Question no 2.

1.Current ratio: 3300 ÷ 1100 = 3 times

Current assets/ current liabilities

2.Return on equity: 560 ÷ 3750 = 0.149s

0.14 ×100 = 14.9 percent
Net income / Total equity × 100

3.Return on Invest Capital 1400 (1-0.44) / 7500

1400 (0.56) /7500
784 / 7500
Ans.9.75 %

4.Net profit margin = 560 ÷ 8000 = 7.00 percent

Net income / sale

5.Total liabilities/T. Capital = 3750 ÷ 7500 = 2

6.Days Sales Outstanding = 1000 ÷8000 × 365 = 45.62 days

Inventory turnover ratio / days of the year

7.Basic Earnings Power =1400 ÷ 7500 = 0.18

Ebit / total sale
8.Inventory turnover = 5400 / 1800 × 365 = 3
Cost of goods sold / Average inventory

Question no 4.
New Plant Cost 270 Million (initial investment)
A. % Interest Bonds issue for $ 270 Million

12% of 270,000,000= $ 32400,000 per year 0r 324 million

B. Existing interest expense 15 + 69.75 +32.4 (new) =117.15 Million
Common Stock 60 Rs each; No of Common Shares to be sold out:
B. 270,000,000/60 = 4,500,000 + old interest expense 15 + 69.75 =84.75
A. Plan to Finance 12% Bonds
B. Table # 1,

Details I II III
Probability .40 .40 .20
Sales $ 2,250 $ 2,700 $ 3,150
EBIT 10% of Sales 225 270 315
Interest Expenses (117.15) (117.15) (117.15)
Earning before Tax 107.85 152.85 197.85
Taxes 40% (43.14) (61.14) (79.14)
Earnings After Taxes 64.71 91.71 118.71
No. of Common shares outstanding as per Balance Sheet
60/3 = 20 20 20,
EPS 64/20 91.71/20 118.71/20
3.235 4.585 5.93
Revised Calculations for Expected EPS & σ for Debt - 12% bonds issue

Expected EPS under debt - $ 4.585 (see table 2 below)

= Γ 1.82 =1.349
Measuring Risk Co efficient of Variations (CV) = σ/ Expected EPS
1.349/4.315 =0.312
Table # 2.
State EPS(r)
P (r) (r -ṝ) P (r - ṝ)2
0.3 3.235
0.40(3.235) (3.235-4.315) = -1.80 .4(3.24) = 1.296
= 1.294
0.4 4.585 0.40(4.585) (4.585-4.315) = 0 .4 (0) = 0
= 1.834
0.3 5.935 0.20(5.935) (5.935-4.315) =1.62 .2(2.62) =0.524
= 1.187
Σ 13.755 total 1.82
4.315
A/2. Calculations of Two Ratios
Debt to Capital Ratio: Total Debt including Bonds/ T. debt + Bonds + Equity
(T. Debt) 697.50+255 + 270 = 1,222.50/ 1222.50+ 60 = 0.953:1

ii. Time Interest Earned (TIE) = E (EBIT)*/I = $ 270/117.15 =2.305

*Average of EBIT = 225+270+315 = 840/3 =270
 B. Plan to Finance Additional 4,500,000 @ $ 60 Common Shares
Table 3.
Details I II III
Probability 0.40 0.40 0.20
Sales $ 2,250 $ 2,700 $ 3,150
EBIT 10% of Sales 225 270 315
Interest Expenses (No (84.75) (84.75) (84.75)
Change in old status)
Earning before Tax 149.25 185.25 230.25
Taxes 40% (56.10) (74.10) (92.10)
Earnings After Taxes 93.15 111.15 138.15
No. of Common shares outstanding as per Balance Sheet
60/3 = 20 20 20
Additional Issue 4,500,000 4,500,000 45,000,000
Total Shares issued 24,500,000 24,500,000 24,500,000
EPS 93,150,000/24,500,000 = 111.15/245= 138.15/245
$3.820 $ 4.536 $ 5.638

