RESUNGA MULTIPLE CAMPUS

Casio Corporation forecasted Income Statement for 2017.

Resunga Municipality, Gulmi Sales 4290000
Internal Examination -2079 Cost of goods sold (3580000)
MBS IInd Year Semester Gross Profit 710000
FM: 50 General administrative and selling expenses (2363020)
Time : 3 Hours Depreciation (159000)
Subject: Financial Management Miscellaneous (134000)
Candidates are required to give their answer in their own words as far as Earnings before tax 180680
practicable. The figures in the margin indicate full marks. Tax (40%) (72272)
Net Income 108408
GROUP 'A' Situational Analysis Question
Per share data
1. Read the following situation prudently and answer the questions that
EPS 4.71
follow:
Cash Dividend 0.95
15 P/E Ratio 5 times
Assume that you recently gradated and land a job as a financial analysis Market price (Average) 23.57
have been assigned a task to compare forecasted financial performance of No of shares outstanding 23000
the casio corporation for the year 2017 against that the industry. The Industry Financial Ratios 2017
company's management provided you the following forecasted 2017 Quick Ratio 1.0 times
financial statements of the company along with some industry average Current Ratio 2.7 times
ratios. Inventory turnover 7 times
Casio Corporation forecasted balance sheet as of Dec 31, 2017. Day sales outstanding 32 days
Fixed assets turnover 13 times
Cash 72000
Total assets turnover 2.6 times
Account Receivable 439000
Return on Assets 9.1%
Inventories 894000
Return on Equity 18.2%
Total Current Assets 1405000
Total liabilities to assets ratio 50%
Land and building 238000
Profit Margin on sales 3.5%
Machinery 132000
a) Why is ratio useful? What are the five major categories of ratio?
Other fixed assets 61000
Total Assets 1836000 b) Calculate casio's 2017 forecasted ratio that are useful to compare it's
Accounts and notes payable 432000 strength and weakness against the industry.
Accruals 170000 c) What observations do you make about the liquidity position of the
Total current liabilities 602000 company against that of industry in 2017? Explain.
Long term debt 404290 GROUP 'B' Problem solving Question
Common stock 575000 Attempts any two questions. (10x2=20)
Retained earning 254710
2. Why is wealth maximization goal accepted as an appropriate goal of the
1836000
firms? Does it lead to the shareholders wealth maximization? How does the
society get benefited from an attempt of the management to maximize the
value of the firm at large? a) What is the bond's current yield?
3. Consider the probability distribution of alternative rates of return b) What is the bond's yield to maturity?
associated with stock A and Stock B given in the following tables. 7. The Gandaki herbal company has just paid a cash dividend of Rs 20 per
Statements economy Probability Stock A Stock B share. The dividend are anticipated to maintain a 5% growth forever.
1 0.4 10% -10% Investor required a 15% return from investments such as this.
2 0.3 15 20 a) What is the current value of the stock?
3 0.3 20 30 b) What would the stock sell for today? If the dividend was expected to
a) Calculate the expected return and standard deviation of stock A and grow at 10% per year for the next three years and then settle down to
Stock B. 5% percent per year indefinitely?
b) What is correlation coefficient between stock A and Stock B? 8. What is weighted average cost of capital? Explain the process of
c) If you form a portfolio of stock A and Stock B comprising 70% in stock calculating WACC.
A and the rest in stock B, Calculate return on your portfolio.
4. Lumbini transportation (PVT) LTD is considering to run micro bus
service from butwal to pokhara. A micro bus cost Rs 20,00,000 and it
will play daily for 5 years to come . Annual net cash inflows for five GOOD LUCK
years will be as follows.
Years 1 2 3 4 5
Cash flows 8,00,000 7,00,000 6,50,000 6,00,000 8,00,000
(Rs)
a) What is payback period of the project?
b) The required rate of return of the project is 10%. What is the NPV of
the project?
c) What is IRR of the Project ?
d) Should lumbini transportation Pvt.ltd run micro bus service?
GROUP 'C' Short Answer Questions
Attempts any three questions. (3x5=15)
5. Compute after tax component cost of the following source of financing:
a) A company can sell a 10 year, Rs 1000 face value bond with a 8.5%
coupon for Rs 950. An underwriting fee of 2% of the face value would
be incurred in the issue process. Assume corporate tax rate is 30%.
b) A company just paid a dividend of Rs 5 per share on it's common stock.
The company is expected to maintain a constant 8% growth rate in its
dividends indefinitely. The stock sells for Rs 40 a share.
6. A bond that matures in 10 years sells for Rs 985. The bond has a face
value of Rs 1000 and a 7% annual coupon.