Student ID : CGSSO00001201

Student Name : YASIN HASSAN YUSUF

Course Code : BMMF5103

Course Name : MANAGERIAL FINANCE

Program : SU-CPS

Semester : JANUARY SEMESTER 2013
Assignment :
Facilitator : Professor BASHIR NOR ISSE

Date due : February 25, 2013

Submission
Date:
February 25, 2013


ANSWER # 1

A. The above-average current ratio of the corporation which is 5.65 is an
indicator that there are many assets that havent been properly managed.
The reason for this disparity in particular could be Account Receivables that
havent been collected yet which can subsequently boom or exaggerate the
assets of that particular corporation.

In this case the average industry ratio is 1.42; therefore, if any given firm or
corporation exceeds this figure (e.g. this corporation in this case), that
corporation has too much assets such as too much Account Receivables.

B. Determine the sales of a firm with the following financial information:

Given:

Current Ratio = 2.40
Quick Ratio = 1.50
Current Liability = RM 600,000
Inventory Turnover = 6 times

Solution:

Formula: Current Ratio = current Asset/ Current Liability

2.4 = Current Asset/ 600,000
Current Asset= 2.4 X 600,000.
Therefore, Current Asset = 1, 440,000

However, we can deduce Inventory through Quick Ratio
Formula: Quick Ratio =Current Asset Inventory /Current Liability

1.5 = 1,440,000 X /600,000 (assume inventory as X)
1,440,000 X = 1.5 *600,000
1,440,000 X = 900,000
-X= 900,000 1440,000
Therefore, Inventory =540,000

Having calculated the Inventory, we can find Sales via Inventory Turnover
Ratio.
Formula: Inventory Turnover Ratio = Cost of Goods Sold /Inventory

6 (given inventory turnover) = Cost of Goods Sold/ 540,000
Cost of Goods Sold = 6 X 540,000
Cost of Goods Sold = 3,240,000.
Sales can be found Cost of Goods Sold/75% (Cost of Goods Sold-Gross
Profit Ratio)
3,240,000/ 75%
Therefore, Sales=4,320,000

C. Complete the balance sheet and sales information for Edelle Corporation
using the following financial data:

Given:

Debt/ Equity = 50%
Quick Ratio = 1.40
Total Assets Turnover = 1.60
Days Outstanding = 30
Gross Profit Margin = 25%
Inventories Turnover = 4 times

Solution

Debt/Equity = Liabilities /Equity = 0.5
Liabilities = 0.5 x Equity
Liabilities = 0.5 x 51, 000
Therefore, Liabilities = 25, 500

Therefore Total Liabilities and Equity = 25,500 + 25,000 + 26,000 = 76,500
Total Assets = 76, 500

Quick Ratio = Current Assets Inventories/ Current Liabilities = 1.40
Current Assets Inventories = 1.40 X Current Liabilities
Current Assets = 1.40 X Current Liabilities + Inventories
Current Assets = 1.40 x 25, 500 + 30, 600
Current Assets = 35,700 + 30,600
Therefore, Current assets = 66, 300

Total Assets Turnover = Sales/ Total Assets = 1.60
Sales = 1.60 X Total Assets
Sales = 1.60 x 76,500
Therefore, Sales = 122,400

Days Outstanding = Receivables/ Annual Sales/365
30=X/122,400/365
30=X/335.342
Therefore, Receivables = 10,060.27

Inventory Turnover = Sales/ Inventory = 4 times
Sales = 4 X Inventories
122,400 = 4 x inventories
Inventories = 122, 400/4
Therefore, Inventories = 30, 600

Gross Profit Margin = Sales Cost of Sales/Sales = 0.25
122,400 Cost of Sales/122,400 = 0.25
122,400 Cost of Sales = 0.25 (122,400)
122,400 = 30,600 + Cost of Sales
Cost of sales = 122, 400 30, 600
Therefore, Cost of Sales = 91,800

The Balance Sheet
Cash 25,639.73 Account Payable 25,500
Accounts Receivable 10, 060.27 Common Stock 25,000
Inventory 30, 600.00 Retained Earnings 26,000
Plant & Equipment 10, 200.00 Total Liability & Equity 76,500
Sales 122400 Cost of Sales 91800
ANSWER # 2
A. Question two part A:

Given:
D
0
= 6.50 D
0
= Recent Dividend
g= 6% g = Growth Rate
k
s
= 14.5% k
s
= Require Rate Of Return
P
^
=Current Value of Stock

Solution
P
^
= p
0
= D
i
/k
s
g = D
0
(1+g)/ k
s
g
p^ = 6.50 (1+0.06)/0.145 0.06
P
^
= 6.50(1.06)/ 0.085
P
^
= 6.89/0.085
Therefore, Current Value of a Share of DPB Stock = 81.06

Given:
P
^
= 59.66
D
0
= R 6.50
Ks = 14.5%
g= ?

