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com
Suppose you have $5,000 on deposit. One day, you write a cheque for $1,000 and deposit $2,000. hat are your dis!ursement, co""ection and net f"oats#

$fter writing the cheque, you show a !a"ance of $%,000 on your !oo&s, !ut !an& shows $5,000 whi"e the cheque is c"earing. So you have a dis!ursement f"oat of $1,000 'epositing $2,000 increases the !oo& !a"ance to $(,000, !ut the avai"a!"e !a"ance remains the same unti" the cheque c"ears. So co""ection f"oat is )$2,000. *et f"oat + $1000 , -)2,000. + )$1,000

/uestion (0+ operating cash f"ow of 1s. 200,000. *et wor&ing capita" has decreased !y 1s. 50,000 and there is a net capita" spending of 1s. 0 during the year. 2a"cu"ate tota" cash f"ow. -0mar&s. So"ution3 4ota" cash f"ow+200000)-)50000. toa" cash f"ow +250,000

/uestion (%+ sn& company find the profita!i"ity inde5 dividend 2 and price+ 200 -0mar&s. so"ution+ 26200+0.01+1answer
Question No: 43 ( Marks: 3 ) Write down the components of total return in terms of dividend growth model. nswer
! " #$ %&' ( g )his tells us that the total return* !* has two components #$%&' is called the #ividend +ield. ,ecause this is calculated as the e-pected cash dividend ./ the current price* it is conceptuall/ similar to the current /ield on a .ond 0rowth rate* g* is also the rate at which the stock price grows. 1o it can .e interpreted as capital gains /ield

Question No: 44

( Marks: 3 )

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What is the difference .etween operating c/cle and cash c/cle2
)he operating c/cle is the sum of the inventor/ and receiva.le periods 3perating c/cle " 4nventor/ period ( !eceiva.le period 5ash c/cle

6)he time .etween cash dis.ursement and cash collection. (We spend cash on da/ 3'* .ut don7t
collect until da/ $'8. so we have to arrange finances 9$*''' for $'8 : 3' " ;8 da/s)

61o we can descri.e the cash c/cle as:

5ash c/cle " 3perating c/cle : ;8 da/s " $'8 da/s : 3' da/s ccounts pa/a.le period

Question No: 48

( Marks: 3 )

<ow a firm s overall cost of capital is calculated 2

We know that a firm=s overall cost of capital will reflect the re>uired return on the firm=s assets as a whole. 60iven that a firms uses .oth de.t and e>uit/ capital* this overall cost of capital will .e a mi-ture of the returns needed to compensate its creditors and stockholders.

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65ost of capital will reflect 65ost of e>uit/ capital 65ost of de.t capital
5ost of ?>uit/

Question No: 4@

( Marks: 8 )

n agent who .u/s and sells securities from a maintained inventor/ 4t stands read/ to .u/ securities from investors wishing to sell them and sells securities to investors wishing to .u/ them

#efine the following terms: (i) #ealer

(ii)

,roker

n agent who arranges securit/ transactions among investors* matching investors wishing to .u/ securities with investors wishing to sell securities )he/ do not .u/ or sell securities for their own accounts. Aacilitating trades others is their .usiness

BC Manufacturing Company Year ended December 31, 2009 1ales !s.B'*'''*''' 0ross profit margin B'C 3perating profit margin 38C Net profit margin BC !eturn on total assets $@C !eturn on common e>uit/ D'C )otal assets turnover D verage collection period ;' da/s $. Requirement no 1. D. 5alculate the value for 0ross profit2

o!ution a) 0ross profit " sale : cost of goods sold .) 0ross profit " B'*'''*''' E $@'*''*''' c) 0ross profit " @4*'''*''' 5alculate the value for 5ost of goods sold2

3. Requirement no 2. 4.

o!ution a) 0ross profit margin ratio " (revenue E cost of goods sold)%revenue .) B%$'' " (B'*'''*''' E cost of goods sold)%B'*'''*'''

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c) d) e) f) " @. B%$'' F B'*'''*''' " B'*'''*''' E cost of goods sold @4'''''' " B'*'''*''' E cost of goods sold 5ost of goods sold " B'*'''*''':@4'*''*''' 5ost of 0oods 1old " $@'*''*'''

Requirement no 3. 5alculate the value for operating profit margin2 o!ution a) 3perating profit margin " operating income % revenue .) 38%$'' " operating income % B'*'''*''' c) 38%$'' FB'*'''*''' " operating income d) 3perating income " DB'*''*'''

; B

Requirement no #.

