MGT411 Assignment No. 2 Solution

QUESTION #1:Marks 20)
Mr.Toseef,the Chief Financial Officer of a mutual fund Company,was given the task to ascertain the firm ’s bond and stock values.To perform the necessary analysis,Mr.Toseef gathered the following relevant data on the firm ’s bonds and stocks.BONDS:The firm has a Rs.1,000 par value bond with a 9 percent coupon interest rate outstanding. The bond has 12 years remaining to its maturity date.STOCKS:The firm ’s common stock currently pays an annual dividend of Rs.1.80 per share.The required return on the common stock is 12 percent.

REQUIRED:
Bonds:

A.If interest is paid annually ,what is the value of the bond when the required stated return is 10 percent
B.Using the 10 percent required return,find the bond ’s value when interest is paid semiannually Stock:

Estimate the value of common stock under each of the following dividend-growth-rate assumptions:

A.Dividends are expected to grow at a constant annual rate of 5 percent to infinity.
B.Dividends are expected to grow at an annual rate of 5 percent for each of the next 3 years followed by a constant annual growth rate of 4 percent in years 4 to infinity.

Solution:-

Question#1 Solution:

Bond Valuation
Part a)
Bond value = c [1 – 1/(1+r)^n] / r + Par/(1+r)^n
Bond value = 90 [1 – 1/(1+0.10)^12] / 0.10 + 1000/(1+0.10)^12
Bond Value = 90 [1 – 0.3186 /0.10] + 1000/3.1384
Bond value = 90 (6.814) + 318.63
Bond value = 613.26 +318.63
Bond Value = 931


Part b)
Bond value = c [1 – 1/(1+r)^n ]/ r + Par/(1+r)^n
Bond value = 45 [1 – 1/(1+0.05)^24 / 0.05 + 1000/(1+0.05)^24
Bond Value = 45 [1 – 0.3100 /0.05] + 1000/3.2250
Bond value = 45 (13.8) + 310.07
Bond value = 621 +310.
Bond Value = 931


Part a)
P = Div(1+g)/rF +rP – g

D = 1.80
Rce = rF +rP = 12%
g = 5%

P = 1.80 (1+0.05) / 12% - 5%
P = 1.80 (1.05) / 7%
P = 1.89/0.07
P = 27

Part b)
Div1= Do(1+g)3
Div1= 1.80 (1+0.05)3
Div1= 1.80 (1.1576)
Div1 = 2.083

P0 = D0 x (1 + g)/(R – g)
P0= 2.083 x 1.04/(0.12 – 0.04)
P0= 2.166 / 0.08
P0= 27.075

QUESTION #2 Marks 10)
A commercial bank has following data:
Total assets valued Rs.1,000,000
Item Assets Liabilities
Interest rate sensitive 30%40%
Interest rate non-sensitive 70%60%
Initial interest rate 10%7%
Interest rate increase 2%both in assets and liabilityRequired
What will be the net interest profit increase /decrease due to the interest rate change your answer should be in absolute amount.

Solution:-

Assets
Liabilities
Interest rate sensitive
300000
400000
Not interest rate sensitive
700000
600000
Initial interest rate
10%
7%
New increased interest rate on interest rate sensitive assets & liabilities
12%
9%
Revenue from Assets
Revenue from Liabilities
At initial interest rate
(0.10×300000)+(0.10×700000)
=100000
(0.07×400000)+(0.07×600000)
=70000
After an increase in interest rate
(0.12×300000)+(0.10×700000)
=106000
(0.09×400000)+(0.07×600000)
=78000
Profits at an initial interest rate:
Profit = (100000) – (70000) = 30000
Profits after an increase in interest rate:
Profit = (106000) – (78000)=28000
Gap Analysis Gap between interest rate sensitive assets and interest rate sensitive liabilities = (Interest rate sensitive assets of 300000) – (Interest rate sensitive liabilities Of 400000) =(Gap of - 100000)

Please do make changes in these assignment otherwise every one who copy this assignment as it is will awarded zero marks

MGT301 Idea Solution

Mgt301- assignment#2
“Product Plan”

Pepsi and Coca Cola are market leaders of beverage industry in Pakistan .You are the marketing manager of newly established Beverage Company, XYZ limited and want to launch a soft drink in market. Higher management assigned you the task to prepare a plan for this product. You should prepare your plan by using following table and give suitable comments with logical reasoning.

Characteristics

Comments

Reasoning
Brand Name


1. The new philosophy
could be" Nothing happens until somebody brands something”

2. Branding is
more than just a business buzzword.

3. It has become the big art of selling the new product in market.



1. Brands should be seen as more than the difference between the
actual cost of a product and its selling price - they represent the sum of all
valuable qualities of a product to the consumer
2. successful branding programs begin with superior products and services, backed by excellent customer service that permeates an entire organization.
3. say if I am able to build
a powerful brand, I will be
able to create a powerful marketing plan.
Target Market

Cafeterias, general stores, small and large plazas , big and small shops , five star three hotels, guest houses parks and all public places , etc .

1. The Coca-Cola Company when advertising, has a primary target market for
those who are in the age of 14- 22 years , and a secondary market for those people who age ranges 22 to 40 years .
2. Coca-Cola's diet soft drinks are targeted at consumers who are older in age, between the years of 45 and 60 who suffers from diabetes mellitus ( suger in blood )
Positioning Strategy

1. Positioning strategy is the market-oriented and best articulate the
competitive advantage within the market.
2. market-wide (or broad-based) or directed at a particular segment (or niche-focused)

1. By positioning strategy I can create an impressive image of my product in the customers , by doing so they will be more attractive the product and market value of value will be increased.
2. I need to equip
company with a wide variety of innovative strategic tools if they are to remain competitive.
2. many companies, ranging from multinationals to niche specialists, continue to
see volume growth well in excess of the
market average. I should follow their positioning strategy for the successful launching of the product.

