MGT201 Current Final Term Fall 2013 Shared by Madiha Ehsan File 31

3 Questions of 3 marks:

53: Why do a promissory note traded as financial asset and financial liability at the same time?

54: Can creditors of the company affect its dividend policy?

55: What financial position of a business depicts if Return on equity is greater than required rate of return?

5 Questions of 5 marks:

56: Company XYZ wants to issue more Common Stock of face value Rs. 12 next year the dividend is expected to be Rs. 3 per share assuming Dividend growth of 10% p.a. The lawyers and stock brokers’ commissions will cost Rs. 1 per share. Investors are confident about company ABC so the common share is floated at a market price of Rs. 18(premium of 6). Is the capital structure of company ABC is entirely common equity, then what is company’s WACC? Use new stock issue approach to calculated result.

57: Mr. Ali wants to take the loan of 3 months. Write the advantages and disadvantages of short term loan.

58: XYZ manufacturings are going to start a new project; cash flows for the projects are as follows:

Initial cash outflow is Rs. 52,000 expected return on this project is Rs. 145,000, 145,250, 145,850 and 164,450 for next four years. Required rate of return is 12%. Evaluate the project with the help of Profitability Index that either the project is sensible or not.

59: Mr. Ahsen has Rs.100, 000 invested in a 2-stock portfolio. Rs. 35,000 is invested in stock X and the remaining is invested in stock Y. Stock X has a beta of 1.50 and Y’s beta is 0.70. What is portfolio’s beta?

60: Mr. Rehan is a supplier of material to Textile Company. Management of the company wants to purchase material from Mr. Rehan on credit basis and promise to pay within three months.

Existing current and quick ratio for Textile Company are as follows:

Current ratio = 6351/3850 = 1.65:1

Quick ratio = 5325/3850 = 1.38:1

Answer the followings:

1: Being a supplier, Mr. Rehan will be most interested in which balance sheet ratio.

2: which balance sheet items will be affected if Mr. Rehan supplies material of Rs 1,000 on account?

3: By keeping in view the given current ratio what will be new quick ratio.

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