5alculate the value for 3perating e-penses2

o!ution a) 3perating e-penses " (gross profit E operating income) .) 3perating e-penses " @4'*''*''' E DB'*''*''' c$ %perating e&pen'e' ( 3)0,00,000 d) Net profit margin " Net profit(after ta-) % revenue F $'' e) '.B " Net profit (after ta-) % B'*'''*''' f) '.BFB'*'''*''' " Net profit (after ta-) g) *et profit (after ta-) " @4*''*'''

G. Requirement no ". stockholders2 $'.

5alculate the value for ?arnings availa.le for common

o!ution a) ?arnings availa.le for common stockholders " Net profit (after ta-) " @4''''' .) !eturn on assets " Net income % )otal assets c) $@%$'' " DB'''''' % )otal assets Requirement no ). 5alculate the value for total assets2

$3 $4

o!ution a) 1ince operating income is also called net income .) )otal assets " DB'*''*''' % ($@%$'')

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c) )otal assets " $;8'*''*''' $8 $@ Requirement no +. o!ution a) .) c) d$ e) !eturn on 5ommon ?>uit/ " Net income(after ta-) % share holder=s e>uit/ D'%$'' " @4*''*''' % share holder=s e>uit/ 1hare <older=s ?>uit/ " @4''''' % '.D ,are -o!der.' /quity ( 32000000 )otal sset turnover " 1ales % verage )otal ssets 5alculate the return on common e>uit/2

f) D " B'*'''*''' % verage )otal ssets g) verage )otal ssets " B'*'''*''' % D

,$ 01erage 2ota! 0''et' ( #00,00,000

$;. Requirement no 3. 5alculate the ccount !eceiva.le* assuming 3@' da/s in a financial /ear2 $B. o!ution a) verage 5ollection &eriod " (#a/s F ccount !eceiva.le)%5redit 1ale .) We assume total sale as 5redit 1ale c) ; da/s " ( 3@' F ccount !eceiva.le) %B'*'''*''' d) B'*'''*''' F ; " 3@' F ccount !eceiva.le e) B'*'''*''' F ; % 3@' " account receiva.le f$ 0ccount Recei1ab!e ( 1","","""
hat is the !asic goa" of a corporation# $nswer3 4he traditiona" answer is that the managers of the corporation are o!"iged to ma&e efforts to ma5imi7e shareho"der wea"th. $"ternative"y, the goa" of the financia" manager is to ma5imi7e the current va"ue per share of the e5isting stoc&.

g. /uestion3 hat is the difference !etween 8ross or&ing 2apita" and *et or&ing 2apita"#

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$nswer3 4he term 8ross or&ing 2apita" refers to tota" current assets whereas *et or&ing 2apita" is equa" to tota" current assets minus tota" current "ia!i"ities. h. /uestion3 $nswer3 hat ro"e a 9inancia" :anager is supposed to p"ay # 4o create va"ue, the financia" manager shou"d3 ) try to ma&e smart investment decisions. ) try to ma&e smart financing decisions. i. /uestion3 $nswer3 ;ow many &inds are there of !usiness structures# 4here are three main &inds of !usiness structures3 ) So"e)proprietorship ) <artnership ) 2orporation =. /uestion3 $nswer3 hat &ind of ro"es 4reasure and 2ontro""er p"ay under 2hief 9inancia" Officer -29O.# $ treasurer p"ays ro"e of a financia" manager whereas a contro""er p"ays ro"e of an accountant. &. ". /uestion3 $nswer3 >s 9inance important for other areas of the firm# ?es, 9inance is as important for other areas as it is for the finance section of a firm. m. /uestion3 $nswer3 hat are the four !asic areas of 9inance# 9our !asic areas of 9inance inc"ude3 ) @usiness 9inance ) >nvestment ) 9inancia" >nstitution ) >nternationa" 9inance n. /uestion3 $nswer3 hat u"timate o!=ective shou"d !e achieved !y ma&ing a capita" structure# 4he u"timate o!=ective whi"e ma&ing a capita" structure is to ma5imi7e the overa"" va"ue of the firm. o.

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/uestion3 $nswer3 hat is meant !y the term A2apita" @udgetingA# 2apita" @udgeting is the process of p"anning e5penditures on assets whose cash f"ows are e5pected to e5tend !eyond one year. >n other words, the process of p"anning and managing a firmBs "ong)term investments. p. /uestion3 $nswer3 /uestion3 $nswer3 ;ow the !usiness structure ASo"e)<roprietorshipA wi"" !e defined# $ so"e proprietorship is a !usiness owned and operated !y one individua". ;ow the !usiness structure A<artnershipA wi"" !e defined# $n unincorporated !usiness owned !y two or more persons. q. /uestion3 $nswer3 ;ow the !usiness structure A2orporationA wi"" !e defined# $ "ega" entity created !y a state, separate and distinct from its owners and managers, having un"imited "ife, easy transfera!i"ity of ownership, and "imited "ia!i"ity. 19 Assignment-Acc-501 ID-mc100402142

ABC Manufacturing Company Year ended Decem er !1" 2009

4. Requirement no 1.

1ales !s.B'*'''*''' 0ross profit margin B'C 3perating profit margin 38C Net profit margin BC !eturn on total assets $@C !eturn on common e>uit/ D'C )otal assets turnover D verage collection period ;' da/s

5alculate the value for 0ross profit2

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8.

o!ution
d. 8ross profit + sa"e ) cost of goods so"d e. 8ross profit + C0,000,000 D 1(0,00,000 f. 8ross profit + (%,000,000

@. Requirement no 2.
%. #o$ution g. h. i. =. &.

