Business Finance-1 (FIN506)

Weekly Assignment # 3

Instructor: Sana Tauseef

Semester: Fall 2019
Due Date: September 15, 11 p.m.

1. Based on the PRAT model, what are the various determinants of a company’s sustainable
growth? Discuss how each of these components impacts the company’s growth rate?
(8-10 lines)

2. Define (in your own words):

a. Compounding
b. Amortized Loan
c. Present Value
d. Perpetuity
(9-10 lines)

3. What three variables are integral in the calculation of Present Value and Future Value of
a cash flow? Briefly explain all three.
(6-7 lines)

4. The concept of Time Value of Money states that a dollar received today has a higher
value than a dollar received tomorrow. Using the concept of Ordinary Annuity and
Annuity Due, which one would you prefer as a lender and why?
(3-4 lines)

5. The table below shows the financial information for the Skandia Mining Company:

SKANDIA MINING COMPANY

FINANCIAL STATEMENTS
INCOME STATEMENT BALANCE SHEET
    ASSETS LIABILITIES AND OWNER'S EQUITY
$4,250.
SALES 0 CURRENT ASSETS $900.0 CURRENT LIABILITIES $500.0
$3,875. NET FIXED $2,200.
COSTS 0 ASSETS 0 LONG-TERM DEBT $1,800.0
TAXABLE INCOME $375.0     OWNER'S EQUITY $800.0
$3,100. TOTAL LIABILITIES AND OWNER'S
TAXES (34%) $127.5 TOTAL ASSSETS 0 EQUITY $3,100.0
NET INCOME $247.5        
DIVIDENDS $82.6        
ADDITION TO RETAINED
EARNINGS $164.9        

Using the table above calculate the sustainable growth rate for the company.
6. A machine is to be replaced after 5 years, when it is expected to cost Rs. 10,00,000. How
much equal sum should be set aside and invested, at the end of each year at 12% p.a. to
accumulate the desired sum?

7. If you invest Rs. 10,000 today for a period of 5 years, what will be its maturity value if
the interest rate per year is 15%?

8. How many years will it take for Rs. 5000 invested today at 12% p.a. rate of interest to
grow to Rs. 160,000?