Submitted To:

Dr.H. M Mosarof Hossain

(Professor, Department of Finance, DU)
Adjunct Faculty
School of Business Economics,
North South University

Submitted By:
Farhin Bushrat Khan
ID: 1935038660
Course Code: Bus-635
Course Title: Managerial Finance
Sec: 04

Date of Submission: 24th May 2020

1.

( 1+i )n −1
We know, FAV₁=CF [ ]
i

( 1+ 0.25 )8−1
=5000 × [ ]
0.25

=99209.29 TK (ANS)

2.

For A:

200 200 200 200 200

PV= + + + +
1.08 1.08 1.08 1.084 1.085
1 2 3

=798.55tk (ANS)

FV= (200×1.084 )+ (200×1.083)+ (200×1.082)+ (200×1.081)+ (200×1.080)

=1173.32tk (ANS)

FOR B:

150 180 200 250 160

PV= + + + +
1.08 1.08 1.08 1.084 1.085
1 2 3

=744.63tk (ANS)

FV= (150×1.08 4)+(180×1.08 3)+(200×1.08 2)+ (250×1.081)+ (160×1.08 0)

=1094.10tk (ANS)

3.

( 1+i )n −1
We know, FAVI=CF [ ]
i

( 1+ 0.25 )10−1
or, 200000=CF x [ ]
0.08

or, CF = 13805.90TK (ANS)

4.

2000 2000 2000 2000

Here, PV= + + +
1.201 1202 1203 1.20 4

2
 =6624.23 TK (ANS)

5.

For Annually:

( 1+i ) −1
We know , PVA₁=CF [ ]
i(1+i)n

( 1.1 )−1
Or,1000000= CF [ ¿]
0.1(1.1)¿3

1000000∗0.1∗1.13
Or, CF =
1.13 −1
Or,CF =402114.80 TK (ANS)

For quarterly,

(1+i)n −1
We know, PVA₁=CF [ ]
i(1+i)n

(1.025)12−1
Or, 1000000= CF [ ]
0.025(1.025)12

1000000∗0.025∗1.02512
Or, CF=
1.02512−1
Or, CF=97487.13TK (ANS)

Chapter-02
2-1.

3
 $ 1312500
We get, present current ratio=
$ 52500

= 2.5x

$ 1312500+ ΔNP
Minimum current ratio =
$ 52500+ ΔNP

$ 1312500+ ΔNP
Or, 2X =
$ 52500+ ΔNP

Or, $1050000+2ΔNP=$1312500+ΔNP

SO, ΔNP=$262500 (ANS)

The inventory account will be increase to $637500 and total current assets will be $1575000.

Now,

$ 1575000−$ 637500
Quick Ratio =
$ 787500

=1.19X (ANS)

2-2.

current assets
We get, =3
current libilities

810000
Or, =3
current libilitirs

So, current liabilities =$270000

current assets−inventory
Now, =1.4
current libilities

810000−inventory
Or, =1.4
270000

So, inventory=$432000

Here, AR=810000-120000-43200

=$258000

COGS
Here, =5
Inventor y

4
 COGS
Or, =5
432000

Or, COGS=$2160000

2160000
Now, Sales =
0.86

=$2511627.91 (Ans)

AR
DOS= SALES
360

258000∗360
=
2511627.91

=37 DAYS (Ans)

2-3.

EBIT
We know, TIE =
∫¿¿
Here, Interest =500000 x 0.1

=$50000

Net income=2000000 x 0.05

=$100000

$ 100000
Taxable income =
1−T

=$100000/(1-0.2)

=$125000

So, EBIT=$125000+$50000

=$175000

SO, TIE=$175000/50000

=03.5X (Ans)

2-4.

5
Sales (given) $10000

-Cost NA

EBIT (given) $1000

-INT(given) $300

EBIT $700

-Tax(30%) $210

$490

We get, total asset turnover = 2.0

Or, net sales/total asset =2.0

Or, Total Asset =$1000/2.0=$5000

Debt
Now, =60%
total asset

So, Equity / Total Asset =40%

Therefore,

Equity
Equity = x Total Asset
Total Asset

=0.40 x $5000

=$2000

Debt =0.6 x 5000

=$3000

So, ROE = Net Income /Equity

=$490/$2000

=24.5%

So, ROA = net income/total asset

=$490/$5000

=9.8%

6
 Chapter 04

4-8.

n
a. we know , FVA D =CF[ (1+i) −1 ](1+i)
i

(1.10)10−1
=400[ ](1.10)
0.10
=$7012.47 (Ans)

(1+i)n −1
We Know, FVA D =CF[ ](1+i)
i

(1.05)5−1
=500[ ](1.05)
0.05
=$1160.38 (ANS)

4-9.

a. We know,

(1+i)n −1
PVA I = CF[ ]
i(1+i)n

(1.10)10−1
= 400[ ]
0.10(1.10)10

=$2457.83 (ANS)

(1+i)n −1
b) We know, PVA I =CF[ ]
i(1+i)n

(1.05)5−1
=200[ ]
0.05(1.05)5

=$865.90(ANS)

4-10.