Solution:

p^ = p0 = Di/ ks g = Do(1+g)/ ks g
59.66 = 6.50(1+0.06)/0.145-g
59.66(0.145 g) = 6.50(1.06)
8.65 59.66g = 6.89
59.66g = 8.65 6.89
59.66g = 1.76
g= 1.76/59.66
g= 0.0295 = 0.030
Therefore, g= 3%

B. Question 2 Part B:
SML Equation
Required Rate Of Return = Risk-Free Rate + (Market Premium)(Stocks Beta)
Project Alphas
Required Rate of Return = rrf + (rm)(bi)
= 5.45% + 5% (0.6)
= 5.45 + 3%
Therefore Required Rate of Return = 8.45%

Project betas
Required rate = 5.45% + 5%(1.1)
= 5.45% + 5.5%
Therefore, Required Rate of Return = 10.95

Project Chis
Required Rate = 5.45 % + 5% (1.8)
Required Rate = 5.45 % + 9%
Therefore Project Chis required Rate = 14.45%

C) Question 2 Part C
Given:
N = 12 yrs x 2 = 24 semiannual
FV = 1000
PV = 961.88
Pmt = 75/2 = 37.5
YTM =?
Solution
We can then notice that:
Prince of bond => VB=
t=1
2N
INT/2/(1 + k
d
/2)
2
+ M/ (1 +k
d
/2)
2

N= 24, PV=961.88 , pmt = 37.50, FV = 1000, YTM =?
Therefore, YTM = 4%
Given:
N = 12 yrs x2 = 24 Semi Annual
FV = 1000
PV = 1030.32
PMT = 37.50
YTM =?
N = 24, PV = 1030.32 , PMT = 37.50, FV = 1000, YTM =?
Therefore, YTM = 3.56%

ANSWER # 3

A. Question 3 Part A:
Given:
1 = per/year n= 30 yrs
I= 8%
FV = 1250,000 = (50000 x 25yrs =1250000)
PMT=?

Solution
With a financial calculator input the following:
N = 30, i/yrs = 8%, PV = o, fv = 1250,000, PMT=?
Therefore, PMT = -11,034.29
Given:
1 = per/yrs
n= 30 years
i= 8%
PV = 10,000
FV = 1250,000
PMT=?

Solution:
N =30, i/year = 8%, PV = 10,000, FV = 1,250,000, PMT =?
Therefore, payment = -10,146.02
Given:
1 = per/year
n= 30
i = 8%
PV =85,000
FV = 1250000
PMT =?
Solution
N = 30, i/yrs = 8%, PV = 85,000, FV = 1250, 0000, PMT =?
Therefore, PMT = -3483.96

B. Question 3 Part B:

Given:
PV = 200,000
I = 6% = 0.06/12=0.005 payment
N = 80yrsX12=360
PMT=?
PMT= PV 2(1+i)n/(1+i)-1
PMT=200000 x 0.005(1+005)360/6.02258-1
PMT= 200000 x 0.0301129/5.02258
PMT= 200000 x o.006
PMT=RM 1199.10
Therefore, the PMT= 1,199.10
Schedule of loan for three months


Period 1
Beginning
amount

2

payment
3

Interest
4
Repayment
(2) (3)
5
Remaining
balance
(1) (4)
Beginning balance
200000.00
1 200000 1199.10 1000 199.10 199800.90
2 199.800.90 1199.10 999 200.10 199600.80
3 199600.80 1199.10 998 201.10 199399.70
C. Answer 3 Part C
Given:
PV = 25,000-2,000 = 23,000
I = 9%= 0.09/12 =0.0075
N = 2yrs x 12 = 24
PMT =?
Solution:
PMT = PV I(1+i)n/(1+i)n-1
PMT = 23000 x 0.0075(1.0075)24/(1.0075)24-1
PMT =23000 x 0.0075(1.19641)/1.19641 1
PMT= 23000 x 0.04569
Therefore, PMT= 1050.75 per month
Given:
PV = 25,000
I = 0%
N = 2yrs x 12 = 24
PMT = PV/N = 25,000/24
PMT = 1.041.67
Therefore, choice 2 is better than choice 1 because payment per month is
1.041.67 other than of 1.050.75.
ANSWER # 4

A. Question 4 Part A:
Given:
2009 Purchase of Stock 100 X 24 = 2,400
2009 1
st
dividend 100 2 = 200
2010 2
nd
dividend 100 3 =300
2011 3
rd
dividend 100 4 =400
2011 sell of stock 100 18 =1800
300
Therefore, Rate of Return = 300/2400
Rate of Return = 0.125 100
Rate of Return = 12.50 %

B. Question 4 Part B:
Given:
Expected Return for The Market = 12%
Standard Deviation 20%
Risk-Free Rate 8%
Required Rate of Return Using SML =?

