Financial Math Answers

The demand and supply equations is 2p²+q²=11 and p+2q=7. Find the equilibrium price and quantity, where p stands for price and q stands for quantity.

After paying income taxes of 31% Andrew’s annual take-home income was 46.920. Calculate her income before taxes(gross income).

The revenues of a company increased by 31% in one year and decreased by 27% in year two. What is the overall change over the two-year period?

ABC Limited is looking at expanding its business and wants to invest in a new plant to boost its production capacity. The plant has a life of three years. The details are as follows.

 The plant would depreciate in three years from the acquiring cost of Rs. 4,20,000 to zero in three years. There would be no salvage value at the end of three years. The depreciation would be on a straight line basis.

 The additional revenue from the plant would be ~ Rs. 6,00,000 in year 1, Rs. 7,00,000 in year 2 and 3.

 The input cost (raw material) is expected to be ~ Rs. 3,00,000 for year 1 and 2 and Rs. 4,00,000 in year 3.

Assuming a tax rate of 30% and a discount rate of 20%, you are required to

1. Arrive at the expected annual cash flows (after-tax)

2. Compute the net present value of the investment and determine if the investment is financially viable?

As an Investment Banker your client, LMN Limited is looking at a restructuring its business. You extract the following data from the financials of the company.

Particulars Rs. Crs.

Equity capital (Face value Rs. 10) 1,000.00

Debentures (@ 12%) 400.00

Long Term unsecured loan (@15%) 200.00

Total 1,600.00

The company has been paying a dividend of 20% per annum (historically). The stock of LMN Limited is listed at Rs. 20 on the NSE. Compute the cost of:-

a. Equity capital.

b. Weighted Average cost of capital of LMN Limited

As an investor in the equity market you become aware of investment opportunity in 3

corporates. Assuming that the cost of equity is 8%, compute the fair value of X Limited,

Y Limited and Z Limited using the Dividend discount model.

a. Given the history of the company, X Limited is expected to pay a uniform dividend of Rs. 5.00 per share.

b. Being in the IT Industry, Y Limited is expected to pay a dividend of Rs. 4.00 per share

and an increase of 5% year on year thereafter.

c. A pharmaceutical company, Z Limited has been paying a dividend of Rs. 2.00 over for

the last 3 years. The company is expected to do extremely well and increase the dividend

pay-out by 7% year on year. This year the dividend expected is Rs. 8.00.

Additionally, what is the biggest lacuna in the Dividend Discount Model in valuing

stocks? Give an example to explain.

1. A computer software retailer used a markup rate of 40%.Find the selling price of a computer game that cost the retailer P 1,250.00?

2. A golf shop pays its wholesaler P 2,000.00 for a certain club, and then sells it to a golfer for P 3, 750.00. what is the markup rate?

3. A shoe store uses a 40% markup on cost of a pair of shoes that sells for P 3,150.00?

4. A item originally priced at P 2,750.00 is marked 25% off. What is the sale price?

5. An item that regularly sells for P 3,000.00 is marked down to P2,650.00. What is the markdown rate?

6. Assume that net income equals P 10, 000 on net sales of P 100, 00. What is the profit margin?

A company is currently evaluating a project which requires investments of 5000 now, and 2000 at the end of year. The cash inflows from the project will be 7000 at the end of year 2 and 6000 and the end of year 3. If the discount rate is 16%, what is the net present value of the project?