7
 (1+i)n −1
a. We know , PVA D = CF[ ] (1+i)
i(1+i)n

(1.10)10−1
=400[ ] (1.10)
0.10(1.10)10

=$2703.61 (Ans)

(1+i)n −1
b. We get , PVA D =CF[ ] (1+i)
i(1+i)n

(1.05)5−1
=200[ ](1.05)
0.05(1.05)5

=$909.19

4-11.

a. We know , PVA P =CF/i

=$100/0.07

=$1428.57

If the interest rate is double then,

PVA P =$100/0.14=$714.29 (ANS)

4-12.

a. PV A = (100/1.081) + (400/ 1.082 ) + (400/1.083) +(300/1.084)

=$973.57

PV B = (300/1.081) + (400/ 1.082 ) + (400/1.083) +(100/1.084)

=$1011.75

b. PV A = (100/11) + (400/ 12 ) + (400/13) +(300/14)

=$1200

PV B = (300/11) + (400/ 12 ) + (400/13) +(100/14)

=$1200

8
4-13.

a. We know , FV=PV (1+i)n

=500(1.12)5

=111$881.17 (ANS) [ANNUALY]

b. We get , FV=500(1.08)10

=$895.42 (ANS) [semi-annually]

c. We get , FV=500(1.03)20

=$903.06 (ANS) (quarterly)

d. We get , FV=500(1.01)60

=$908.35 (ANS)(monthly)

4-14.

FV
a.We know , PV = n
(1+i)

=500/1.125

=$283.71 (ANS)(annualy)

FV
b. PV =
(1+i)n

=500/1.0610

=$279.20 (ANS)( semi-anualy)

FV
c. PV= n
(1+i)

9
 =500/1.0320

=$276.84 (ANS)(quarterly)

FV
d. PV= n
(1+i)

=500/1.0160

=$275.22 (ANS)(monthly)

4-15.

( 1+i )n −1
a. We know, FAVI= CF [ ]
i

=400[(1.06 10-1)/0.06]

=$5272.32

( 1+i )n −1
b. We know, FAVI= CF [ ]
i

=400[(1.0320-1)/0.03

= $5374.07 (ANS)

c. the annuity is more in (b) as some of the money is on deposit for a long time period that makes it earn more
interest

4-16.

(1+i)n −1
a. We know, PVA I = CF[ ]
i(1+i)n

(1.06)10−1
=400[ ]
0.06(1.06)10

=$2944.03 (ANS)

(1+i)n −1
b. We know, PVA I =CF[ ]
i(1+i)n

(1.03)20−1
=200[ ]
0.03(1.03)20
10
 =$2975.49 (ans)

c. The PV in (b) is larger ;because ,compared with (a) the first payment and interest is also paid more frequently

4-17.

(1+i)n −1
a. We know, PVA I =CF[ ]
i(1+i)n

(1.07) 4−1
=1000[ ]
0.07(1.07)4

=$33872.11 (ans)

(1+i)n −1
b. after the first withdrawal, PVA I =CF[ ]
i(1+i)n

(1.07)3 −1
=1000[ ]
0.07(1.07)3

=$26243.16 (ans)

After the last withdrawal,

(1+i)n −1
PVA I =CF[ ]
i(1+i)n

(1.07)0 −1
=1000[ ]
0.07(1.07)0

=0

So, after the last withdrawal the account balance will be 0.

Chapter 07

7-1.

11
Total dollar return per share, $ (21 – 15) + $ 0.90

= $ 6.90

Rate of return = $ (21 – 15) /$15 + $ 0.90/$15 = $6.90/$15

= 0.46 or 46% (dividend gain + dividend yield)

ANS : 46%

7-2.

Total dollar return per share, $ (27.50 – 25) + $ 1.25

= $ 3.75

Rate of return = $3.75/$25

= 0.15 or 15% (dividend gain + dividend yield)

ANS : 15%

7-3.