5alculate the value for 5ost of goods sold2

8ross profit margin ratio + -revenue D cost of goods so"d.6revenue C6100 + -C0,000,000 D cost of goods so"d.6C0,000,000 C6100 E C0,000,000 + C0,000,000 D cost of goods so"d (%000000 + C0,000,000 D cost of goods so"d 2ost of goods so"d + C0,000,000)(%0,00,000

l) 5ost of 0oods 1old " $@'*''*'''

Requirement no 3. 5alculate the value for operating profit margin2

(. #o$ution e. f. g. h. Operating profit margin + operating income 6 revenue 056100 + operating income 6 C0,000,000 056100 EC0,000,000 + operating income Operating income + 2C0,00,000

%e&uirement no 4'

2a"cu"ate the va"ue for Operating e5penses#

#o$ution

h) 3perating e-penses " (gross profit E operating income)

i. () &. ". m. n. Operating e5penses + (%0,00,000 D 2C0,00,000 *perating e+penses , !-0"00"000 *et profit margin + *et profit-after ta5. 6 revenue E 100 0.C + *et profit -after ta5. 6 C0,000,000 0.CEC0,000,000 + *et profit -after ta5. .et profit -after ta5. + (%,00,000

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G. %e&uirement no 5' stoc&ho"ders#

2a"cu"ate the va"ue for Harnings avai"a!"e for common

10. #o$ution d. Harnings avai"a!"e for common stoc&ho"ders + *et profit -after ta5. + (%00000 e. 1eturn on assets + *et income 6 4ota" assets f. 1(6100 + 2C000000 6 4ota" assets

10

%e&uirement no -'

2a"cu"ate the va"ue for tota" assets#

1% #o$ution

d) 1ince operating income is also called net income e) )otal assets " DB'*''*''' % ($@%$'') f) )otal assets " $;8'*''*'''

15

%e&uirement no /'

2a"cu"ate the return on common equity#

1( #o$ution

i. =. &. $)

1eturn on 2ommon Hquity + *et income-after ta5. 6 share ho"derIs equity 206100 + (%,00,000 6 share ho"derIs equity Share ;o"derIs Hquity + (%00000 6 0.2 #0are 1o$der2s 3&uity , !2000000

m) )otal sset turnover " 1ales % verage )otal ssets

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n) D " B'*'''*''' % verage )otal ssets o) verage )otal ssets " B'*'''*''' % D

p$ 01erage 2ota! 0''et' ( #00,00,000

1F. %e&uirement no 4' 2a"cu"ate the $ccount 1eceiva!"e, assuming 0(0 days in a financia" year#

1C. #o$ution

r)

verage 5ollection &eriod " (#a/s F ccount !eceiva.le)%5redit 1ale

s) We assume total sale as 5redit 1ale t) ; da/s " ( 3@' F ccount !eceiva.le) %B'*'''*''' u) B'*'''*''' F ; " 3@' F ccount !eceiva.le v) B'*'''*''' F ; % 3@' " account receiva.le 4$ 0ccount Recei1ab!e ( 1","","""
ynta+ Corporation 0as t0e fo$$o5ing capita$ structure6 De entures , 7 !'2- Bi$$ion Common s0ares , 7 -'52 Bi$$ion 8ota$ , 7 9'/4 Bi$$ion 80e corporation 0as no preferred stoc9s in its capita$ structure' :nder t0e pre;ai$ing mar9et conditions" financia$ ana$ysts 0a;e estimated a return of 1!< p'a for common s0are of t0e corporation' De entures carry an interest rate of 9'5<' Corporate ta+ rate is !9<' =0at 5eig0ted a;erage cost of capita$ 5ou$d you suggest for t0e corporation' Your suggestion s0ou$d e supported y a$$ necessary ca$cu$ations' >5)

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So"ution

Case6 01

#ynta+ Corporation6 ?i;en Information6 De entures >D) Common s0ares >3) 8ota$ Capita$ #tructure inc$uding de t and e&uity >@) 1eturn on common stoc& 10.0 J 7 !'2- Bi$$ion 7 -'52 Bi$$ion 7 9'/4 Bi$$ion

1eturn on de!enture

G.5 J

2orporate 4a5

0G

=eig0ted a;erage cost of capita$ >=ACC)

=eig0ted a;erage cost of capita$ , >3&uity B 8ota$ Capita$)CCost of %etained earning D >De t B 8ota$ Capita$) C Cost of de t > 1 E Corporate ta+ rate) =ACC , >3B@) C %e D >DB@)C%d >1 E 8) + -$ (.52 !i""ion 6 $ G.FC !i""ion.E 10J , -$ 0.2( !i""ion 6 $ G.FC !i""ion.EG.5 J- 1 D 0GJ. + -.(((F.E.10 , -.0000.E.0G5-.(1. + .0C((F1 , .01G01% + .105GC5

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+ 10.5GC5J + 10.(0J

4he tota" weighted average cost of capita" for #ynta+ Corporation is 10'-0<'It means t0e #ynta+ Corporation must 0a;e to earn 10'-0< on its assets'

Fuestion G 1 6 Fuestion G 1 6 >10)

Hach of the fo""owing mutua""y e5c"usive investment pro=ects invo"ves an initia" out"ay of 1s. 2%0,000. 4he estimated net cash f"ows for the pro=ects are as fo""ows3

Year 1 2 0 % 5

Cas0 H$o5s >%s') Iro(ect A 1%0,000 C0,000 (0,000 20,000 20,000 Iro(ect B 20,000 %0,000 (0,000 100,000 1C0,000

4he companyIs required rate of return is 11 percent.