Price Strategy































Increase or decrease in price of a product has great effect on the production of product . it affects buyers, competitors,
distributors, and suppliers and may interest government as well

1. In the start I should keep the price of the cold drink low , by doing so people will be attracted more and more towards to the new product, but it should be for a short time, after that when the people will get complete awareness about the new product then little increase in the price will not effect on the sale of new product if I will keep the quality of cold drinks up to mark.
2. on the other hand if I keep the price of cold drink very high in the start then , it is very possible that poor response I will get from the market because rich people will be able to buy the product but more than 70 % ( with average income or poor income ) will be unable to buy the new soft drink . Due to which initial introduction at a large scale will be unable. And will suffer loss in the market . so for price strategy it is necessary that I should keep the details of market demand price in mind.

Distribution Strategy

for excellent response for the new soft drink from the market , it is necessary fro me to enhance the proper distribution arrangement
to the target market.

1. to introduce the new soft cold drink in the market it is utmost necessary for me to make possible proper distribution of the product to all small and big shop, general stores cafeteria , hotels , parks and in banquet halls . By proper transporting of the product I will be able to get very fruitful response from the market and % of sales and profit will be very high.
2. on the other hand , after introducing the product in the market if the product is not transported in time to the target places then customers demand will not be fulfilled properly and as a result the product will loose its identity and customers will diverge to the other product and I will suffer a great loss.


Please do make changes in these assignment otherwise every one who copy this assignment as it is will awarded zero marks

MGT411 Assignment No. 2 Solution

QUESTION #1:Marks 20)
Mr.Toseef,the Chief Financial Officer of a mutual fund Company,was given the task to ascertain the firm ’s bond and stock values.To perform the necessary analysis,Mr.Toseef gathered the following relevant data on the firm ’s bonds and stocks.BONDS:The firm has a Rs.1,000 par value bond with a 9 percent coupon interest rate outstanding. The bond has 12 years remaining to its maturity date.STOCKS:The firm ’s common stock currently pays an annual dividend of Rs.1.80 per share.The required return on the common stock is 12 percent.
 

REQUIRED:
Bonds:

A.If interest is paid annually ,what is the value of the bond when the required stated return is 10 percent
B.Using the 10 percent required return,find the bond ’s value when interest is paid semiannually Stock: 

Estimate the value of common stock under each of the following dividend-growth-rate assumptions: 

A.Dividends are expected to grow at a constant annual rate of 5 percent to infinity.
B.Dividends are expected to grow at an annual rate of 5 percent for each of the next 3 years followed by a constant annual growth rate of 4 percent in years 4 to infinity.

Solution:-

Question#1 Solution:

Bond Valuation
Part a)
Bond value = c [1 – 1/(1+r)^n] / r + Par/(1+r)^n
Bond value = 90 [1 – 1/(1+0.10)^12] / 0.10 + 1000/(1+0.10)^12
Bond Value = 90 [1 – 0.3186 /0.10] + 1000/3.1384
Bond value = 90 (6.814) + 318.63
Bond value = 613.26 +318.63
Bond Value = 931


Part b)
Bond value = c [1 – 1/(1+r)^n ]/ r + Par/(1+r)^n
Bond value = 45 [1 – 1/(1+0.05)^24 / 0.05 + 1000/(1+0.05)^24
Bond Value = 45 [1 – 0.3100 /0.05] + 1000/3.2250
Bond value = 45 (13.8) + 310.07
Bond value = 621 +310.
Bond Value = 931


Part a)
P = Div(1+g)/rF +rP – g

D = 1.80
Rce = rF +rP = 12%
g = 5%

P = 1.80 (1+0.05) / 12% - 5%
P = 1.80 (1.05) / 7%
P = 1.89/0.07
P = 27

Part b)
Div1= Do(1+g)3
Div1= 1.80 (1+0.05)3
Div1= 1.80 (1.1576)
Div1 = 2.083

P0 = D0 x (1 + g)/(R – g)
P0= 2.083 x 1.04/(0.12 – 0.04)
P0= 2.166 / 0.08
P0= 27.075

QUESTION #2 Marks 10)
A commercial bank has following data:
Total assets valued Rs.1,000,000
Item Assets Liabilities
Interest rate sensitive 30%40%
Interest rate non-sensitive 70%60%
Initial interest rate 10%7%
Interest rate increase 2%both in assets and liabilityRequired
What will be the net interest profit increase /decrease due to the interest rate change your answer should be in absolute amount.

Solution:-

Assets
Liabilities
Interest rate sensitive
300000
400000
Not interest rate sensitive
700000
600000
Initial interest rate
10%
7%
New increased interest rate on interest rate sensitive assets & liabilities
12%
9%
Revenue from Assets
Revenue from Liabilities
At initial interest rate
(0.10×300000)+(0.10×700000)
=100000
(0.07×400000)+(0.07×600000)
=70000
After an increase in interest rate
(0.12×300000)+(0.10×700000)
=106000
(0.09×400000)+(0.07×600000)
=78000
Profits at an initial interest rate:
Profit = (100000) – (70000) = 30000
Profits after an increase in interest rate:
Profit = (106000) – (78000)=28000
Gap Analysis Gap between interest rate sensitive assets and interest rate sensitive liabilities = (Interest rate sensitive assets of 300000) – (Interest rate sensitive liabilities Of 400000) =(Gap of - 100000)

Please do make changes in these assignment otherwise every one who copy this assignment as it is will awarded zero marks