Fin630 Assignment No. 1 solution

1
Spring Semester 2011
“Financial Analysis & Portfolio Management (Fin 630)”
Assignment No. 01 Total Marks: 20


Question #01
Ellite Corporation has total assets of Rs. 6,000,000 of which Rs. 1,000,000 is inventory, Rs. 500, 000 is cash, Rs. 1,000, 000 is account receivable, Rs. 500, 000 is marketable securities and the balance is fixed assets. Ellite Corporation has total liabilities of Rs. 2,500, 000 of which current liabilities are Rs. 15, 00,000.


1. Calculate the current and quick ratio for Ellite Corporation.
2. If Ellite Corporation takes 250,000 from cash and pays off Rs. 250,000 of current liabilities, what happens to its current ratio and quick ratio?
3. If Ellite Corporation sells the inventory of Rs. 10, 00, 000 and places the proceeds from the sale of inventory in marketable securities, what happens to its current ratio and quick ratio?


Question #02
Currently Alpha Corporation’s shares are selling at $60 per share and company is paying dividend of $5 per share. Dividends are expected to grow at an annual rate of 3% for foreseeable future. Required rate of return for investors is 12% At the same time, Heller Corporation’s shares are selling at $58 per share and company is paying dividend of $4 per share. Dividends are expected to grow at an annual rate of 5% for foreseeable future. Required rate of return for investors is 12% 


a) Calculate the current value of each stock on the basis of Dividend Discount Model.
b) On the basis of above calculation, determine either each stock is overvalued or undervalued.


Note:
Show complete working (formula and calculations) for each part of question.
2
Important Tips
1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 1 to lecture no 12 and reading handouts as well as
recommended text book).
2. Video lectures can be downloaded for free from www.youtube.com/vu.
Assignment Schedule
Opening Date and Time 19th April , 2011 At 12:01 A.M. (Mid-Night)
Due Date and Time 22nd April , 2011 At 11:59 P.M. (Mid-Night)
Note: Only in the case of Assignment, 24 Hrs extra / grace period after the above mentioned
due date is usually available to overcome uploading difficulties which may be faced by the
students on last date. This extra time should only be used to meet the emergencies and above
mentioned due dates should always be treated as final to avoid any inconvenience.
Important Instructions:
Please read the following instructions carefully before attempting the assignment solution.
Deadline:
• Make sure that you upload the solution file before the due date. No
assignment will be accepted through e-mail once the solution has been
uploaded by the instructor.
Formatting guidelines:
• Use the font style “Times New Roman” and font size “12”.
• It is advised t compose your document in MS-Word 2003.
• Use black and blue font colors only.
Solution guidelines:
• For acquiring the relevant knowledge don’t rely only on handouts but
watch the video lectures and use other reference books also.
• Show complete working (formula and calculations) for each part of
question.
• Marks will be deducted if complete working is not provided.
Rules for Marking
Please note that your assignment will not be graded or graded as Zero (0) if:
• It has been submitted after due date
• The file you uploaded does not open or is corrupt
• It is in any format other than .doc (MS. Word)
• It is cheated or copied from other students, internet, books, journals etc…
:::::::::::::::::::::::::::


Solution:

Question # 1

(1)
Current Ratio = 3,000,000 / 1,500,000 = 2
Quick ratio = 2,000,000 / 1,500,000 = 1.34

(2)
Current Ratio = 2.2
Quick Ratio = 1.4

(3) 
Current Ratio = 2
Quick Ratio = 2

Question # 2

(1) 
Dividend Discount Model = P0 = 5 ( 1+ 3% ) / (12% - 3%)
= 57.22

Dividend Discount Model = P0 = 4 ( 1 + 5% ) / (12% - 5%)
= 60

(2)

Stock of Alpha Corps is overstated by 60 - 57.22 = Rs. 2.78
Stock of Heller Corps is understated by 58 - 60 = Rs. 2

_________________


Question #01
Ellite Corporation has total assets of Rs. 6,000,000 of which Rs. 1,000,000 is
inventory, Rs. 500, 000 is cash, Rs. 1,000, 000 is account receivable, Rs. 500, 000 is
marketable securities and the balance is fixed assets. Ellite Corporation has total
liabilities of Rs. 2,500, 000 of which current liabilities are Rs. 15, 00,000.