%e&uired6

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2a"cu"ate the NPV and IRR for !oth pro=ects. hich pro=ect shou"d !e chosen and hy#

I%*J3C8 A6

.et Iresent @a$ue >.I@)6

*<K

+ ) > o , L2916-1,r.M , L2926-1,r.2M , L2906-1,r.0M , L29%6-1,r.%M , L2956-1,r.5M

+ ) 2%0,000 , L 1%0,000 6 -1.11. M , L C0,000 6 -1.11.2 M , L (0,000 6 -1.11.0 M , L 20,000 6 -1.11.% M , L 20,000 6 -1.11.5 M

+ )2%0,000 , - 1%0,000 6 1.11. , - C0,000 6 1.2021 . , - (0,000 6 1.0(F( . , - 20,000 6 1.51C1 . , -20,000 6 1.(C51 .

+ ) 2%0,000 , 12(,12( , (%,G00 , %0,CF2 , 10,1F% , 11C(G

+ ) 2%0,000 , 25G,GF1

.I@

, %s' 19"9/1

Interna$ %ate of %eturn >I%%)6

>11 can !e ca"cu"ated !y tria" and error method3

$t 11 J discount rate3

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*<K + 1s. 1G,GF1 -ca"cu"ated a!ove.

$t 10 J discount rate3
*<K + ) 2%0,000,L1%0,0006-1.10.M,LC0,0006-1.10.2M,L(0,0006-1.10.0M,L20,0006-1.10.%M,L20,0006-1.10.5M + ) 2%0,000 , 120,CG% , (2,(52 , %1,5C0 , 12,2(( , 10,C55 + ) 2%0,000 , 251,250 + 1s. 11,250

$t 15 J discount rate3
*<K + ) 2%0,000,L1%0,0006-1.15.M,LC0,0006-1.15.2M,L(0,0006-1.15.0M,L20,0006-1.15.%M,L20,0006-1.15.5M + ) 2%0,000 , 121,F0G , (0,%G1 , 0G,%50 , 11,%05 , G,G%% + ) 2%0,000 , 2%0,05G + 1s. 0,05G

$t 1F J discount rate3
*<K + ) 2%0,000,L1%0,0006-1.1F.M,LC0,0006-1.1F.2M,L(0,0006-1.1F.0M,L20,0006-1.1F.%M,L20,0006-1.1F.5M + ) 2%0,000 , 11G,(5C , 5C,%%1 , 0F,%(0 , 10,(F0 , G,122 + ) 2%0,000 , 205,05F + 1s. ) %(%0

*<K appears to !e 7ero et5een 15< and 1/<" so >11 is somewhere in that range. "itt"e effort we can find that the >11 is a!out 15.FG J

ith a

>11 + Nower discount 1ate , 'ifference !etween the two discount rates 5 -*<K at "ower discounted rate 6 a!so"ute difference !etween the *<Ks of the two discount rates. + 15 , - 1F D 15 . 5 - 0,05G 6 -0,05G D - ) %(%0 .. + 15 , 2 5 - 0,05G 6 F,F02 . + 15 , 2 5 0.0GF2

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+ 15 , 0.FG%% I%% , 15'/9 <

I%*J3C8 B6

.et Iresent @a$ue6

*<K

+ ) > o L2916-1,r.M , L2926-1,r.2M , L2906-1,r.0M , L29%6-1,r.%M , L2956-1,r.5M

+ ) 2%0,000 , L 20,000 6 -1.11. M , L %0,000 6 -1.11.2 M , L (0,000 6 -1.11.0 M , L 100,000 6 -1.11.% M , L 1C0,000 6 -1.11.5 M

+ )2%0,000 , - 20,000 6 1.11. , - %0,000 6 1.2021 . , - (0,000 6 1.0(F( . , - 100,000 6 1.51C1 . , - 1C0,000 6 1.(C51 .

+ ) 2%0,000 , 1C,01C , 02,%(5 , %0,CF2 , (5,CF2 , 10(,C1G

*<K

+ ) 2%0,000 , 2(F,0%(

.I@

, %s' 2/"04-

Interna$ %ate of %eturn >I%%)6

>11 can !e ca"cu"ated !y tria" and error method3

$t 11 J discount rate3

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*<K + 1s. 2F,0%( -ca"cu"ated a!ove.

$t 10 J discount rate3
*<K + )2%0,000,L20,0006-1.10.M,L%0,0006-1.10.2M,L(0,0006-1.10.0M,L100,0006-1.10.%M,L1C0,0006-1.10.5M + ) 2%0,000 , 1F,(GG , 01,02( , %1,5C0 , (1,001 , GF,(GG + ) 2%0,000 , 2%G,(0C + 1s. G,(0C

$t 15 J discount rate3
*<K + )2%0,000,L20,0006-1.15.M,L%0,0006-1.15.2M,L(0,0006-1.15.0M,L100,0006-1.15.%M,L1C0,0006-1.15.5M + ) 2%0,000 , 1F,0G1 , 00,2%( , 0G,%50 , 5F,1F( , CG,%G% + ) 2%0,000 , 200,F5F + 1s. D (,2%0

*<K appears to !e 7ero et5een 1!< and 15<" so >11 is somewhere in that range. "itt"e effort we can find that the >11 is a!out 1%.21 J

ith a

>11 + Nower discount 1ate , 'ifference !etween the two discount rates 5 -*<K at "ower discounted rate 6 a!so"ute difference !etween the *<Ks of the two discount rates. + 10 , - 15 D 10 . 5 - G,(0C 6 -G,(0C D - ) (2%0 .. + 10 , 2 5 - G,(0C 6 15,CC1 . + 10 , 2 5 0.(0(G + 10 , 1.210C I%% , 14'21 <

