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The pandemic issue due to covid19 has brought many economies at lower ebb. It has created impact on
financial and non-financial markets. But the economists are quite hopeful about economic recovery and
their estimations are a kind of hope for all investors. Mr. Akhan is quite hopeful about stock market
recovery hence he plans to invest 20 percent of his wealth in stock market. With assistance of team he has
finalized to choose one of the following options. Kindly help him in making decision:
PSO – Stock
Company is currently undergoing expansion and is not expected to change its cash dividend for the next 4
years the last dividend paid was PKR 3. Having completed expansion targets, higher earnings are
expected to result causing a 30% increase in dividends each year for 3 years. After these three years of
30% growth, the dividend growth rate is expected to be 2% per year forever.
a. PSO stock and Nestle Pakistan stock are currently selling in market at PKR 60 and PKR 170
respectively. Which stock should Mr. Akhan pick if he plans to make 11% return? [5]
b. How many stocks of best selected stock can be bought if overall wealth of Mr. Akhan is PKR
30,000,000? [2]
c. What would be impact on price of stock if the required rate of return moves to, 12.5
percent, 13.5 percent and 14.5 percent? (Hint: Support your argument with help of
graph). [2]
d. Discuss tax shield and other benefits that firms avail in case of debt financing. [1]
QNo. 02 Marks - 10
Discuss different types and characteristics of debt instruments with specific reference of Bonds.
Due to covid19 the equity market exhibits down move and hence he considers it a risky investment.
down so he considers it is quite risky. Mr. Sikander looking to have stable income. Mr. Sikander is a
retired person and just received Amount 40,000,000 on account of different funds. He is looking to
buy Bonds. Mr. Saleem a friend of Sikander suggested him to buy MCB bonds. The bond has 25
years’ life and was issued 13 years ago. It pays 11.5 percent coupon rate with face value PKR 1050.
Mr. Ahmed wants to make 14% profit from his investments.
a. Should Mr. Sikander buy MCB bond if it is currently selling at 930? [6]
b. How many bonds can he buy if the bond is selling at calculated price? [2]
c. Write features of Zero-coupon bond and why do investors buy it when they offer nothing
periodically? [2]
Q No. 03 Marks - 03
The Shannon Corporation deals in textile products. Due to certain reasons the company was closed and
records of same are out of access now except given below. Use the given information to make balance
sheet for year 2019
d. Sales $750,000
e. Total asset turnover 2.5 times
f. Cash to total assets 2.0 percent
g. Accounts Receivable Turnover 10.0 times
h. Inventory turnover 15.0 times
i. Current Ratio 2.0 times
j. Debt to total assets 45.0 percent
SHANNON CORPORATION
BALANCE SHEET , 2019
Assets Liabilities & Shareholder's Equity
Cash Total Current Liabilities
Accounts Receivable Long term Debt
Inventory Total Debt
Total Current assets
Fixed Assets Net Worth
Total Assets Total Liabilities & Equity
Q No. 04
The P&G Pakistan is a big and mature company. Most of business graduates look to work in it. Company
periodically hires internees for period of 6 months on trial basis. Suppose you are selected as an internee.
The Financial has given you following data to test your finance skills. (Marks 5)
Year Project A Project B Project C
0 (170,000) (18,000) 20,000
1 11,000 10,000 7,000
2 24,000 6,000 7,000
3 25,000 10,000 7,000
4 380,000 8,000 7,000
a. If you apply the IRR criterion, which project will you choose? [4]
b. If you apply profitability index criterion, which investment would you choose? Why? [1]
Q No. 05
a) Suppose you save $4,000 per year at the beginning of each year for 10 years and earn
8.5% interest per year. How much will you have at the end of 10 years? (0.5)
b) You have Rs.25, 000 which you deposited in a bank account, bank promised to pay
you back Rs.75, 000 after 8 years. What rate offered by bank? (0.5)
c) You borrowed Rs.500, 000 at 18% for five years. (1)
Part a) How much you will pay each year to settle this loan?
Part b) If you decided to settle this loan after two years, what additional amount you will
pay at the end of two years to fully payback this loan while bank is not imposing
any fine on you?
Best of Luck