics: Corporate Finance

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