Mgt201 Financial Management GDB No. 1 full solution Fall october 2011

[Vuhelper]

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chedule:

Opening Date and Time
October 24, 2011 At 12:01 AM


Closing Date and Time
October 26, 2011 At 11:59 PM


ABC Company is a sugar manufacturing and its position as on 31st December, 2010 is as follows:


ABC Company
Balance Sheet
As on 31st December, 2010


Assets
Rs.
Liabilities and Owner’s Equity
Rs.


Current Assets
15,468
Current Liabilities
8,521


Land & Building
179,589
Long term Debts
96,895


Plant & Machinery
253,463
Loan for plant & machinery
253,463


Equity
89,641


Total Assets
448,520
Total Liabilities
448,520




This Balance Sheet also shows that ABC Company took loan from financial institution to purchase plant & machinery for Rs. 253,463.


Keeping the given information into consideration, you are required to answer the following:


1. What would be Debt Ratio before taking loan?
2. What would be Debt Ratio after taking loan?
3. Please comment that how the change in Debt Ratio would affect the decision of the financial institution if the company requests for further loan?



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[Vuhelper]

Solution:



This is an Idea solution by Asad Munir pls do not copy paste as it is. Intellectual and positive comments will be appreciated


Question No. 1


Cost of equity = [9 / (80-5)] + .05 = 0.17
Cost of preferred stock = 9/90 = .10


WACC = rD XD. (1-Tax) + rP XP + rE XE .
WACC = .30 x .13 (1-.35) + .30 x .10 + .40 x 0.17
WACC = 0.02535 + .03 + 0.068
WACC = 0.12335
WACC = 12.335


Question No. 2


Break even point in units = Fixed expenses / Unit contribution margin


Break even point in units Firm A = 24600 / (16-6.75) = 2660
Break even point in units Firm B =30600 / (20-9.75) = 2985

[modood]

sir required solution gdp 201