Corporate Finance

Tutorial 2- Section A and G

Q1. Prepare monthly cash budget from April to September 2017

Debtors Collection Schedule

February March April

Total Sales 120,000 140,000 80,000
Credit Sales (80%) 96,000 112,000 64,000
Collections
One month (75%) 84,000
Two months (25%) 24,000
Total Collections 108,000

Monthly cash budget

April May June

Opening Balance - 64,000 80,000
assumed
Collections
Cash Sales 16,000 12,000 16,000
 Collection from debtors 108,000 76,000 52,000
Total Collections 124,000 88,000 68,000

Payments
Purchases 48,000 64,000 80,000
Wages 9,000 8,000 10,000
Interest on debentures 3,000
Tax Payment
Total Payments 60,000 72,000 90,000

Closing Balance 64,000 80,000 58,000

Q5. Calculate the operating cycle and cash cycle

Inventory : 1,000
Accounts Receivable : 800
Accounts Payable : 700
Sales : 15,000
Gross Profit Margin (% of sales) : 20%

COGS = Sales (-) Gross Profit

15,000 (-) 15,000 * 0.2
COGS = 12,000
Daily COGS = 33

Inventory at start of
Inventory Period = year = 1,000 30
Daily COGS 33

Receivable at start of
Accounts Receivable = year = 800 19
Period Daily Credit Sale 42

Payable at start of year

Accounts Payable = = 700 21
Period Daily Credit COGS 33

Operating Cycle = Inventory Period + Accounts Receivable Period 49

Cash Cycle = Operating Cycle (-) Accounts Payable Period 28

Q6. 4.Assume that the annual inflation is 3% compounded annually. What would be the real rate of return for 6 months?

(1+ Real r) * (1+Inflation) = (1+ nominal)

Nominal

(1+real)*(1+3%*0.5)=(1+5.77%*0.5) Real Rate

Q7. ABC purchased a 3-year 7% corporate bond issued by Indian government at Rs. 980 (Face value= 1000). Assuming the

Coupon 35
Time Periods 1 2 3
35 35 35
Interest Rate 7.76%
PV 33.69 32.43 31.22
SUM= VALUE 980.00

Q8. You purchase RIL 10-year bond (face value: Rs. 1000) with an annual coupon rate of 6%. Current Yield is 8%, what is
Coupon Payment 60 Yield 8%
Face Value 1000
Cash Flows 1 2 3
60 60 60
Present Value 55.56 51.44 47.63
Value of the Bond 865.80
 May June July August
60,000 80,000 100,000 80,000
48,000 64,000 80,000 64,000

48,000 36,000 48,000 60,000

28,000 16,000 12,000 16,000
76,000 52,000 60,000 76,000

July August September

58,000 56,000 91,000

20,000 16,000 12,000

 60,000 76,000 68,000
80,000 92,000 80,000

64,000 48,000 80,000

10,000 9,000 9,000
3,000
5,000
82,000 57,000 89,000

56,000 91,000 82,000

days Assumptions:
360 days in a year

All sales are credit sale

days

days

days
days

rate of return for 6 months?

5.77%

1.36%
 ce value= 1000). Assuming the bond pays interest semi-annually, what would be the rate of return if you choose to hold it until maturity

4 5 6
35 35 1035

30.06 28.93 823.66

%. Current Yield is 8%, what is the price of the bond?

4 5 6 7
60 60 60 60
44.10 40.83 37.81 35.01
September October
60,000 100,000
48,000

48,000
20,000
68,000
rn if you choose to hold it until maturity?

8 9 10
60 60 1,060
32.42 30.01 490.99
#REF!
 -9700 250 250 250 250 250 250 250 250
3%
5.698%

0 1 2 3 4 5
500 580 680 800 900 1000
500 508.7719 523.2379 539.9772 532.8722 519.3687
250 10250