C*.CK:#I*.6

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<ro=ect $ has *<K of 1s.1G,GF1 and >11 for the pro=ect is 15.FC J. <ro=ect @ has *<K of 1s. 2F,0%( and >11 for the pro=ect is 1%.1G J. On the !asis of these findings, >t can !e o!served that according to >11 !oth pro=ects are good !ecause required rate of return for !oth pro=ects is "ess than >11 !ut the company shou"d go for <ro=ect @ as it has a higher *<K. Fuestion6 9o""owing are some information a!out S*4 2ompany3 2ompany =ust paid a dividend of 1s.2 per share. 2ompany has a share price of 1s.00. 4he dividends are e5pected to grow O 10J forever. 2ompany has 1s.F5 mi""ion in equity and 1s.F5 mi""ion in de!t in its tota" capita". 4he ta5 rate for the firm is 05J and the 2ost of de!t is CJ.

%e&uired6 2a"cu"ate the #o$ution6 eighted $verage 2ost of 2apita" - $22. for S*4 2ompany.

Cost of Equity:

<0 8 '0 So, <0 00

+ 1s. 00 + 10J + 1s. 2

+ +

'0 -1,g. 6 1H Dg 2 -1.10. 6 1H D 0.10 2.20 2.20 5.20

00 -1H ) 0.10. + 001H 001H ) 0.0 + +

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1H %3 + , 5.20600 0'1/!! or 1/'!!<

WACC:

Hquity + H 'e!t + 4ota" + 4c 1H 1' $22 + $22 $22 $22 $22 $22 =ACC ' K

+ + + + + + # + + + + + ,

1s. F5 :i""ion 1s. F5 :i""ion 1s. 150 :i""ion 05J 1F.00J CJ

-H6K. 5 1e

L-'6K. 5 1' ,

1 ) 42M 5 1 ) 0.05M

-F56150. 5 0.1F00 0.50 5 0.1F00 0.0C((5 0.0C((5 0'112/ , , ,

L-F56150. 5 0.0C L0.50 5 0.0C

5 0.(5M

L0.0%0 5 0.(5M 0.02(0

or 11'2/<

Question:

Marks: 10

The following data is from Saratoga Farms Inc. 2004 financial statements.

Sales Net Income Total Assets e!t to Total Asset "ation

= = = =

$ 2,000,000 $ 200,000 $ 1,000,000 #0

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Required a$ %onstr&ct and sol'e the &(ont e)&ation for Saratoga Farms. !$ *hat will !e the im(act on "+, if e!t to Total Assets "atio were 20-. Solution: a) Dupont Equation &(ont e)&ation is &sed to /&dge the im(act of o(erational efficienc0 and effecti'eness on the ret&rn on e)&it0 and assets or we can sa0 on the o'erall (erformance of the com(an0. The &(ont e)&ation can !e o!tained !0 decom(osing the "+,. It can !e achie'ed thro&gh following wa01

"+,

Net Income = 22222222222222222222 Total ,)&it0

3&lti(l0ing it !0 Assets 4 Assets 5witho&t changing an0thing$ Net Income Net Income Assets 2222222222222222 = 2222222222222222 6 22222222222 Total ,)&it0 Total ,)&it0 Assets

"+, =

Net Income Assets "+, = 222222222222222222222 6 2222222222222222 Assets Total ,)&it0 Net Income Assets "+, = 2222222222222222 6 2222222222222222 Assets Total ,)&it0 So, we ha'e e6(ressed "+, as a (rod&ct of two other ratios 7 "+A and the e)&it0 m&lti(lier "+, = "+A 6 ,)&it0 m&lti(lier = "+A 6 51 8 e!t2,)&it0 ratio$
Now we will calc&late the for the a!o'e date &sing &(ont A((roach9

"+,

= "+A 6 ,)&it0 3&lti(lier

"+,

Net Income

Net Sales

Assets

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Net Sales Assets ,)&it0

*e can find e)&it0 !0 total de!t to total assets ratio i.e. #0-. That means the e)&it0 to assets is 40-. In A!sol&te 'al&es it is 51,000,000 6 0.40$ = 400,000

So !0 (&tting the 'al&es in e)&ation we ma0 get,

"+,

200,000 2,000,000

2,000,000 1,000,000

1,000,000 400,000

"+,

= 0.:0 or :0 -

b) Now if debt to total asset ratio is 20% If de!t to total assets ratio is 20- that means that now e)&it0 is ;0- of the total assets i.e. ;00,000. The new "+, will !e as follows1

"+,

Net Income Net Sales

Net Sales Assets

6 ,)&it0

Assets

"+,

200,000 2,000,000

2,000,000 1,000,000

1,000,000 ;00,000

"+,

= 0.2: or 2: -

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"+, will !e decreased d&e to increase in e)&it0.

