ASSIGNMENT FOR RC 74488

Financial Management
FIN 8091
Submitted by: Jaskarandeep Singh Aulakh
Submitted to: Margie Garcia
Student ID: A7892

Answer 1.

A.
P.V = $7000
R.O.T = 7%
TIME = 4 year
FV = PV(1+r)t
FV = 7000(1+7/100)4
FV = 7000(107/100)4
FV = 7000(1.07)4
FV = 7000*1.310
FV = $9175.57
B.1.
P.V = 400
TIME = 10 year
R.O.T = 10%
FV= PV(1+r)t
FV = 400(1+10/100)10
FV = 400(110/100)10
FV = 400(1.10)10
FV= 400*2.59
FV = $1037.49
B.2.
P.V = 400
Time = 5 year
R.O.T = 0%
FV= PV(1+r)t
FV = 400(1+0/100)5
FV = 400(1)5

FV = $400
B.3.
FV ordinary annuity = C*[(1+i)n-1/i]
Annuity due = C*[(1+i)n-1/i]*(1+i)
=400*[(1+10/100)10-1/10/100]*(1+10/100)
= 400*[(1.10)10-1/.1]*1.10
= 400*[2.59-1/.1]*1.10
= 400* [1.5937/.1]*1.10
= 400*15.937*1.10
= $7012.28

Answer 2.
A.I.
Small Cap = 40.7+33.9+(-35)+30+(-0.5)/5
= 13.82
Large Cap = (-1.5)+30.3+(-25.7)+30.3+(-1.5)/5
= 6.38
A.II.
Variance and Standard deviation of the small cap stock returns ND THE
Large cap returns
Mean of 13.82
40.7 - 13.82 =

26.8

718.24

33.7 - 13.82 =

20.08

35.0 - 13.82 =

-48.82

403.206
2383.39

30 - 13.82

16.18

261.79

.5 - 13.82

-14.32

205.06

3971.68

Variance = 3971.68/5 = 794.336

Mean of 6.38
-1.5 - 6.38 = -7.88

62.09

30.3 - 6.38 = 23.92

572.17

-25.7 - 6.38 = -32.08

1029.12

30.5 - 6.38 = 24.12

572.16

1.5 - 6.38 = -7.88

62.09
2297.65

Variance = 2297.65/5 = 459.53

B.
Standard deviation and range
Mean + 1*SD
10.5 + 1*9.5
10.5 1*21.44
-1 %
C.
Portfolio = $2 million
Investment = $100000
Portfolio beta = 1.1
Cost = 100000/2000000 = 1/20 = 0.05
Stock = 0.05
Beta of stock = .9
B * Stock worth
.9 * 0.05 = 0.045 1.1 0.045 = 1.055
1.4 * 0.05 = 0.07
Whole B * B * Selling worth + B * Adding worth
=1.1 - 0.9 * 0.05 + 1.4 * 0.05

=1.125
D.
He should not pull all his money in one company.

Answer 3.
A.
Present value : Initial Investment x (i tax rate)/(i + interest/100)
Annuity factor (i, time)
Annuity factor = i - (i + r)n
Deprecation tap shield i + r = Depreciation - inflation rate + tax rate
NPV = DTS + PV - initial investment
Cash flow*[i/r i/r(i + r)n
= 26785714.3*[8.33-1/0.12*1.76]
= 26785714.3*[8.33/1 1/0.211]
=26785714.3*[1.75 1/0.211]
=26785714.3*[0.75/0.211]
=26785714.3*3.6
=96428571.5 100000000
= 3.5 m
B.
Cash flow $25 million
Carry on = 10 years
PV = 25000000* [1/0.12 1/0.12(1.12)10
PV= 125892857.14
NPV = PV - Initial investment
NPV = 1258928574 - 132000000

NPV = 6.1m
Method B is best.
C.
I.
Regular Payback period = Time taken to retrieve investment
In project A we get $(5+10)= $15m in two years and rest $10m in =
12/15*10 months
= 0.8 year
So the payback period for A project = (2+0.8) year
= 2.8 years
In project B $20m in one year and rest $5m in 12/10*5 months
= 0.6 years
So PBA = 1 + 0.5 = 1.5 year
II.
Discounted Payback = CF/1+r
III.
He should accept both the project because NPV of both project is positive.
IV.
If the cost of project is 15% we should accept project B out of two
mutually exclusive projects because we takes less cost with compare to A.
D.
Payback method has limitation that It does not consider the TVM Time
Value Money in certain project and the decision is taken on individual
judgement this is or arbitrarily.

Answer 4.
A.
PV = FV/(1+r/100)t = FV/(1+0r)t

= 55/(1.05)1 + 55/(1.05)2 + 55/(1.05)3 + 55/(1.05)4 + 55/(1.05)5

PV = 984.3
B.
It is lower down.

Answer 5.
I.
2/10, net 40, may 1Dating
Date of invoice = 1 May
With discount = 11 May
Discount = 21
Without discount = 11 June
II.
Annual Sales = 200m
Cost of Goods sold = 150m
III.
a.
I C P = 75
A C P = 38
D O P = 30
C C C = DOS + 001 + DOP
=

75 + 38 - 30 = 83 days

b.
AS = $3375000
DOA = 38
DOA = Account receivable /sales/360
08 = AR/9375

AR = 368250
c.
=365/75
= 4.8

Answer 6.
Debt ratio : 50%
Quick ratio : 0.80x
Total assets turnover : 1.5x
Days Sales outstanding : 36 days (Calculation based on 360days a year)
Gross profit margin on sales : 25%
Inventory Turnover ratio : 5x

Balance Sheet
Cash

27000

Accounts Receivable
60000
Inventories

45000

90000

Fixed Assets
97500

138000

Account payable

90000

Long term debt

Common stock

52500

Retained Earnings

Total Assets

300000

Total Liabilities & Equity30000

Sales

450000

Cost of Goods Sold

Answer 7.
EBIT = $ 5 million
Interest = 0%
Assets = $30

337500

Income Tax = 34%

EBIT = 5 m + Interest = 0 = 5m
Tax 34% = 1.7m/3.3m
ROI = 3.3m/30m = 0.11
With loan
EBIT = 5m + INT = 1.5m = 3.5m
Tax (34%) = 3.5m * 34/100 = 1.19m
NI = 2.31
ROI = NI/TA
ROI = 2.3/1.5 = 0.154
ROI = 15.4%

Answer 8.
30% EQT
70% DEBT
Net Income = 2000000
Capital budget = 3000000 EQT = 30% = 900000
Dividend = ?
Ratio = Dividend Payout Ratio
Dividend/Net income
Dividend = net income -EQT
2000000 900000 = 1100000
Ratio = 1100000/2000000 = 0.55
Ratio = 55%