SEMESTER SPRING 2019

BUSINESS FINANCE (ACC501)

ASSIGNMENT NO. 01
DUE DATE: JULY 22, 2019
MARKS: 20
Learning Objectives:
After attempting this assignment you will be able to:
 Evaluate the common stock value under different assumptions.
 Evaluate proposed project by using Net Present Value technique.

Question # 1

You are working as an investment analyst in a brokerage firm. Currently, one of your clients
visits your office to discuss a proposal regarding purchase of Saleem Corporation’s stock.
The firm has recently paid an annual dividend of Rs.5 per share. The client’s required rate of
return on such kind of stock is 12%. Dividend policy of Saleem Corporation is uncertain and
it may adopt any of the following policy regarding payment of future dividends:

a) The dividend will grow 0% till infinity (2 Marks)

b) The dividend will grow at the steady rate of 6% till infinity (3 Marks)
c) The dividend will grow 8% for each of the next 4 years followed by a constant annual
growth rate of 6% in fifth year to infinity. (10 Marks)

Required:
Calculate the value of common stock of Saleem Corporation under each of the above given
assumptions.

Question # 2 (5 Marks)
Elite Corporation has the following mutually exclusive projects.

Years Project A Project B

0 -100,000 -100,000
1 60,000 50,000
2 35,000 40,000
3 38,000 35,000
4 17,000 25,000
Elite Corporation is currently using the NPV technique to rank such kind of projects. You
are required to suggest which project is more appropriate to undertake by considering the
appropriate discount rate as 15 percent.

Special Note: Complete calculations are required for each question (1) and (2).
Incomplete calculations will result in loss of marks.

IMPORTANT:
24 hours extra / grace period after the due date is usually available to overcome
uploading difficulties. 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.
OTHER IMPORTANT INSTRUCTIONS:
DEADLINE:
 Make sure to upload the solution file before the due date on VULMS.
 Any submission made via email after the due date will not be accepted.

FORMATTING GUIDELINES:
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 It is advised to compose your document in MS-Word format.
 You may also compose your assignment in Open Office format.
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RULES FOR MARKING
Please note that your assignment will not be graded or graded as Zero (0), if:
 It is submitted after the due date.
 The file you uploaded does not open or is corrupt.
 It is in any format other than MS-Word or Open Office; e.g. Excel,
PowerPoint, PDF etc.
 It is cheated or copied from other students, internet, books, journals etc.

Note related to load shedding: Please be proactive

Dear students!
As you know that Post Mid-Term semester activities have started
and load shedding problem is also prevailing in our country.
Keeping in view the fact, you all are advised to post your activities
as early as possible without waiting for the due date. For your
convenience; activity schedule has already been uploaded on
VULMS for the current semester, therefore no excuse will be
entertained after due date of assignments, quizzes or GDBs.