222222222222222222222222222222222222222Best of u!k22222222222222222222222222222222222222

2ime 5a!ue of Money

Mar6'7 10

8ue'tion7
0reme 1mith has to receive 9D''*''' five /ears from now and 9$''*''' seven /ears from now from an investment he has made. )he nominal rate of interest prevailing is $DC per annum. 5alculate the aggregate present value of .oth future cash flows for Mr. 1mith. o!ution7
5$ " 9 D''*''' 5D " 9 $''*''' r " $DC p.a. t$ " 8 /ears tD " ; /ears

ggregate &resent Halue "2

5alculate the present value for the first cash inflowI

&H' " &H' " &H' " &H' " &H' "

5$ % ($( r) t$ D''*''' % ($('.$D)8 D''*''' % ($.$D)8 D''*''' % $.;@D 9 $$3*8';.3B

Now calculate the present value for the second cash inflowI

&H' "

5D % ($( r) tD

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&H' " &H' " &H' " &H' " $''*''' % ($('.$D); $''*''' % ($.$D); $''*''' % D.D$' 9 48*DDB.4

)he aggregate present value " 9 $$3*8';.3B ( 9 48*DDB.4 " 9 $8B;38.;B

Question 1

Zig Zag Company has outstanding Rs.1, 000- face value bond with a 16 pe cent coupon ate and 6 yea s emaining until final matu ity. !nte est payments a e made "ua te ly. (12)

Required:

#hat would be the value of this bond if you nominal annual e"ui ed ate of etu n is as follows$

i) 1% pe cent

ii) 1& pe cent

iii) 1' pe cent$

Solution:

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Coupon of bond (C ( 1,000) 0.16 ( Rs. 160 *s payments a e made "ua te ly so, C ( 160 + , ( ,0

(i)

12 %

*s payments a e made "ua te ly, ( + , ( 0.1% + , ( 0.0t ( t . , ( 6 . , ( %,

/alue of 0ond( C . 11-21+ 314 56 t7+ 4 8+ 314 5 t

( ,0 . 11- 1 + 3140.0-5 %,7+0.0- 4 1000+ 3140.0-5 %,

( ,0 . 31- 0.,9195+0.0- 4 1000 + %.0-%'

( ,0 . 0.&0'1+0.0- 4 ,91.9-% ( ,0 . 16.9-6: 4 ,91.9-%

( 6::.,6: 4 ,91.9-%

( Rs. 1169.-99

Please read the following Instructions carefully before attempting the assignment solution.

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6 6 6 6 6

Assignment#01 covers Lecture 01-0 L!st "!te for su#mission of Assignment is $cto#er 1 % &00'( )ou c!n consu*t t+e recommen"e" m!teri!*( ,!-e sure t+!t you +!ve u.*o!"e" t+e Assignment #efore "ue "!te( No !ssignment /i** #e !cce.te" t+roug+ E-m!i* !fter t+e "ue "!te( Cheating or copying of assignment is strictly prohibited !o credit "ill be gi#en to copied assignment$

01o to t+e ne2t .!ge3

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Total marks: 10

Question 01

W+y fin!nce is im.ort!nt for #usiness firm4 01ive !ns/er /it+ reference to t+e im.ort!nce of fin!nce in "ifferent "e.!rtments of ! firm3( ( !

"nswer: 5in!nce is !s im.ort!nt for t+e ot+er !re!s of t+e #usiness !s it is im.ort!nt for t+e 5in!nce "ivision of t+e firm( it is !s muc+ im.ort!nt for t+e m!r-eting "e.!rtment% for gener!* m!nger !n" for t+e !ccount!nt !s it is for t+e fin!nci!* m!nger *i-e6

,!r-eting m!nger must nee" to -no/ t+e #u"get to un"ert!-e t+e !ctivities of t+e .ro7ect6 t+ey must nee" to *oo- !t t+e e2.en"itures !n" revenues of t+e .!rticu*!r .ro7ect(

,!r-eters +!ve to m!-e t+e cost-#enefit !n!*ysis6 t+ey +!ve to cover t+e !s.ects *i-e% t+e im.!ct of t+e .ro7ect on t+e ot+er .ro"uct of t+e firm t+e future #enefits of t+e .ro7ect( ,!r-eting rese!rc+ nee"s fun"s !*ong /it+ t+e .erson!* efforts of t+e rese!rc+ers% surveys un"ert!-ing nee" money( 8+ey must "eci"e !#out t+e "istri#ution c+!nne*% t+ey se*ect t+e c+!nne* in cost .ers.ective( W+!t .rice /ou*" #e c+!rge" to t+e fin!* .ro"uct4 A** t+ese questions +!ve to !ns/er #y t+e m!r-eting m!nger(

9o t+e m!r-eting m!nger:s m!7or "ecisions revo*ve !roun" t+e fin!nce(

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,!n!gement "ecisions eit+er re*ev!nt to m!r-eting% m!n!gement or fin!nce !** nee" to -no/ fin!nce(

+um!n

resource

9tr!tegic m!n!gement "ecisions most #!se" on fin!nce t+e m!nger c!nnot im.*ement ! sing*e .*!n un*ess it is fin!nci!**y vi!#*e(

Question 0#

W+!t is "ifference #et/een ! contro**er !n" ! tre!surer4

($!

