MB0045 Financial Management Set- 1

Q.1 Considering the following information, what is the price of the share as per Gordons Model? Details of the Company Net sales Rs.120 lakhs Net profit margin 12.5% Outstanding Rs.50 lakhs@ 12% preference shares dividend No. of equity 25, 000 shares Cost of equity 12% shares Retention ratio 40% Rate of interest 16% (ROI) Ans: GORDONS MODEL: Gordons model assumes investors are rational and risk averse. They prefer certain returns to uncertain returns and therefore give a premium to the constant returns and discount uncertain returns. The shareholders therefore prefer current dividends to avoid risk. In other words, they discount future dividends. Retained earnings are evaluated by the shareholders as risky and therefore the market price of the shares would be adversely affected. Gordon explains his theory with preference for current income. Investors prefer to pay higher price for stocks which fetch them current dividend income. Gordons model can be symbolically expressed as: P = E (1 - b) / Ke br Where, P is the price of the share, E is Earnings Per Share, b is Retention ratio, (1 b) is dividend payout ratio, Ke is cost of equity capital, br is growth rate in the rate of return on investment. According to question, E = (12000000*12.5%)= 1500000 b = 40% (1 - b) = (1 - 40%) = 0.60 Ke = (250000*12%)= 30000 br = 16% = 0.16 Therefore, P = (1500000 x 0.60) / (30000 0.16)

= 29.84 = 30.00 (rounded-off) Hence, The price of the share is Rs. 29.84 or Rs. 30.00 (rounded-off). Q.2 Examine the components of working capital & also explain the concepts of working capital. Ans: 11.2 Components of working capital Working capital management is concerned with managing the different components of current assets and current liabilities. The following are the components of current assets: Inventories Sundry debtors Bills receivables Cash and bank balances Short-term investments Advances such as advances for purchase of raw materials, components and consumable stores and pre-paid expenses The components of current liabilities are: Sundry creditors Bills payable Creditors for out-standing expenses Provision for tax Other provisions against the liabilities payable within a period of 12 months A firm must have adequate working capital, neither excess nor inadequate. Maintaining adequate working capital is crucial for maintaining the competitiveness of a firm. Any lapse of a firm on this account may lead a firm to the state of insolvency. 11.3 Concepts of Working Capital The four most important concepts of working capital are (see figure 11.1) Gross working capital, Net working capital, Temporary working capital and Permanent working capital.

Figure 11.1: Concepts of working capital Gross working capital Gross Working Capital refers to the amounts invested in various components of current assets. This concept has the following practical relevance. Management of current assets is the crucial aspect of working capital management Gross working capital helps in the fixation of various areas of financial responsibility Gross working capital is an important component of operating capital. Therefore, for improving the profitability on its investment a finance manager of a company must give top priority to efficient management of current assets The need to plan and monitor the utilisation of funds of a firm demands working capital management, as applied to current assets Net working capital Net working capital is the excess of current assets over current liabilities and provisions. Net working capital is positive when current assets exceed current liabilities and negative when current liabilities exceed current assets. This concept has the following practical relevance. Net working capital indicates the ability of the firm to effectively use the spontaneous finance in managing the firms working capital requirements A firms short term solvency is measured through the net working capital position it commands Permanent Working Capital Permanent working capital is the minimum amount of investment required to be made in current assets at all times to carry on the day to day operation of firms business. This minimum level of current assets has been given the name of core current assets by the Tandon Committee. Permanent working capital is also known as fixed working capital. Temporary Working Capital Temporary working capital is also known as variable working capital or fluctuating working capital. The firms working capital requirements vary depending upon the seasonal and cyclical changes in demand for a firms products. The extra working capital required as per the changing production and sales levels of a firm is known as temporary working capital.

Q.3 Internal capital rationing is used by firms for exercising financial control. How does a firm achieve this? Ans: Internal capital rationing Impositions of restrictions by a firm on the funds allocated for fresh investment is called internal capital rationing. This decision may be the result of a conservative policy pursued by a firm. Restriction may be imposed on divisional heads on the total amount that they can commit on new projects. Another internal restriction for capital budgeting decision may be imposed by a firm based on the need to generate a minimum rate of return. Under this criterion only projects capable of generating the managements expectation on the rate of return will be cleared. Generally internal capital rationing is used by a firm as a means of financial control. The various factors relating to the internal constraints imposed by the management are (see figure) Private owned company, Divisional constraints, Human resource limitations, Dilution and Debt constraints.

