ASSIGNMENT#1 SECTION ‘A’

BY

DANISH AFZAAL

AZEEM ALEEM

IZZA ZAMAN CHEEMA

NIMRA TAHIR

NAMRA AFZAL

Question 3-11
Let,

 Sales = x million dollars

 Operating Cost = 55% of Sales

= (55/100) * x

= 0.55x

 EBITDA = Sales – Operating Costs

= x – 0.55x

= (1 – 0.55) x  By taking common.

 = 0.45x

 Depreciation and Amortization = old DA + 10% of old DA

= 0.8 million + 0.10(0.8)

= (0.8 + 0.08) million

= 0.88 million

= 880,000

 EBIT = EBITDA – DA
= 0.45x – 0.88
 Interest = Old interest + 10% of old interest
= 0.6 million + 0.10(6 million)
= (0.6 + 0.06) million
= 0.66 million
 EBT = EBIT – Interest
= (0.45x – 0.88) – (0.66)
= 0.45x – 0.88 – 0.66
= 0.45x – 1.54
 Taxes = 40% of EBT
= 40% (0.45x – 1.54)
= 0.40(0.45x) – 0.40(1.54)
= 0.18x – 0.616

 Net Income = EBT – Taxes

= (0.45x – 1.54) – (0.18x – 0.616)
= 0.45x -1.54 – 0.18x + 0.616
= 0.27x – 0.924
 Setting the Expression

0.27x – 0.924 = 2.5

0.27x = 2.5 + 0.924
0.27x = 3.424
X = 3.424 / 0.27
X = 12.69 million (Approximately)
= 12,690,000
 Conclusion
 We can conclude that, we need almost 12.69 million dollars in order to generate a net
income of 2.5 million dollars.

Question 3-12

Statement of Shareholders Equity

Retained Earnings Total Share Holders Equity

Shares Amount $
$   $

Balances 12-31-17 100,000,000.00 240,000,000.00 381,760,000.00   621,760,000.00

           

2018 Net Income     1,803,600,000.00    

           

Cash Dividends     685,360,000.00    

           

Addition to Retained Earnings         1,118,240,000.00

           

Balances 12-31-18 100,000,000.00 240,000,000.00 1,500,000,000.00   1,740,000,000.00

Part c
$1500 million have been reinvested in the business over the years. They are taken from
Retained Earnings of the Balance Sheet.
Part d
A cheque of $1351 million can be written without bouncing. This is gained by adding
depreciation and amortization to the net income and then subtracting common dividend.
Part e
Currently $565 million must be paid to current creditors within next year.