profitability index dividend

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Total cash flow=200000-(-50000)

toal cash flow =250,000

Question 64= snk company find the profitability index  dividend 2 and price= 200 (3marks)

solution= 2/200=0.01=1answer

Question No: 43                 ( Marks: 3 )

Write down the components of total return in terms of dividend growth model. Answer

R = D1 /P0 + g

This tells us that the total return, R, has two components

D1/P0 is called the Dividend Yield. Because this is calculated as the expected cash dividend by
the

current price, it is conceptually similar to the current yield on a bond

Growth rate, g, is also the rate at which the stock price grows. So it can be interpreted as

capital

gains yield

Question No: 44                 ( Marks: 3 )

What is the difference between operating cycle and cash cycle?

The operating cycle is the sum of the inventory and receivable periods
      Operating cycle = Inventory period + Receivable period

Cash cycle

•The time between cash disbursement and cash collection. (We spend cash on day 30, but don't collect until

day 105. so we have to arrange finances $1,000 for 105 - 30 = 75 days)

•So we can describe the cash cycle as:

Cash  cycle  =  Operating  cycle  -  Accounts  payable  period
      75 days = 105 days - 30 days

Question No: 45                 ( Marks: 3 )

How a firm s overall cost of capital is calculated ?

We know that a firm’s overall cost of capital will reflect the required return on the firm’s assets as a
whole.

•Given that a firms uses both debt and equity capital, this overall cost of capital will be a mixture
of the

returns needed to compensate its creditors and stockholders.

•Cost of capital will reflect

•Cost of equity capital

•Cost of debt capital
      Cost of Equity

Question No: 46                 ( Marks: 5 )

Define the following terms:

(i)       Dealer

An agent who buys and sells securities from a maintained inventory

It stands ready to buy securities from investors wishing to sell them and sells securities to investors

wishing to buy them

(ii)          Broker

An agent who arranges security transactions among investors, matching investors wishing to buy securities with investors wishing to sell securities

They do not buy or sell securities for their own accounts. Facilitating trades others is their business

BC Manufacturing Company

Year ended December 31, 2009

·         Sales Rs.80,000,000

·         Gross profit margin 80%

·         Operating profit margin 35%

·         Net profit margin 8%

·         Return on total assets 16%

·         Return on common equity 20%

·         Total assets turnover 2

·         Average collection period 70 days

1.      Requirement no 1.     Calculate the value for Gross profit?

2.      Solution

a)      Gross profit = sale - cost of goods sold

b)      Gross profit = 80,000,000 – 160,00,000

c)      Gross profit = 64,000,000

3.      Requirement no 2.     Calculate the value for Cost of goods sold?

4.   Solution

a)      Gross profit margin ratio = (revenue – cost of goods sold)/revenue

b)      8/100 = (80,000,000 – cost of goods sold)/80,000,000

c)      8/100 * 80,000,000 = 80,000,000 – cost of goods sold

d)     64000000 = 80,000,000 – cost of goods sold

e)      Cost of goods sold  = 80,000,000-640,00,000

f)       Cost of Goods Sold = 160,00,000

5        Requirement no 3.   Calculate the value for operating profit margin?

 6.  Solution

a)      Operating profit margin = operating income / revenue

b)      35/100 = operating income / 80,000,000

c)      35/100 *80,000,000 = operating income

d)     Operating income = 280,00,000

7     Requirement no 4.          Calculate the value for Operating expenses?

8          Solution

a)      Operating expenses = (gross profit – operating income)

b)      Operating expenses = 640,00,000 – 280,00,000

c)      Operating expenses = 360,00,000

d)     Net profit margin = Net profit(after tax) / revenue * 100

e)      0.8 = Net profit (after tax) / 80,000,000

f)       0.8*80,000,000 = Net profit (after tax)

g)      Net profit (after tax) = 64,00,000

9.     Requirement no 5.         Calculate the value for Earnings available for common stockholders?

10.       Solution

a)      Earnings available for common stockholders = Net profit (after tax) = 6400000

b)      Return on assets = Net income / Total assets

c)      16/100 = 28000000 / Total assets

13     Requirement no 6.        Calculate the value for total assets?

14        Solution

a)      Since operating income is also called net income

b)      Total assets = 280,00,000 / (16/100)