Figure: Internal constraints Private owned company Under internal constraint, the management of the firms might decide that expansion of the company might be a problem and not worth taking. This kind of condition arises only when the management of a firm fears losing the control in the company. Divisional constraints Another constraint might lead to the allocation of fixed amount for each division in a firm by the upper management. This procedure can also be considered as an overall corporate strategy. These situations arise mainly from the point of view of a department. The cost of capital or the cost structure of the management, the budget constraints imposed by the senior officials or decisions coming from the head-office and wholly owned subsidiary decisions relate to the internal constraints.

 Human Resource limitations The management of the firm or the company should see that excessive labour is being used for the project. Lack of proper man-power can become an internal constraint. Dilution Dilution refers to the dilution of the company. This constraint occurs mainly when a reluctance in the issuing of further equity takes place, due to the fear of management losing the control over the company. Debt constraints Debt constraints also constitute to the internal constraints in capital rationing. This constraint occurs mainly due to the issue of earlier debt which prohibits the issue of debts in the firm up-to a certain level. These are the methods by which various factors are effecting the capital rationing of a particular firm or a management. Let us now look at the different types of capital rationing in the following topic.

Q.4 What are the objectives of working capital management? Briefly explain the various elements of operating cycle. Ans: 11.4 Objective of Working Capital Management The objective of financial management is maximising the net wealth of the shareholders. A firm must earn sufficient returns from its operations to ensure the realisation of this objective. There exists a positive co-relation between sales and firms return on its investment. The amount of earnings that a firm earns depends upon the volume of sales achieved. There is the need to ensure adequate investment in current assets, keeping pace with accelerating sales volume. Firms make sales on credit. There is always a time gap between sale of goods on credit and the realisation of earnings of sales from the firms customers. Finance manger of a firm is required to finance the operation during this time gap. Therefore, objective of working capital management is to ensure smooth functioning of the normal business operations of a firm. The firm has to decide on the amount of working capital to be employed. The firm may have a conservative policy of holding large quantum of current assets to ensure larger market share and to prevent the competitors from snatching any market for their products. However such a policy will affect the firms returns on its investment. The firm will have returns higher than the required amount of investment in current assets. This excess funds locked in current assets will reduce the firms profitability on operating capital.

On the other hand a firm may have an aggressive policy of depending on spontaneous finance to the maximum extent. Credit obtained by a firm from its suppliers is known as spontaneous finance. Here a firm will try to reduce its investments in current assets as much as possible but checks that they are not affecting the firms ability to meet working capital needs for sales growth targets. Such a policy will ensure higher return on its investment as the firm will not be locking in any excess funds in current assets. However, any error in forecasting can affect the operations of the firm unfavourably if the error is fraught with the down side risk. There is also another risk of firm losing on maintaining its liquidity position. Objective of working capital management is achieving a tradeoff between liquidity and profitability of operations for the smooth conduct of normal business operations of the firm. 11.6 Operating Cycle The time gap between acquisition of resources and collection of cash from customers is known as the operating cycle Operating cycle of a firm involves the following elements. Acquisition of resources from suppliers Making payments to suppliers Conversion of raw materials into finished products Sale of finished products to customers Collection of cash from customers for the goods sold The five phases of the operating cycle occur on a continuous basis. There is no synchronisation between the activities in the operating cycle. Cash outflows occur before the occurrences of cash inflows in operating cycle. Cash outflows are certain. However, cash inflows are uncertain because of uncertainties associated with effecting sales as per the sales forecast and ultimate timely collection of amount due from the customers to whom the firm has sold its goods. Since cash inflows do not match with cash out flows, firm has to invest in various current assets to ensure smooth conduct of day to day business operations. Therefore, the firm has to assess the operating cycle time of its operation for providing adequately for its working capital requirements.

Inventory conversion period is the average length of time required to produce and sell the product.

Receivables conversion period is the average length of time required to convert the firms receivables into cash.

Accounts payables period is also known as payables deferral period.