Solution:
By looking into the following data:
Stock Beta Ri
1 0.8 12
2 1.2 13
3 0.6 11
We can solve the following;

Stock 1 stock 2 stock 3
Ri = RRF + RPM (bi) Ri = RRF + RPM (bi) Ri= RRF +
RPM (bi)
= 0.08 + o.12 (0.8) = o.08 + 0.12(1.2) = o.o8+0.12(0.6)
= o.176 = 0.224 = 0.152
= 17.6% = 22.4 % = 15.2%
Given:
A high beta stocks is more volatile than average stock, while low beta stock is less
volatile then average stock
Therefore, Stock 1 would be recommended to be purchased, because stock has b = 1,
an average stock.
C. .Question 4 Part C:
Because, risk analysis and measurement has became a critical function for portfolio
manager and traders, accurate measurement and analysis of risk presents many
practical challenges including the choice of risk model pitfalls of portfolio optimization,
horizon mismatches and out of sample testing.
Measurement risk engines are as follows :
Risk calculation Back Testing
Model calibration Hypothetical P&L
Fair value model VaR model
Actual P&L Stressed VaR model
Stress Testing Risk reverses

D. Question 4 Part D:
In a market dominated by risk averse investors, riskier securities must have higher
expected return, as estimated by marginal investor than less risky securities, if this
situation does not exist, buying and selling in the market will force it to occur. If you
choose less risk investment, you are risk averse. Most investors are needed risk averse
and certain the average investors are risk averse with regard to his or her serious
money.
If the slope changes downward, I suggest to continuous investment because lower rate
return hard lower risk.

ANSWER #5

A. Efficiency Market Hypotheses
Forms of market efficiency
If market is efficiency, r=stock prices will rapidly reflect all available information; there
are three forms of market efficiency
Weak form efficiency
The weak form of the efficiency market hypothesis (EMH), states that all information
contained in past price movement is fully reflected in current market price.
Semi-strong form efficiency
Semi strong from efficiency states that current market price reflects all publicly available
information.
Strong-from efficiency
The strong form efficiency of the EMH states that current market price reflect all
pertinent information, where publicly available or privately held.

Market Anomalies Consistent
if the stock prices already reflect all publicly available information and hence are fairly
priced one can beat the market consistency only by lucky, and it is difficulty.
B. Coefficient Correlation
Coefficient correlations, if the correlation zeros it is no relation between the two things, if
the things are some have positive correlation but if things are different have negative
correlation.
C. The Assumption of the Capital Asset Pricing Model (CAPM)

Based on the Markowitzs mean-variance model, the CAPM inherits all the
shortcomings of the letter in addition to its own assumption such as :
A. Investors are rational and risk averse
B. The markets are perfect, thus taxes, inflation, transaction costs, and short
selling restrictions are not taken into account.
C. Investors can borrow and lend unlimited amounts at the risk-free rate(erf)
D. All assets are infinitely divisible and perfectly liquid.
E. Investors have homogenous expectation about asset returns
F. Asset return conforms to the normal distribution.
G.
H. The CAPM is an ex ante model, which means that all of the variables
represent
Before-the fact expected values. In particular, the beta coefficient used by investors
should reflect the expected volatility of a given stocks return versus the return on the
market during some future period. However, people generally calculate betas using
data from some past period, and then assume that the stocks relative vol atility will be
the same in the future as it was in the past.

ANSWER #6

Good Corporate Governance practices connects and holds together fair business
practices, which ensures positive workplace management, marketplace responsibility,
environmental stewardship, community engagement, and sustained financial
performance. This is even more true now as we work worldwide to restore confidence
and promote economic growth.
Corporate governance refers to the way that boards oversee the running of a company
by its managers, and how board members are held accountable to shareowners and the
company. This has implications for company behavior not only to shareowners but also
to employees, customers, those financing the company, and other stakeholders,
including the communities in which the business operates. Research shows that
responsible management of environmental, social and governance issues creates a
Corporate governance refers to a set of systems and processes to ensure the company
is managed to suit the best interest of all the stakeholders" The Corporate Governance
structure specifies distribution of rights and responsibilities among different participants
in the corporation, such as, the board, managers, shareholders and other stake holders,
and spells out the rules and procedures for making decisions on corporate affairs.
(Soni, 2013)
REFERENCE
Bibliography
Soni, S. (2013, February 24). http://www.preservearticles.com/2012010319733/here-is-your-short-
essay-on-corporate-governance.html. Retrieved from
http://www.preservearticles.com/2012010319733/here-is-your-short-essay-on-corporate-
governance.html: http://www.preservearticles.com/2012010319733/here-is-your-short-essay-
on-corporate-governance.html