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…
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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.

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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,, 

Acc501 Assignment No. 1 solution

Virtual University Of Pakistan
ACC501 1 Spring Semester 2011
“Business Finance (ACC501)”

Assignment No. 01 Total Marks: 15

Question # 01
JJ Corporation’s last year Return on Equity (ROE) was only 2.5 percent. Management wants to improve Return on Equity (ROE), for this purpose they has developed a new plan and made following amendments:

For new plan total debt ratio is of 55 percent, it will result in interest expense of Rs. 300,000 per year. Projected EBIT of Rs. 1,000,000 on sales of Rs. 15,000,000 and it expects to have a total assets turnover ratio of 2. Under these conditions, the tax rate will be 30 percent.

Required:
1. What will be the effect of new plan on company’s ROE?
2. Either management should consider new plan or not?
NOTE: Show complete working for this in proper format

Question # 02
A textile company has Rs. 650,000 of debt outstanding and pays interest 65,000 annually on debt. Its annual sales are Rs. 3 million its tax rate is 35percent and its net profit margin on sales is 6 percent. Textile Company has applied for loan from bank. There is a conditionfrom bank for loan sanction, company has to maintain TIE ratio at least 4times, and otherwise bank will reject loan request.

Required:
1. Calculate Time Interest Earned Ratio (TIE).
2. By keeping in view your result, what do you think that bank will sanction loan on the basis of given condition of Time Interest Earned Ratio (TIE)?
 

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 Online VU Lectures.

Assignment Schedule
Opening Date and Time 18th April , 2011 At 12:01 A.M. (Mid-Night)
Due Date and Time 21st 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.

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:


Calculating the ROE using Du Pont model:
From Debt ratio:
Debt ratio = 0.55
Therefore, the company has $0.55 in debt for every $1 in assets. Therefore, there is $0.45 in equity (1-$0.55) for every $0.55 in debt.
Debt-equity ratio = Total debt / Total equity
= $0.55 / $0.45
= 1.2
Equity multiplier = 1 + Debt-equtiy ratio
= 1 + 1.2
= 2.2
ROE = (Net income / Sales ) * (Sales / Assets) * (Assets / Total equity)
= Profit margin * Total asset turnover ratio * Equity multiplier

But Net income is calculated as:
EBIT $1,000,000
(-) Interest $300,000
-----------------------------------
EBT $700,000
(-) Taxes 30% $210,000
---------------------------------
Net income $490,000
------------------------------
ROE = ($490,000 / $15,000,000) * 2.0 * 2.2
= 0.03267 * 2.0 * 2.2
= 0.1437 or 14.37%
The company's ROE will increase by 11.87%
b) The company should take up the new plan as it is giving the higher ROE.

HRM627 Assignment No. 1 solution

Human Resource Development (HRM627)
Assignment No. 1 Marks: 15

Following are some scenarios for which you are provided with illustrations. You
are required to “NAME” what concept has been portrayed in each case; and also
brief characteristics of that particular concept.

Note: Only in the case of Assignment, 24 Hrs extra / grace period after the 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.

S. No. Scenario Illustration Concept
Characteristics of
identified
concept
1.
Ali arrives late at office and is threatened by his manager for this. Although his
manager himself does not care about time and always reaches late in meetings etc. In most organizations the boss can interrupt progress to hold an unplanned meeting in the middle of the work day; some bosses schedule a meeting for a specific time and expect all involved parties to be punctual.

2.
Mr. Sajid (the boss) thinks that most employees in his organization are only out for themselves, and their sole interest in the job is to earn money. Employees are assumed to put their individual concerns above that of the organization for which they work.

3.
Sara desires to work on a math equation, because a challenge of finding a solution provides sense of pleasure to her. Writing short stories because you really enjoy writing them, reading a nonfiction book because you are inquisitive about the topic.

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 to compose your document in MS-Word 2003.
• Use black and blue font colors only.

Solution guidelines:
• Use APA style for referencing and citation. For guidance search
“APA reference style” in Google and read various website
containing information for better understanding or visit
http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html
• Every student will work individually and has to write in the form of an analytical assignment.
• Give the answer according to question, there will be negative marking for irrelevant material.
• For acquiring the relevant knowledge don’t rely only on handouts
but watch the video lectures and use other reference books also.
 

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.
BEST of LUCK!

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Solution:

1. Critical parent ego
2. Adapted child ego
3. Natural child ego

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1. Critical Parent Ego State
When you behave and respond with evaluative responses that are critical, judgmental, opinionated, demanding, disapproving, disciplining, and so on, you are in critical parent ego state. People in the critical parent ego use a lot of do’s and don’ts. Managers using the autocratic style tend to be in critical parent ego state because they use high task/directive behaviour

2. Adopted Child Ego State
When you behave with confronting responses that express rebelliousness, pouting, anger, fear, anxiety, inadequacy, procrastination, blaming others, and so on, you are in adapted child ego state. Managers should avoid behaving from the adapted child ego state because this type of behavior often leads to the employee becoming emotional and behaving in a similar manner. When managers are transacting with an employee in this ego state, they should not react with similar behavior, but should be in the adult ego state.

3. Natural Child Ego State
When you behave and respond with probing responses that shows curiosity, intimacy, fun, joyfulness, fantasy, impulsiveness, and so on, you are in natural child ego state. Successful managers do not tend to continuously operate from the natural child ego state

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