Here, Po = D/ π ps

= $6.80/0.08

= $85 (ANS.)

7-4.

Here, Po = D/ π ps

= $16.50/0.11

= $150 (ANS.)

7-5.

Here, D = $80 X .10 = $ 8

Po = D/ π ps

= $8/0.08

= $100 (ANS.)

7-6.

12
Here, D = $5 X 1.0 4= $ 5.20

Po = D/ π ps - g

= $5.20/0.12-0.04

= $65 (ANS.).

7-7.

Here, D1 = Do (1+g) = $1.5(1++0.02)

= $1.53

Po = D1/ π ps - g

= $1.5/0.12 – 0.02

= $15.30 (ANS.).

7-8.

Here, D1 = Do (1+g) = $5[1+(-0.02)]

= $4.75

Po = D1/ π ps - g

= $4.75/0.15 – (-0.05)

= $23.75 (ANS.).

7-9.

Here, D1 = Do (1+g)

Po = Do (1+g) / π ps - g

= $2[1+0.05)/0.12– 0.025

= $30 (ANS.).

Chapter 08
8-1.

13
Here, E(R) = {2x(-5)} + (0.4x0.10) + (0.5x0.30)

= 0.18 or 18% (ANS.)

8-2.

Here, E(R) = {0.30x0.30} + (0.2x0.10) + (0.5x0.02)

= 0.10 or 10% (ANS.)

8-3.

We get,

Bnew = 1.5 {100000/(100000+50000)} + 3.0 { 50000/(100000+500000)}

= 1+1

= 2 (ANS)

8-4.

Here, E(R) = 0.05 + (0.12 – 0.O5) X 1.5

= 0.05 + 0.105

= 0.155 or 15.5% (ANS)

8-5.

Here, E(R) = 0.04 + (0.05 X 2)

= 0.04 + 0.10

= 0.14 or, 14% (ANS.)

Chapter 09

9.16

Project c

14
Here IRRc = 8000/(1+i) + 6000/(1+i)2 + 2000/(1+i)3+3000/(1+i) 4 = 1400

NPVc = 8000/1.12 + 6000/(1.12)2 + 2000/(1.12)3+3000/(1.12)4-1400

=$ 1256.14

Let, i1 = 10% ,

So, L.H.S = 8000/1.10 + 6000/(1.10)2 + 2000/(1.10)3+3000/(1.12)4

= $15783.07

Let, i2 = 14%

So, L.H.S = 8000/1.14 + 6000/(1.14)2 + 2000/(1.14)3+3000/(1.14)4

= $ 14760.53

Therefore, ic = 0.10 = (1400-15783.07/1460-15783.07) × (0.14-0.10) = 13.19%

Project R

NPVR = 8000 [ (1.12)4 – 1/0.12(1.12)4]- 22840

= $ 1458.80

IRRR = 8000 [ (1.12)4 – 1/0.12(1.12)4]

= $24298.80

IRR = 8000 [ (1-i)4 – 1/i(1+i)4] = 22840

For, i = 11% L.H.S = 8000 [ (1.11)4 – 1/0.11(1.11)4]

= $24819.57

For, i = 16% L.H.S = 8000 [ (1.16)4 – 1/0.16(1.16)4]

=$ 22385.45

So, iR = 0.11 = (22840-24819.57/22385.45 -24819.57) × (0.16-0.11) = 15.07%

Here, NPVc < NPVCR and ir > ic

So, project R is beneficial

9.17

Project Y

Here IRRy = 10000/(1+i) + 9000/(1+i)2 + 7000/(1+i)3+6000/(1+i)4 = 25000

15
NPVy = 10000/1.14 + 9000/(1.14)2 + 7000/(1.14)3+6000/(1.14)4-25000

= -1025.58

Let, i1 = 13% ,

So, L.H.S = 10000/(1+.13) + 9000/(1+.13)2 + 7000/(1+.13)3+6000/(1+.13)4 = $24429.14

Let, i2 = 11%

So, L.H.S = 10000/(1+.11) + 9000/(1+.11)2 + 7000/(1+.11)3+6000/(1+.11)4

= $ 53384.34

Therefore, iy = 0.11 + (25000-25384.34/24429.14-2538.32) × (0.13-0.11) = 11.8%

Project Z

NPVz = 0/1.14 + 9000/(1.14)2 + 0/(1.14)3+36000/(1.14)4-25000

= -3685.11

IRRR = 0/1+i + 9000/(1+i)2 + 0/(1+i)3+36000/(1+i)4

= 25000

For, i1 = 13% L.H.S = 0/1.13 + 9000/(1.13)2 + 0/(1.14)3+36000/(1.13)4

= $22079.47

For, i = 9% L.H.S = 0/1.09 + 9000/(1.09)2 + 0/(1.09)3+36000/(1.09)4

=$ 25503.31

So, iR = 0.09 + (25000-25503.32/22079.47 -25503.32) × (0.13-0.09) = 9.59%

Here, iy > iz

So, project Y is better than Project Z .

