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CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based

Sundaram Engineering Ltd. seeks a performance bank guarantee of Rs 80 lakh. The bank, as per its sanction terms, takes a cash margin of 15% and charges a commission of 2% per annum on the guarantee amount. What is the total cash margin to be deposited and the annual commission payable?

Margin is 15% of Rs 80 lakh, which is Rs 12 lakh, and annual commission is 2% of Rs 80 lakh, which is Rs 1.6 lakh. Both are computed on the full guarantee amount; the margin is not the balance left after deduction.

  1. AMargin Rs 12 lakh; commission Rs 1.6 lakhCorrect
  2. BMargin Rs 12 lakh; commission Rs 1.2 lakh
  3. CMargin Rs 1.6 lakh; commission Rs 12 lakh
  4. DMargin Rs 68 lakh; commission Rs 1.6 lakh

Explanation

Margin = 15% of 80 lakh = Rs 12 lakh. Commission = 2% of 80 lakh = Rs 1.6 lakh per annum. Option B wrongly applies 2% to the margin amount (12 lakh x 10%, inconsistent), and option C swaps the two figures. Option D uses the balance after margin as the margin.

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