"nswer: Contro**er +!s t+e res.onsi#i*ity of t+e Accounting section 0;e!" of t+e Accounting 9ection3 .re.!re fin!nci!* st!tements( 8re!surer is t+e +e!" of t+e 5in!nce section !n" .*!ys t+e ro*e of fin!nci!* m!n!ger( Loo- !t from /+ere to gener!te fun"s !n" +o/ to invest t+em(

Question 0$

W+!t !re t+e -ey questions !ns/ere" #y t+e su#7ect of <usiness 5in!nce4 (#!

"nswer:

%apital budgeting: /+ere to invest in t+e *ong run4 %apital structure: from /+ere to r!ise fun"s4 W+!t s+ou*" #e t+e r!tio of equity !n" #orro/e" money4 &orking capital management: +o/ to m!nge /or-ing c!.it!*4

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87 define fi',er effect nswer: J t,e 9i',er /ffect )he relationship .etween real and nominal returns is descri.ed ./ the Aisher ?ffect. Ket: R " the nominal return r " the real return h " the inflation rate. 87 find compound intere't nswer: J if interest is left in the account to accumulate for a longer period (usuall/ longer than one /ear)* common practice re>uires that after interest is earned and credited for a given period* the new sum of principal ( interest must now earn interest for the ne-t period* etc. )his is compound intere't. 87 find out rea! rate... nswer: J Rea! Rate of :ntere't L When real rate is highI all interest rates will tend to .e higher and vice versa. L )hus real rate does not reall/ determine the shape of the term structure rather it influences the overall level of interest rates 8$ ;0n in1e'tment i' acceptab!e if t,e :RR e&ceed' t,e required return. :t ',ou!d be re<ected ot,er4i'e.= /&p!ain. 0* >/R7 6Now for our e-ample* N&H for the investment at discount rate ! is: N&H " :9$'' ( $$'%($ ( !) 6Now if we don=t know the discount rate* it represents a pro.lem. ,ut still we could ask* how high the discount rate would have to .e .efore this proMect was unaccepta.le. 6)he investment is economicall/ a .reak:even proposition when the N&H is Nero .ecause the value is neither created nor destro/ed. 6)o find the .reak:even discount rate* we set N&H e>ual to Nero and solve for ! N&H " ' " :9$'' ( $$'%($ ( !)O 9$'' " 9$$'%($ ( !) $ ( ! " 9$$'%$'' " $.$' ! " $'C 6)his $'C is what we alread/ have called the return on this investment.

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acc501 paper May 12" 2011 acc501 !usiness finance &a paper tha a= o=! start &e chap mein se tha ... !ut a"most su! mein se tha ... ratios mein se numerica"s tha ... ai& profit margin, roe wa"a numerica" tha su!=ective mein... !enchmar&ing aur !onds aur va"ueing !onds 7aroor parh "yna ... interest rate &a numerica" tha ... nomia" rate aur return rate mein diffenece aya tha ... !est of "uc& to a"" of u for papers :y paper of today3 /31 hat are the !asic three determinants of term structure# 0:ar&s /32 $ccording to 'u <ont >dentity /30 hat are the tree things !y which 1OH is affected# 0:ar&s

hy financia" statements are standardi7ed and how it done# 0:ar&s

/3% S*4 >nc !ond have a 1s.1000 9uture Ka"ue. 4he promised annua" coupon is 1s.C0 and the !ond mature in 15years. 4he mar&et required return on simi"ar !ond is 10J. 2a"cu"ate the Ka"ue of !ond and weather it is 'iscount !ond or <remium !ond# 5:ar&s

Mostl/ o.Mectives were short numerical like !3 * compound interest* nnuities* etc. (from old papers and >uiN also). 1imple interest calculation numerical P want to deposit $'*''' in .ank at interest rate BC what will . the amount after 4 /ears if .ank offers simple interest rate 3 marks #efine .enchmarking 8 marks #efine de.t and e>uit/ 8 marks

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What are the contents of the indentures 3 marks
/uestion P 1 -0 :ar&s. :ethod of 2a"cu"ating ?ie"d to :aturity# /uestion P 2 -0 :ar&s. what is meant !y tota" assets management ratios# name any common ratio under this category# /uestion P 0 -5 mar&s. @ond va"uation *umerica" question, given from discount !ond va"uation.# /uestion :ateria"3 face va"ue + 1000 annua" coupon + C0 t + 15 years :ar&et va"ue of the identica" !ond + 10J /uestion P % -5 :ar&s. 9ind the de!t equity# when profit margin ratio + 10J, 4ota" $ssets 4urnover + 1.05times, 1OH + 15.F0J.

a"" the a!ove are the su!=ective questions with mi5ed o!=ective questions, most"y from the !ond va"uation, 1atios, Hnding 5 chapters are more important for o!=ective <urpose. /uestion P 1 -0 :ar&s. :ethod of 2a"cu"ating ?ie"d to :aturity# /uestion P 2 -0 :ar&s. what is meant !y tota" assets management ratios# name any common ratio under this category# /uestion P 0 -5 mar&s. @ond va"uation *umerica" question, given from discount !ond va"uation.# /uestion :ateria"3 face va"ue + 1000 annua" coupon + C0 t + 15 years :ar&et va"ue of the identica" !ond + 10J /uestion P % -5 :ar&s. 9ind the de!t equity# when profit margin ratio + 10J, 4ota" $ssets 4urnover + 1.05times, 1OH + 15.F0J.