Answer, iy = 11.8%

9.18

Project D

Here IRRD = 2000/(1+i) + 900/(1+i)2 + 100/(1+i)3+100/(1+i)4 = 2500

16
NPVD = 2000/1.1 + 900/(1.1)2 + 100/(1.1)3+100/(1.1)4-2500

= $205.42

Let, i1 = 14% ,

So, L.H.S = 2000/1.14 + 900/(1.14)2 + 100/(1.14)3+100/(1.14)4 = 2573.61

Let, i2 = 17%

So, L.H.S = 2000/1.17 + 900/(1.17)2 + 100/(1.17)3+100/(1.17)4

= $ 2482.61

Therefore, iD = 0.14 + (2500-2573.61/2482.67-2573.61) × (0.17-0.14) = 16.43%

Project Q

NPVQ = 0/1.1 + 1800/(1.1)2 + 1000/(1.1)3+900/(1.1)4

= -2500

IRRQ = 0/1+i + 1800/(1+i)2 + 1000/(1+i)3+900/(1+i)4

= 2500

For, i1 = 14% L.H.S = 0/1.14 + 1800/(1.14)2 + 1000/(1.14)3+900/(1.14)4

= $2592.89

For, i = 16% L.H.S = 0/1.16 + 1800/(1.16)2 + 1000/(1.16)3+900/(1.16)4

=$ 2475.41

So, iQ = 0.14 + (2500-2592.89/2475.41 -2592.89) × (0.16-0.14) = 15.58%

Here, iD > iQ

So, project D is better than Project Q and project D(machine D) should be accepted.

9-18

a. Payback period = Io/CF

= 52125/12000

= 4 year

b. NPV = CF[(1+i)n- 1/i (1+i)n] - PV

17
 = 12000[(1.12)8-1/0.12(1+.12)8] - 52125

= $7486.68

c. IRR = 12000[(1+i)8-1/0.12(1+i)8]= 52125

Let, i1 = 11%, so, L.H.S = 12000[(1.11)8-1/0.12(1+.11)8]

= 61753.47

Let, i2 = 17% so, L.H.S = 12000[(1.17)8-1/0.12(1+.17)8]

= 50485.95

i = 0.11 + (52125- 61753.47/50485.95-61753.47) × (0.17-0.11) = 16.13%

d.

Period Cashflow Annual Cashflow Discount @12%

Cumulative cashflow

0 52125 52125 52125

1 12000 10714.29 41410.71

2 12000 9566.33 31844.38

3 12000 8541.36 23303.02

4 12000 7626.22 15676.80

5 12000 6089.12 8867.68

6 12000 6079.52 2788.11

7 12000 5428.19 2640.08

8 12000 4846.60 7680.08

So, the discounted payback period = 6+ 2788.11/5428.19

= 6.51

18
P.T.O

19
 Chapter 11

11-21.

Given,

We Know, Rdt = rd(1-T)

= 10(1-0.4)

= 6%

And, Debt/Asset = 45%

Do =$2 NP = $20

g = 4% T = 40%

Project A :

Cost = $200 million, IRR= 13%

Project B :

Cost = $125 million, IRR= 10%

Retained earnings = $100 million

Retained earnings Break point = $100/0.55

=$181.82 million

Cost of retained earnings = (2× 1.04)/25 + 0.04

= 12.32%

a. Cost of new equity r₀ = (2×1.04)/20+0.04 = 14.4%

b. Here, WACC1 =(0.45×0.06)+(0.55×0.1232)

=9.48%

WACC2 =(0.45×0.06)+(0.55×0.144)

= 10.62%

Therefore, FEC should use a WACC of 10.62% to evaluate its capital Budgeting.

20
11-23.

a. Here, 6.50=4.42(1+g)5

Or, g =(6.50/4.42)(1/5) - 1 = 8%

b. D1 = D0(1+g)

=2.60(1+0.08)

= $2.808

c. We know, rs = D1/P0 + g

= (2.808/36)+0.08

=15.8%.

21
22