1. Calculate the current and quick ratio for Ellite Corporation.
Current Ratio: current asset/ current liabilities
Current asset: 1,000,000 + 500, 000 + 1,000, 000 + 500, 000 = 3000000
Current Ratio = 3000000 / 15, 00,000 = 2
Quick ratio: Current assets- Inventories/ Current Liabilities
= 2000000 / 1500000 = 1.33

2. If Ellite Corporation takes 250,000 from cash and pays off Rs. 250,000 of current
liabilities, what happens to its current ratio and quick ratio?
Cash = 250000
Current asset = 1,000,000 + 250, 000 + 1,000, 000 + 500, 000 = 2750000
Current liabilities =1500000-250000 = 1250000
Current Ratio = 2.2
Quick ratio: Current assets- Inventories/ Current Liabilities
Quick ratio: 1750000/1250000 = 1.4
Answer: both increases

3. If Ellite Corporation sells the inventory of Rs. 10, 00, 000 and places the proceeds
from the sale of inventory in marketable securities, what happens to its current ratio
and quick ratio?
Current Ratio: current asset/ current liabilities
Current asset: 500, 000 + 2,000, 000 + 500, 000 = 3000000
Current Ratio = 3000000 / 15, 00,000 = 2
Quick ratio: Current assets- Inventories/ Current Liabilities
= 3000000-0 / 1500000 = 2
Answer : current ratio remain same and quick ration increase

Question #02
Currently Alpha Corporation’s shares are selling at $60 per share and company is
paying dividend of $5 per share. Dividends are expected to grow at an annual rate of
3% for foreseeable future. Required rate of return for investors is 12%
At the same time, Heller Corporation’s shares are selling at $58 per share and
company is paying dividend of $4 per share. Dividends are expected to grow at an
annual rate of 5% for foreseeable future. Required rate of return for investors is
12%
a) Calculate the current value of each stock on the basis of Dividend Discount
Model.

Alpha Corporation
Dividend Discount Model = P0 = 5 (1+ 3%) / (12% - 3%)
= 57.22
Heller Corporation
Dividend Discount Model = P0 = 4 (1 + 5%) / (12% - 5%)
= 60
b) On the basis of above calculation, determine either each stock is overvalued or
undervalued.
Stock of Alpha Corporation is overstated by 60 - 57.22 = Rs. 2.78
Stock of Heller Corporation is understated by 58 - 60 = Rs. 2

Eco403 GDB Solution

Ali, a Pakistani resident, purchased a car worth Rs. 3, 00,000 that was produced entirely in China. Does this transaction affect Pakistan’s GDP? Justify your answer.

Note: Your answer must be within the range of 50-100 words.

Solution:

Yes this transaction will cause a decrease in Pakistan’s GDP. 
GDP = C + I + G + NX 
And 
NX = Total Export – Total Import 
This transaction will decrease the Net export which will also decrease the GDP.

::::::::::::::::::::::::::::::

GDP of a country is always equal to the = Consumption(C) + Investment(I) + Government purchases(G) + Net Export (NX) 

in our question it has been said that car was manufactured by China. it means that it was imported from china.
formula for Net Export is = tolal export - total import 
so, if we will import any thing than it will decrease our net exports... 
due to a decrease in net export will cause a decrease in GDP,, 

Mgt402 Assignment No. 1 solution

Cost and Management Accounting Spring 2011

Virtual University of Pakistan

COST AND MANAGEMENT ACCOUNTING (MGT402)

Spring Semester 2011

Assignment # 1 Marks: 20

Question # 1: (Marks: 15)

ABC manufacturing company submits the following information on March 31, 2011:

Material used Rs.440,000

Direct labor 290,000

Indirect labor 46,000

Light & power 4,260

Depreciation 4,700

Repairs to machinery 5,800

Miscellaneous factory overhead 29,000

WIP inventory, April 1, 2010 41,200

Finished goods inventory, April 1, 2010 34,300

WIP inventory, March 31, 2011 42,500

Finished goods inventory, March 31, 2011 31,500

The company applies factory overhead on the basis of 30% of direct labor cost.

Required:

The amount of over/under applied factory overhead cost

Adjustment of over/under applied FOH cost in the entire production

Question # 2: (Marks: 5)

Calculate economic order quantity from the given information and also describe its effect if ordering cost and carrying cost is reduced by 2%. (Hint: increase, decrease, no effect)

Annual consumption 120,000 units

Cost to place one order Rs.1,500

Cost per unit Rs.60

Carrying cost 6% of unit cost

Note:

2. You have to do you assignment in that file according to the given format

3. Only answers are required in table,

4. All supporting

5. Ignoring these points will reduce your mark

:::::::::::::::::::::::::::::::

Solution:

:::::::::::::::::::::::::::::::