Accounts payables period = (Payables deferral period)

Purchases per day = Cash conversion cycle is the length of time between the firms actual cash expenditure and its own cash receipt. The cash conversion cycle is the average length of time a rupee is tied up in current assets. Cash Conversion Cycle is CCC = ICP + RCP PDP CCC = Cash Conversion Cycle ICP = Inventory Conversion Period RCP = Receivables Conversion Period PDP = Payables deferral period. Q.5 Define risk. Examine the need for assessing the risks in a project. Ans: 9.1.2 Definition of Risk Before we start to discuss about risk analysis in capital budgeting, let us first understand what risk in capital budgeting means. Risk in capital budgeting may be defined as the variation of actual cash flows from the expected cash flows. Every business decision involves risk. Risk exists on account of the inability of a firm to make perfect forecasts of cash flows. The inability can be attributed to factors that affect forecasts of investment, cost and revenue. Some of these are as follows: The business is affected by changes in political situations, monetary policies, taxation, interest rates and policies of the central bank of the country on lending by banks

 Industry specific factors influence the demand for the products of the industry to which the firm belongs Company specific factors like change in management, wage negotiations with the workers, strikes or lockouts affect companys cost and revenue positions Let us see a case explaining why making a perfect forecast of cash flows is difficult. 9.2 Types and Sources of Risk in Capital Budgeting Having understood what risk in capital budgeting means, let us now understand the types of risk and their sources. Capital budgeting involves four types of risks in a project stand-alone risk, portfolio risk, market risk and corporate risk (see figure 9.1)

Figure 9.1: Types of risks Stand-alone risk Stand alone risk of a project is considered when the project is in isolation. Stand-alone risk is measured by the variability of expected returns of the project.

Portfolio risk A firm can be viewed as portfolio of projects having a certain degree of risk. When new project is added to the existing portfolio of project, the risk profile of the firm will alter. The degree of the change in the risk depends on: The co-variance of return from the new project The return from the existing portfolio of the projects If the return from the new project is negatively correlated with the return from portfolio, the risk of the firm will be further diversified. Market risk Market risk is defined as the measure of the unpredictability of a given stock value. However, market risk is also referred to as systematic risk. The market risk has a direct influence on stock prices. Market risk is measured by the effect of the project on the beta of the firm. The market risk for a project is difficult to estimate.

Corporate risk Corporate risk focuses on the analysis of the risk that might influence the project in terms of entire cash flow of the firms. Corporate risk is the projects risks of the firm. 9.2.1 Sources of risk The five different sources of risk are: Project specific risk Competitive or Competition risk Industry specific risk International risk Market risk Project-specific risk Project-specific risk could be traced to something quite specific to the project. Managerial deficiencies or error in estimation of cash flows or discount rate may lead to a situation of actual cash flows realised being less than the projected. Competitive or Competition risk Unanticipated actions of a firms competitors will materially affect the cash flows expected from a project. As a result of this, the actual cash flows from a project will be less than that of the forecast. Industry-specific risk Industry-specific risks are those that affect all the industrial firms. Industry-specific risk could be again grouped into technological risk, commodity risk and legal risk. All these risks will affect the earnings and cash flows of the project. Technological risk The changes in technology affect all the firms not capable of adapting themselves in emerging into a new technology. Commodity risk Commodity risk is the risk arising from the effect of price-changes on goods produced and marketed. Legal risk Legal risk arises from changes in laws and regulations applicable to the industry to which the firm belongs. International risk

These types of risks are faced by firms whose business consists mainly of exports or those who procure their main raw material from international markets. Let us now look at the firms facing such kind of risk: The rupee-dollar crisis affected the software and BPOs because it drastically reduced their profitability. Another example is that of the textile units in Tirupur in Tamil Nadu, which exports the major part of the garments produced. Rupee gaining and dollar weakening reduced their competitiveness in the global markets. The surging Crude oil prices coupled with the governments delay in taking decision on pricing of petro products, eroded the profitability of oil marketing companies in public sector like Hindustan Petroleum Corporation Limited. Another example is the impact of US sub-prime crisis on certain segments of Indian economy. The changes in international political scenario also affected the operations of certain firms. Market risk Factors like inflation, changes in interest rates, and changing general economic conditions affect all firms and all industries. Firms cannot diversify this risk in the normal course of business. There are many techniques of incorporation of risk perceived in the evaluation of capital budgeting proposals. They differ in their approach and methodology as far as incorporation of risk in the evaluation process is concerned.

