Name:At

taMuhammad

Rol
lNo:07152013010

Subj
ect
:St
rat
egi
cFi
nance

Qno:
1

Answer
:

Pr
oposal
1

Cont
ri
but
ionMar
gini
ncr
ementsal
e

750000×4=300000

Fi
xedcost=5

I
ncr
easecostofaccountr
ecei
vabl
e

30000000/
360×45=3750000.Newl
evel

30000000/
360×40=3333333.Pr
esentl
evel

Tot
al=416666

750000/
360×45=56250

=472916

I
ncr
easei
ncostoff
inanci
ng

472916×.
18=-
85125

Fi
xeddebt750000×00.
5=37500

Netad:
:177375
Qno:
3

Answer
:

Sol
uti
on:

A. IfAft
erTaxCashInf
lowf
ort
he1sty
eari
s120,
000wi
th40%pr
obabi
l
ity
,Af
terTaxCash
I
nfl
owf
orthe2ndyeari
s:

Year Cashf
low PVFact
or@12% PV

0 -
300,
000 1.
0000(
300,
000.
00)

1 48,
0000.
892942,
857.
14

2 142,
500.
00 0.
7972113,
600.
13

NPV (
143,
542.
73)

B. IfAft
erTaxCashInf
lowf
ort
he1sty
eari
s225,
000wi
th50%pr
obabi
l
ity
,Af
terTaxCash
I
nfl
owf
orthe2ndyeari
s:

Year Cashf
low PVFact
or@12% PV

0 -
300,
000 1.
0000(
300,
000.
00)

1 112,
500 0.
8929100,
446.
43

2 270,
000.
00 0.
7972215,
242.
35

NPV 15,
688.
78

C. IfAft
erTaxCashInf
lowf
ort
he1sty
eari
s300,
000wi
th10%pr
obabi
l
ity
,Af
terTaxCash
I
nfl
owf
orthe2ndyeari
s:

Year Cashf
low PVFact
or@12% PV

0 -
300,
000 1.
0000(
300,
000.
00)

1 30,
0000.
892926,
785.
71

2 577,
500.
00 0.
7972460,
379.
46

NPV 187,
165.
18
Proj
ectChasr ecor
dedthehighestNPVof187,165thatshal
lbesel
ected.Si
mil
arlyProjectB
hasreport
edpositi
veNPVat15, 688.
78andshallbesel
ectedandProj
ectAshallberejecetdas
NPVi snegat
iveat-143,
542
Qno:
02

Answer

Requi
red:

Stat
ethefi
nanci
ngst
ruct
urey
ouwoul
dpr
efer
.Youransweri
stobesuppor
tedby
cal
cul
ati
ngthef
oll
owing;

(
a) Mar
ketPr
icePerShar
e. Al
ter
nat
iveA. Al
ter
nat
iveB.

Capr
ate 1/
(PERat
io) 1/
0.20 1/
0.25

PEr
ati
o 1/
capr
ate 4. 5

PEr
ati
o

PEr
ati
o

I
ncomeSt
atement 6000000. 6000000

EBI
T .
..
.. 810000

I
nter
estExpenses 6000000. 5190000

EBT 2400000. 2076000

Tax@10% 3600000. 3114000

EAT 1500000. 1050000

Shar
esout
standi
ng 2.
40. 2.
97

EPS(
EAT/
Shar
esout
srandi
ng) 12.
00. 11.
86

PE=Mar
ketpr
ice/
EPS

Mar
ketPr
ice=(
PERat
io*
EPS)

(
b) Tot
alVal
ueMar
ketoft
heCompany
. 12456000

Mar
ketPr
ice Shar
esout
standi
ng*
Mar
ketPr
ice 18,
000,
000.
00
(
c) Wei
ght
edAv
erageCostofCapi
tal
.

Al
ter
nat
iveA. Al
ter
nat
iveB

Tot
aldebt .
.. 4500000

Tot
alequi
ty 15000000. 10500000

I
nter
estExpenes 0.
. 810000

TaxRat
e 40%. 40%

Tot
alCapi
tal 15000000. 15000000

Wei
ght
ageofdebtkd 0%. 30%

CostofdebtD 0. 18%

Wei
ght
edofEqui
tyKe 100%. 70%

CostofEqui
tyE 20% 25%

20.
0%. 20.
7%

WACCWACC=ke× E +kd×(
1−t
)×D

E+D E+D
Qno:
4

Answer
:

Sol
uti
on

Cash(
openi
ng) Jan Feb Mar
ch

50000 50000 50000

Cashi
nfl
ow 590000 680000 890000

Subt
otal 640000 730000 940000

Expenses

Rawmat
eri
al 360000 600000 390000

LaborCost 150000 200000 160000

Sell
i
ngandadd: 100000 100000 100000
expenses

Subt
otal 30000 170000 290000

Br
owni
ng 20000 220000 -
--

Cash(
Endi
ng)
. 50000 50000 290000

TheBankbrowningrequi
reddur
ingthequar
terandmai
ntai
nmi
nimum bal
anceof50000
thousandi
s(220000+20000)isequalt
o240000