M/ paper:

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total >sns "D; M5Q7s " DD short >sns " 8 3 marks " 3 >sns 8 marks " D >sns.
1. hat do profita!i"ity ratios measure# *ame common"y used ratios used in this regard. -0. 2. rite down the content of !ond indenture. -0. 0. %. 5. hy the present va"ue of an ordinary annuity is "ess than that of an annuity due# -0. rite interna" and e5terna" uses of financia" statements information. -5.

(. 9ind out the current price of the stoc& in the fo""owing case3 -5.

(a). Mr sad .u/s a share of stock toda/* with a plan to sell it in a /ear. its worth will .e !s. G' at that time. along with a dividend pa/ment of !s. $' per share. !e>uired !ate of return on investment is D8C. (.). 1N) corporation has polic/ of pa/ing Q!s $8 per share dividend per /ear. )his polic/ is to continue definitel/ with a re>uired rate of return of D'C.
$ company has tota" annua" sa"es -25J on cash !asis. of 1s.0,000,000 and a gross profit margin of 20 J. >ts current assets are 1s. 500,000Q current "ia!i"ities are 1s. 0%0,000Q inventories are 1s. 2(0,000Q and cash is 1s. (0,000. 2a"cu"ate3 -a. ;ow much average inventory shou"d !e carried if management wants the inventory turnover to !e 5 times# and -!. ;ow rapid"y -in how many days. must accounts receiva!"e !e co""ected if management wants to have an average of 1s.2%0,000 invested in receiva!"es# -$ssume a 0(5)day year..

Mid term e+amination Ha$$ 2011 My today paper of ACC501

4here were 02 questions having tota" %5 mar&s 2G :2/ 2 *umerica" and 2 su!=ective questions most of the :2/s were from Necture no 0C to onward

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/ no 2G3

hat is the difference !etween nomina" and rea" rate of return# 0 mar&s

/ *o3 003 if the equity mu"tip"ier is 1.(0 profit margin CJ and tota" annua" turnover is 1.02 find the 1OH# / *o 013 2ompare the return on stoc& !ond and ris& on stoc& !ond# 5 mar&s

/ 023 > forgot the va"ues !ut numerica" was a!out ma+imum sustaina $e rate of gro5t0A

Ist dec Difference et5een de t and e&uity mar9s! Difference et5een rea$ and nomina$ rate mar9s5 *ne is re$ate to de t e&uity ratio formu$a mar9s! 50y is t0e rate of ordinary e&uity is $ess t0en annuity due mar9s! and mc&s are a$$ a out t0e formu$a of ratioLs 50y an ordinary annuity is $ess t0an annuity due mar9s ! Difference et5een semiannua$ and &uarter$y coupon onds mar9s ! =0at is meant y protecti;e co;enant' 1o5 it can e c$assified'Descri e in detai$ mar9s 5 %*A 4 percent" di;idend payout ratio !0 percent" profit margin is 5 percent' ca$cu$ate ma+imum sustaina $e rate' mar9s 5

?acc"01 midterm no1 2011 paper @ ',are ur paper?

ppr bht easy tha mcqs bi bht easy thy total 32 qtn 28 mcqs short qtn fisher effect with example why ordinary annuity is less than the annuity due internal and external use of financial statement bond wit face value $1000 coupon rate 80 with 10 % maturity a for the 15 years calculate bond valu

acc"01 current today paper' upa!od no444

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M/ paper was awesome total 3D >uestion DB mc>s which were mostl/ from ratio anal/sis and ,3N#1 related long >uestion were $: dividend pa/out and retention ratio and their relationship D: calculation of real interest rate when nominal rate and inflation was given. 3: how we calculate the /ield to maturit/ of a .ond 4:AH calculation 2 when principal was $D''' and GC interest rate four /ears investment period.
28 MCQs difference between public issued bond and public bond (3) why value of ordinary annuity is less than due annuity? (3) What is dividend payout and retension ratio? and their
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relationship? (5) calculate real rate if a) o!inal rate is "5# and inflation rate is $# b) o!inal rate is "2# and inflation rate is 5#
what is optimal credit policy state? 3 what is difference between market value and book value? 3 how cost of debt can be measured? 3 define benchmarking and its method? 5 find out portfolio? 5 find out capita gain and dividend yeild and total percentage of return? 5 describe difference type of firm's inventory and retail business? 5 what is the best cash policy

paper consists of 69 Questions out of which 62 are multiple choice out of which some are from !ast papers ACC501 CurReNT PAPER FINAL TRM FEBRUARY 2011

Question having total marks 03. are "# $hat does %&tand alone principle% state 2# $hat does %'ptimal credit !olicy% state 3# (dentify systematic and unsystematic risk from followings "# (nterest )ate 2# &trike call in a company 3# *ross +omestic product Question having total marks 05. are "# !repare a !ro,ected income statement 2# +efine the term%-ankruptcy% and types of -ankruptcy cost 3# !repare li.uid )atios from a given -alance sheet /# +efine following 0erms1 "# 'perating 2ycle 2# 2ash cycle

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3# (nventory !eriod /# 34) !eriod 5# 34! !eriod ## what is optimal credit policy state? 3 what is difference between market value and book value? 3 how cost of debt can be measured? 3 define benchmarking and its method? 5 find out portfolio? 5 find out capita gain and dividend yeild and total percentage of return? 5 describe difference type of firm's inventory and retail business? 5 what is the best cash policy

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