Q.6 Briefly examine the significance of identification of investment opportunities in capital budgeting process . Ans: 8.5 Identification of Investment Opportunities A firm is in a position to identify investment proposal only when it is responsive to the ideas of capital projects emerging from various levels of the organisation. The proposal may be to: Add new products to the companys product line, Expand capacity to meet the emerging market at demand for companys products Add new technology based process of manufacture that will reduce the cost of production.

Therefore, generation of ideas with the feasibility to convert the same into investment proposals occupies a crucial place in the capital budgeting decisions. Proactive organisations encourage a continuous flow of investment proposals from all levels in the organisation. In this connection following points deserve to be considered: Analysing the demand and supply conditions of the market for the companys product could be a fertile source of potential investment proposals. Market surveys on customers perception of companys product could be a potential investment proposal to redefine the companys products in terms of customers expectations. Companies which invest in Research and Development constantly get exposure to the benefit of adapting the new technology quite relevant to keep the firm competitive in the most dynamic business environment. Reports emerging from R & D section could be a potential source of investment proposal. Economic growth of the country and the emerging middle class endowed with purchasing power could generate new business opportunities in existing firms. These new business opportunities could be potential investment ideas. Public awareness of their rights compels many firms to initiate projects from environmental protection angle. If ignored, the firm may have to face the public wrath through PILs entertained at the Supreme Court and High courts. Therefore project ideas that would improve the competitiveness of the firm by constantly improving the production process with the sole objective of cost reduction and customer welfare, are accepted by well managed firms. 8.7 Capital Budgeting Process Once the screening of proposals for potential involvement is over, the company should take up the following aspects of capital budgeting process: A proposal should be commercially viable. The following aspects are examined to ascertain the commercial viability of any investment proposal - Market for the product - Availability of raw materials - Sources of raw materials - The elements that influence the location of a plant i.e. the factors to be considered in the site selection Infrastructural facilities such as roads, communication facilities, financial services such as banking and public transport services

Ascertaining the demand for the product or services is crucial. It is done by market appraisal. In appraisal of market for the new product, the following details are compiled and analysed. Consumption trends Competition and players in the market Availability of substitutes Purchasing power of consumers Regulations stipulated by Government on pricing the proposed products or services Production constraints Relevant forecasting technologies are employed to get a realistic picture of the potential demand for the proposed product or service. Many projects fail to achieve the planned targets on profitability and cash flows if the firm could not succeed in forecasting the demand for the product on a realistic basis. Capital budgeting process involves three steps (see figure 8.1) Financial appraisal, Technical appraisal and Economic appraisal.

Figure 8.1: Capital budgeting process

MB0045 Financial Management Set- 2

Q.1: Examine the reasons for holdind inventories by a firm & also discuss the techniques of inventory control. Ans: Purpose of inventory The purpose of holding inventory is to achieve efficiency through cost reduction and increased sales volume.belowe Figure displays various purposes involved in holding inventories:

Figure : Purpose for holding inventory

 Sales Customers place orders for goods only when they need it. But when customers approach the firm with orders the firms must have adequate inventory of finished goods to execute it. This is possible only when firms maintain ready stock of finished goods in anticipation of orders from the customers. If a firm suffers from constant customer complaints about the product being out of stock, customers may migrate to other producers. This will affect the firms customers base, customer loyalty and market share. To avail quantity discounts Suppliers give discounts for bulk purchases. Such discounts decrease the cost per unit of inventory purchased. Such cost reduction increase firms profits. Firms may go in for orders of large quantity to avail themselves of the benefit of quantity discounts. Reduce risk of production stoppages Manufacturing firms require a lot of raw materials and spares and tools for production and maintenance of machines. Non availability of any vital item can stop the production process. Production stoppage has serious consequences. Loss of customers on account of the failure to execute their orders will affect the firms profitability. To avoid such situations, firms maintain inventories as hedge against production stoppages Reducing ordering costs and time Every time a firm places an order it incurs cost of procuring it. It also involves a lead time in procurement. In some cases the uncertainty in supply due to certain administrative problems of the supplier of the product will affect the production schedules of the organisation. Therefore, firms maintain higher levels of inventory to avoid the risks of lengthening the lead time in procurement. Therefore, to save on time and costs, firms may place orders for large quantities. Therefore, it can be concluded that the motives for holding inventories are Transaction motive: For making available inventories to facilitate smooth production and sales Precautionary motive: For guarding against the risk of unexpected changes in demand and supply Speculative motive: To take benefit out of the changes in prices, firms increase or decrease in the inventory levels 13.3 Inventory Management Techniques There are many techniques of management of inventory. Some of them are as shown in the figure