B. Calculations for Expected EPS and σ for Common Stock issue (Table # 4i. Expected EPS

under Common Share - $ 4.6818

= Γ 1.503 = 1.2259
Measuring Risk Co efficient of Variations (CV) = σ/ Expected EPS
1.2259/ 4.51 0.2718
B/2. Calculations of Two Ratios
I. Debt to Capital Ratio: Total Debt / T. debt + Equity
697.50+ 225= 922.50 / 922.50+ 60 = 0.939:1
ii. Time Interest Earned (TIE) = E (EBIT)/I = $ 270/84.75 =3.19 X
Average of EBIT = 225+270+315 = 840/3 =270
Table# 4
State EPS(r) P (r) (r -ṝ) P(r - ṝ)2
0.3 $ 3.820 0.40(3.920) = (3.290-4.51) = .3(1.4884) = .2228
1.568 -1.22
0.4 $ 4.536 0.40(4.536) = (4.536-4.51) .4 (0.000676) = .0085
1.8144 =0.026
0.3 $5.638 0.20(5.638) = (5.638-4.51) .3(.9562) = 1.272
1.1276 =1.128
Σ 4.51 1.503

Break even Calculation

Break Even ($) Overall/total = T. Fixed Cost/ C/M

Ratio
Check/proof
Sales at breakeven 1480

T. variable Cost 40%0f sales 495

Contribution Margin 985

T. Fixed Cost 752

Profit/Loss 233 profit

Sales at breakeven 995

T. variable Cost 40%0f sales 495

Contribution Margin 500

T. Fixed Cost 495

Profit/Loss 5 profit

Question 1 Uni Lever Ltds

Uni Pak
Lever Suzuki
Ltds Ltd.
Year Cash Beginning Ending Cash Beginning Ending
Flow Value Value Flow Value Value
2013 1000 20000 22000 1500 20000 20000
2014 1500 22000 21000 1600 20000 20000
2015 1400 21000 24000 1700 20000 21000
2016 1700 24000 22000 1800 21000 21000
2017 1900 22000 23000 1900 21000 22000
 Return=EV-BV
  Uni Lever Ltds     Pak Suzuki Ltd.
Year Return     Return
201
10.00%     0.00%
3
201
-4.55%     0.00%
4
201
14.29%     5.00%
5
201
-8.33%     0.00%
6
201
4.55%     4.76%
7
3.19% 1.95%

CAPM Return= RF+(RM-RF) x beta CAPM Return= RF+(RM-RF) x beta

8%+(14.5%-3.19%) x 8%+(14.5%-1.95%) x
CAPM= 1.6 CAPM= 1.2

CAPM= 26.10% CAPM= 23.06%

State different forms of business organizations along with relative advantages and
disadvantages of each type.

Ans. The five forms of business organizations include the following:

 Partnership
  Corporation
 Sole proprietorship
 Cooperative
 Limited liability company

Partnership

You can classify a business partnership as either general or limited. General

partnerships allow both partners to invest in a business with 100% responsibility
for any business debts.

Some advantages of partnerships include:

establish: Compared to other business structures, partnerships require minimal

paperwork and legal documents to establish.

Partners can combine expertise: With more than one like-minded individual,

there are more opportunities to increase their collaborative skillset.

Less workload: People in partnerships commonly share responsibilities so that one

person doesn't have to do all the work.

Disadvantages to consider:

Conflict can be generated: By having more than one person involved in business
decisions, partners may disagree on some aspects of the operation.

.Corporation

A corporation is a business organization that acts as a unique and separate entity

from its shareholders. A corporation pays its own taxes before distributing profits
or dividends to shareholders. There are three main forms of corporations: a C
corporation, an S corporation and an LLC, or limited liability corporation.

