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Numerical Problems
1. The summarised Profit and Loss Account and Balance Sheet of Biocon are given
below:
(10)
Profit and Loss Account for the Year Ended March 31, 2007
(Amounts in Rs.million)
Total revenue
8630
Operating profit (PBIT)
1788
Interest and finance charges
78
PBT
1710
Provision for tax
127
PAT
1583
2. You plan to go abroad for higher studies after working for the next five years and
understand that an amount of Rs.2,000,000 will be needed for this purpose at that
time. You have decided to accumulate this amount by investing a fixed amount at the
end of each year in a safe scheme offering a rate of interest at 10 percent. What
amount should you invest every year to achieve the target amount?
(3)
3. Surmec, Inc. has sales of $2.1 million last year. The company's primary business line
is manufacturing of nuts and bolts. Since this is a mature industry, the analysts are
certain that the sales will grow at a steady rate of 7 percent a year for as far as they
can tell. The company reportsnet income that represents 23 percent of sales. They
management would like to buy a new fleet of trucks, but can only do so only_ once the
profit reaches $620,000 a year.
At the end of what year will Surmec be able to buy the new fleet of trucks?
(3)
4. What is the difference between the effective rate of interest and stated rate of interest
in the following cases:
(3)
Case A: Stated rate of interest is 8 percent and the frequency of compounding is
six times a year.
Case B: Stated rate of interest is 10 percent and the frequency of compounding is
four times a year.
case C. Stated rate of interest is 12 percent and the frequency of compounding is
twelve times a year.
5. A Rs. 1000 par value bond, bearing a coupon rate of 12 % payable semi-annually will
mature after 5 years.
( 4)
i.
If the required rate of return on the bond is 16 % p.a., what is its value?
ii.
If the bond is currently selling at Rs. 965, what is the approximate YTM per annum?
6. The equity stock of I-LABS Ltd is currently selling for Rs.465 per share. The expected
dividend a year from now is Rs.10.00. The investors' required rate of return on the
stock is 20%. If the constant growth model applies to I-LABS Ltd what is the expected
growth rate?
(3)