Figure : Inventory management techniques Economic order quantity (EOQ)

Economic order quantity (EOQ) refers to the optimal order size that will result in the lowest ordering and carrying costs for an item of inventory based on its expected usage. EOQ model answers the following key quantum of inventory management. What should be the quantity ordered for each replenishment of stock? How many orders are to be placed in a year to ensure effective inventory management? EOQ is defined as the order quantity that minimises the total cost associated with inventory management. EOQ is based on the following assumptions, as shown in figure :

Figure: Assumptions Constant or uniform demand: The demand or usage is even through-out the period Known demand or usage: Demand or usage for a given period is known i.e. deterministic Constant unit price: Per unit price of material does not change and is constant irrespective of the order size Constant Carrying Costs: The cost of carrying is a fixed percentage of the average value of inventory Constant ordering cost: Cost per order is constant whatever be the size of the order Inventories can be replenished immediately as the stock level reaches exactly equal to zero. Constantly there is no shortage of inventory. Economic order quantity is represented using the following formula:

ABC system The inventory of an industrial firm generally comprises of thousands of items with diverse prices, large lead time and procurement problems. It is not possible to exercise the same degree of control over all these items. Items of high value require maximum attention while items of low value do not require same degree of control. The firm has to be selective in its approach to control its investment in various items of inventory. Such an approach is known as selective inventory control. ABC system belongs to selective inventory control.

ABC analysis classifies all the inventory items in an organisation into three categories. Items are of high value but small in number. All items require strict control Items of moderate value and size which require reasonable attention of the management Items represent relatively small value items and require simple control Since this method concentrates attention on the basis of the relative importance of various items of inventory, it is also known as control by importance and exception. As the items are classified in order of their relative importance in terms of value, it is also known as proportional value analysis. Advantages of ABC analysis ABC analysis ensures closer controls on costly elements in which firms greater part of resources are invested By maintaining stocks at optimum level it reduces the clerical costs of inventory control Facilitates inventory control over usage of materials, leading to effective cost control Limitations A never ending problem in inventory management is adequately handling thousands of low value of C items. ABC analysis fails to answer this problem If ABC analysis is not periodically reviewed and updated, it defeats the basic purpose of ABC approach.

Q.2 a.) A bond of Rs. 1000 value carries a coupon rate of 10% and has a maturity period of 6 years. Interest is payable semi-annually. If the required rate of return is 12%, calculate the value of the bond. b.) A bond whose par value is Rs. 500 bearing a coupon rate of 10% and has a maturity of 3 years. The required rate of return is 8%. What should be the price of the bond? ( 5marks)

A.1: a) PVIFA(Kd,n) = [(1 + Kd)n - 1 ] / [Kd (1 + Kd) n]PVIFA(12%,10) = [(1+0.12)10 -1] / [0.12(1+0.12) 10] = [(1.12) 10 -1] / [0.12(1.12) 10] = 2.11 / 0.37= 5.70coupon rate I = 10%face value = 1000 So, I = 1000 * 10 % = Rs 100Value of Bond Vo = I * PVIFA(Kd,n) + F/(1+Kd) n = 100 * 5.70 + 1000/ (1.12)10 = 570 + 1000/ 3.10 = 570 + 322.58= 892.58

b) {I+ (F- P)/n} / {(F+P)/2}I = 100 , F = 1120 , P= 892 = { 100 + (1000 892) / 10} / {(1000+892) / 2} = 110.8 / 946= 11.7 %c) Current Yield = coupan Interest / current market priceCoupan Interest = 1000 * 10% = 100 Current market price = 892Current Yield = 100 / 892 = 11.21 %d) V = (I / 2) / (1 + Kd/2)n + F / (1 + Kd/2)2n = ( 100 /2 ) / (1+ 0.12/2)10 + 1000 / (1+ 0.12/2)2*10= 50 / 1.79 + 1000 / 3.20= 27.93 + 312.5 = 340.43