Advantages of corporations include:

Owners aren't responsible for business loans in general, the shareholders of a
corporation are not liable for its debts. Instead, shareholders risk their equity.

Tax exemptions: Corporations can deduct expenses related to company benefits,

including health insurance premiums, wages, taxes, travel, equipment and more.

Disadvantages include:

Double taxation for C-corporations: The corporation must pay income tax at the
corporate rate before profits transfer to the shareholders, who must then pay
taxes on an individual level.

Annual record-keeping requirements: With the exception of an S-corporation, the

corporate business structure involves a substantial amount of paperwork.

Owners are less involved than managers: When there are several investors with
no clear majority interest, the management team may direct business operations
rather than the owners.

Sole proprietorship

This popular form of business structure is the easiest to set up. Sole
proprietorships have one owner who makes all of the business decisions, and
there is no distinction between the business and the owner.

Advantages of a sole proprietorship include:

Total control of the business: As the sole owner of your business, you have full
control of business decisions and spending habits.

No public disclosure required: Sole proprietorships are not required to file annual

reports or other financial statements with the state or federal government.

Easy tax reporting: Owners don't need to file any special tax forms with the IRS
other than the Schedule C (Profit or Loss from Business) form.
Low start-up costs: While you may need to register your business and obtain a
business occupancy permit in some places, the costs of maintaining a sole
proprietorship are much less than other business structures.

Disadvantages include:

Unlimited liability: You are personally responsible for all business debts and
company actions under this business structure.

Lack of structure: Since you are not required to keep financial statements, there is
a risk of becoming too relaxed when managing your money.

Difficulty in raising funds: Investors typically favor corporations when lending

money because they know that those businesses have strong financial records and
other forms of security.

Cooperative

A cooperative, or a co-op, is a private business, organization or farm that a group

of individuals owns and runs to meet a common goal. These owners work
together to operate the business, and they share the profits and other benefits.
Most of the time, the members or part-owners of the cooperative also work for
the business and use its services.

Advantages of a cooperative include:

Greater funding options: Cooperatives have access to government-sponsored

grant programs, like the USDA Rural Development program, depending on the
type of cooperative.

Democratic structure: Members of a cooperative follow the "one member, one

vote" philosophy, meaning that everyone has a say, regardless of their investment
in the co-op.

Less disruption: Cooperatives allow members to join and leave the business

without disrupting its structure or dissolving it.

Disadvantages include:
Raising capital: Larger investors may choose to invest in other business structures
that allow them to earn a larger share, as the cooperative structure treats all
investors the same, both large and small.

Lack of accountability: Cooperatives are more relaxed in terms of structure, so

members who don't fully participate or contribute to the business leave others at
a disadvantage and risk turning other members away.

Limited liability company

The most common form of business structure for small businesses is a limited
liability company, or LLC, which is defined as a separate legal entity and may have
an unlimited amount of owners. They are typically taxed as a sole proprietorship
and require insurance in case of a lawsuit. This form of business is a hybrid of
other forms because it has some characteristics of a corporation as well as a
partnership, so its structure is more flexible.

Some advantages of an LLC include:

Limited liability: As the name states, owners and managers have limited personal
liability for business debts, whereas individuals assume full responsibility in a sole
proprietorship or partnership.

Pass-through taxation: Owners of LLCs may take advantage of "pass-through"

taxation, which allows them to avoid LLC and corporation taxes, and owners pay
personal taxes on business profits.

Flexible management: LLCs lack a formal business structure, meaning that their

owners are free to make choices regarding the operation of their businesses.

Some disadvantages include:

Associated costs: The start-up costs associated with an LLC are more expensive
than setting up a sole proprietorship or partnership, and there are annual fees
involved as well.

Separate records: Owners of LLCs must take care to keep their personal and
business expenses separate, including any company records, whereas sole
proprietorships are less formal.

Taxes: In regards to unemployment compensation, owners may have to pay it

themselves.