CASE STUDY: 2 FACTS OF THE CASE Innovative. Agri Limited (IAL), based in NOIDA, is manufacturing and selling various agricultural tools, such as, sickle, axe, plough and various types of weeders for the past ten years. The revenue for the past three years is almost stagnant. Mainly during October and November of every year, the farmers, especially in the northern part of the country bum their crop wastes. This is known as stubble burning and it causes a variety of problems - health problems to the public, environmental pollution, soil quality deterioration etc. NEW PROPOSALS IAL wants to explore the possibility of commencing manufacturing Stubble Removing Machine (SMR), which will greatly reduce the ill-effects of stubble burning. Currently SMRs are being sold for anywhere between ₹7 lakhs to 20 lakhs in the market. IAL came across a technology, which would substantially reduce the selling price to ₹4.5 lakhs including a trailer that would be attached to SMR. The technology can be bought for a one-time payment of ₹50 lakhs. IAL intends to manufacture SMR under 'Make in India' scheme. Towards meeting the cost of SMR manufacturing project, IAL has decided to approach a bank for a term loan for fifteen years. On being satisfied, after the detailed workings and explanations of the project manager, the bank agreed in-principle to sanction the loan. The loan officer of the bank, Mr. Arun analysed the internal factors affecting the credit risk of the bank while considering the loan proposal of IAL. To meet a portion of the cost of the project, IAL wants to sell some assets held in the form of market securities before their stated maturities and has entrusted this job to the Chief Financial Officer, Mr. Ravi. IAL is also having a proposal to manufacture and sell Plant Cutting Scissors. The estimated cost of the project is expected to be funded by the directors. The details of the project are as under: Sr. No.ParticularsFigures 1Initial Capital Cost₹ 5 Cr. 2Annual unit sales (nos.)0.2 Cr. 3Selling price per unit₹ 120 4Variable cost per unit₹ 60 5Fixed costs per year₹ 1 Cr. 6Discount Rate7% OTHER OBSERVATIONS It was decided to improve the risk management system of IAL. Mr. Raj, the Internal Auditor was assigned the task of finding out the risk maturity level of IAL. He suggested to the management to consider forming a Risk Committee and an Audit Committee of the Board. He opined that (i) risk management of IAL would surely minimise the impact of risk on the business with the help of the Risk Committee and (ii) the Audit Committee would act on the terms of reference as specified by the Board and would primarily include evaluation of risk management systems including internal control system and internal audit. The Managing Director (MD) requested Mr. Raj to explain to him the concepts of (i) Magnitude of the Risk, (ii) Risk Perception, (iii) Cognitive Psychology and (iv) Emotional Intelligence. It was also decided to hold periodic meetings with the management and the departmental heads to capture learning and develop related recommendations at the end of a major activity or engagement. Based on the facts given above, you are requested to answer the following questions: Multiple Choice Questions Choose the most appropriate answer from the given options.