BUSINESS FINANCE (ACC501)

ASSIGNMENT NO. 1
Question No. 1
The ABC Limited, a manufacturer of wood furniture, has a debt-equity ratio of 0.4, a
profit margin of 4 percent, a dividend payout ratio of 50 percent and a total asset turnover
of 1. You are required to calculate the Sustainable Growth Rate.
Solution:
According to given values
debt-equity ratio = 0.4
profit margin = 4%
dividend payout ratio = 50%
total asset turnover = 1
Sustainable Growth Rate =?
As we know that
ROE × b
Sustainable Growth Rate ¿
1−( ROE ×b )
ROE = Profit Margin x Debt-Equity Ratio x Total Assets Turn Over Ratio = 5.6%
5.6 % ×0.5
¿
1−5.6 % × 0.5
0.056 × 0.5
¿
1−0.056 ×0.5
= 2.8%
Question No. 2
Mr. Ali is a salaried person and wants to buy a car after 6 years. At that time, he would be
required to have an amount of Rs. 700,000 for the purpose. Currently, he has Rs. 300,000to
invest. He has found an investment plan that promises him to pay Rs. 700,000 after 6years
if he invests Rs. 300,000 now. You are required to calculate the interest rate offered by the
investment plan?
Solution:
According to the given values
Required Amount = 700,000
 Cash In Hand = Present Value (PV) = 300,000
Time Period for Investment (t) = 6 Years
The Amount After 6 Years = Future Value (FV) = 700,000
Interest Rate =?
As we know that
Future Value (FV) = PV x (1 + r)t
Putting the values into Formula
700,000 = 300,000 x (1 + r)6
700,000 / 300,000 = (1 + r)6
(2.3)1/6 = (1 + r)
r = 3.096