Q.3: Examine the feature & evaluation of decision tree appeoaches. Ans: Decision tree approach Many project decisions are complex investment decisions. Such complex investment decisions involve a sequence of decisions over time. Decisions tree can handle the sequential decisions of complex investment proposals. The decision of taking up an investment project is broken into different stages. At each stage the proposal is examined to decide whether to go ahead or not. The multi stages approach can be handled effectively with the help of decision trees. A decision tree presents graphically the relationship between Present decision and future events Future decisions and the consequences of such decisions Evaluation of Decision tree approach The evaluation of decision tree approach leads to the following assumptions Decision tree approach portrays inter related, sequential and critical multi dimensional elements of major project decisions Adequate attention is given to the critical aspects in an investment decision which spread over a time sequence Complex projects involve huge out lay and hence are risky. There is the need to define and evaluate scientifically the complex managerial problems arising out of the

sequence of interrelated decisions with consequential outcomes of high risk. It is effectively answered by decision tree approach Structuring a complex project decision with many sequential investment decisions demands effective project risk management. This is possible only with the help of an analytical tool like decision tree approach Ability to eliminate unprofitable outcomes helps in arriving at optimum decision stages in time sequence.

Q.4: If the EPS is Rs 5 dividend pay out ratio is 50% cost of equity is 20% and growth rate in the ROI is 15% what is the value of the stock as per gordons dividend equalization model? Ans:

Q.5: Critically examine the pay back period as a technique of approval of projects. Ans: Payback period is defined as the length of time required to recover the initial cash out lay.

Evaluation of payback period:

Merits: Simple in concept and application

Emphasis is on recovery of initial cash outlay. Pay-back period is the best method for evaluation of projects with very high uncertainty With respect to accept or reject criterion, pay back method favours a project which is less than or equal to the standard pay back set by the management. In this process early cash flows get due recognition than later cash flows. Therefore, pay-back period could be used as a tool to deal with the ranking of projects on the basis of risk criterion For firms with short-age funds this is preferred because it measures liquidity of the project Demerits: Pay-back period ignores time value of money. It does not consider the cash flows that occur after the pay-back period. It does not measure the profitability of the project. It does not throw any light on the firms liquidity position but just tells about the ability of the project to return the cash out lay originally made. Project selected on the basis of pay back criterion may be in conflict with the wealth maximisation goal of the firm.

Accept or reject criteria If projects are mutually exclusive, select the project which has the least pay-back period In respect of other projects, select the project which have pay-back period less than or equal to the standard pay back stipulated by the management Illustration Pay-back period: Project A = 3 years Project B = 2.5 years Standard set up by management = 3 years If projects are mutually exclusive, accept project B which has the least pay-back period. If projects are not mutually exclusive, accept both the projects because both have pay-back period less than or equal to the standard pay-back period set by the management Pay-back formula

Accounting rate of return Accounting rate of return (ARR) measures the profitability of investment (project) using information taken from financial statements: ARR = Average income / Average investment ARR = Average of post tax operating profit / Average investment Merits:

It is based on accounting information Simple to understand It considers the profits of entire economic life of the project Since it is based on accounting information, the business executives familiar with the accounting information understand it

Demerits: ARR is based on accounting income not on cash flows, as the cash flow approach is considered superior to accounting information based approach ARR does not consider the time value of money Different investment proposals which require different amounts of investment may have the same accounting rate of return. The ARR fails to differentiate projects on the basis of the amount required for investment ARR is based on the investment required for the project. There are many approaches for the calculation of denominator of average investment. Existence of more than one basis for arriving at the denominator of average investment may result in adoption of many arbitrary bases

Due to this the reliability of ARR as a technique of appraisal is reduced when two projects with the same ARR but with differing investment amounts are to be evaluated.

Q.6 Two companies are identical in all aspects except in the debt-equity profile. Company X has 14% debentures worth Rs. 25,00,000 whereas company Y does not have any debt. Both companies earn 20% before interest and taxes on their total assets of Rs. 50,00,000. Assuming a tax rate of 40% and cost of equity capital to be 22%, find out the value of the companies X and Y using NOI approach. Ans: Solution:

S=1000,000/.22 =4545454.5 B=25,00,000 =K0 =[25,00,000/[2500000+4545454.5)].14+[4545454.5/2500000+4545454.5)].22 0.0496+.142 =.1915 or 19.15% V = 5000000/0.1915 = 26,109,660.57