Q1

Sales growth 10%

Current assets/Sales 15%
Current liabilities/Sales 8%
Net fixed assets/Sales 77%
Costs of goods sold/Sales 50%
Sales, general and administrative expenses 200
Depreciation rate 10%
Interest rate on debt 10.00%
Interest paid on cash & marketable securities 8.00%
Tax rate 40%
Dividend payout ratio 40%

Year 0 1 2 3 4
Income statement
Sales 1,000 1,100 1,210 1,331 1,464
Costs of goods sold (500) (550) (605) (666) (732)
SG&A (200) (200) (200) (200)
Interest payments on debt (32) (32) (32) (32) (32)
Interest earned on cash & marketable securities 6 6 5 5 5
Depreciation (100) (117) (137) (161) (189)
Profit before tax 374 207 241 277 317
Taxes (150) (83) (96) (111) (127)
Profit after tax 224 124 145 166 190
Dividends (90) (50) (58) (67) (76)
Retained earnings 314 75 87 100 114

Balance sheet
Cash and marketable securities 80 71 65 63 65
Current assets 150 165 182 200 220
Fixed assets
At cost 1,070 1,264 1,486 1,740 2,031
Depreciation (300) (417) (554) (715) (904)
Net fixed assets 770 847 932 1,025 1,127
Total assets 1,000 1,083 1,178 1,288 1,412

Current liabilities 80 88 97 106 117

Debt 320 320 320 320 320
Stock 450 450 450 450 450
Accumulated retained earnings 150 225 311 411 525
Total liabilities and equity 1,000 1,083 1,178 1,288 1,412

Year 0 1 2 3 4
Free cash flow calculation
Profit after tax 124 145 166 190
Add back depreciation 117 137 161 189
Subtract increase in current assets (15) (17) (18) (20)
Add back increase in current liabilities 8 9 10 11
Subtract increase in fixed assets at cost (194) (222) (254) (291)
Add back after-tax interest on debt 19 19 19 19
Subtract after-tax interest on cash & mkt. securities (4) (3) (3) (3)
Free cash flow 56 68 81 94
5 6 7

1,611 1,772 1,949

(805) (886) (974)
(200) (200) (200)
(32) (32) (32)
5 6 7
(220) (255) (296)
359 405 454
(144) (162) (181)
215 243 272
(86) (97) (109)
129 146 163

72 82 96
242 266 292

2,364 2,743 3,176

(1,124) (1,379) (1,675)
1,240 1,364 1,501
1,553 1,712 1,889

129 142 156

320 320 320
450 450 450
654 800 963
1,553 1,712 1,889

5 6 7
 215 243 272
220 255 296
(22) (24) (27)
12 13 14
(333) (379) (432)
19 19 19
(3) (4) (4)
108 123 138
 Q2
question no 2

CALCULATING THE MEAN AND STANDARD DEVIATION OF A PORTFOLIO

Proportion of Proportion of wmb&ST 35.00%

Proportion of Proportion of gta&fc 65.00%

WMB&ST GTA&FC Portfolio return

1997 33.40% 22.00% 0.2599
1996 23.00% 26% 0.2521
1995 37.60% 30.10% 0.32725
1994 1.30% -0.10% 0.0039
1993 10.10% 19.40% 0.16145
1992 7.60% 17% 0.13385
1991 30.50% 28.60% 0.29265
1990 -3.10% -15.50% -0.1116
1989 31.71% 15% 0.2084675
1988 16.60% 28.70% 24.47%
1987 5.30% 1.20% 0.02635
1986 18.70% 20.30% 0.1974
1985 31.80% 28% 0.2933
1984 6.30% 19.50% 0.1488
IATION OF A PORTFOLIO

Portfolio return
Asset returWMB&ST GTA&FC
a) Mean re 17.91% 17%
Variance 0.016971679 0.016446821
a) Standard 13.03% 12.82%
b) Covaria 0.01260878
b) CORREL 0.754691902

c) Portfolio mean return

0.17417625

Portfolio return variance

0.014764808

c) Portfolio return standard deviation

12.15%
q3

year dividend per share Kse 100 return stock price return
1986 33
1987 30.69 2.5 4.70% -0.072570692834835
1988 35.38 2.5 16.20% 0.142209820099994
1989 42.25 3 31.40% 0.177457665071544
1990 34.38 3 -3.30% -0.20612935384848
1991 36.25 1.6 30.20% 0.05296438134598
1992 32.25 1.4 7.40% -0.116921338058902
1993 43 0.8 9.90% 0.287682072451781
1994 42.13 0.8 1.20% -0.020440039702637
1995 52.88 1.1 37.40% 0.227265119552506
1996 55.75 1.6 22.90% 0.052852214796797

Annualized average return 5.24%

Classic CAP re=rf+beta*[E(ru)-rf]

Annualized average return 15.00%

Beta 0.7438
Risk free rate(rf)
Expected market return E(ru)
Cost of equity

Tax adjusted CAPM re=rf*(1-TC)+beta*(E(ru)-rf*(1-TC))

Beta 0.7438
Tax rate TC 29%
Risk free rate (rf) 6.49%
Expected market return E(ru)
cost of equity

DATA:

Share price RS.10/- each

Equity value
WAAC Based on classic CAPM & interest from Financial statements

Cost of equity, rE
Cost of debt
Tax rate 29%

WAAC #DIV/0!

WACC based on tax-adjusted CAPM and interest from financial statements

Cost of equity
Cost of debt
Tax rate 29%

WAAC #DIV/0!