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ACC501 ASSIGNMENT 1 SOLUTION..DUE DATE : 2 MAY 2013


BUSINESS FINANCE     (ACC501)   
                ASSIGNMENT NO. 01 
DUE DATE:       2nd
 MAY 2013 
MARKS:   20    
Topic:         Ratio Analysis
Learning objectives:
After attempting this assignment, the student would be able to:
a.  calculate and interpret different financial ratios.
b.  understand how the decisions may affect liquidity position of a company.

Assignment:

ABC Company is engaged in manufacturing of electronic products since many years. It is  listed at Regional Stock Exchange (RSE) and its shares are traded at Rs. 37 each currently. Capital structure of electronics industry is highly relying on debt. So, the industry average for debt to equity ratio is 60:40. Following financial statements relate to
ABC:

ABC Company
Balance Sheet
As on December 31, 2012
ACC501 ASSIGNMENT 1 SOLUTION


ACC501 ASSIGNMENT


Additional information: 
  • Management of the company is planning  to take loan of Rs. 51 million from a local financial institution to purchase new plant for expansion in its existing plant. 
  • A & N Company - a buyer of ABC Company has recently made an agreement to purchase electronic products for Rs. 20 million on credit basis. The inventory for this deal will cost Rs. 11 million for ABC Company. 
  • Share price of the company will be increased by Rs. 3 owing to good expectations perceived by stock market investors. 
Required:
1.  Compute current ratio of ABC Company before and after the credit sales have been 
made to A & N Co.              (3+4=7 Marks)      
        
2.  Analyze how the liquidity position of ABC Company will be affected after making 
credit sales to A&N Co.                                                           (3 Marks)  
3.  Calculate Debt-Equity Ratio of ABC Company before and after taking loan.     
                                                                                                        (3+4=7 Marks)          
4.  Comment on as how the change in Debt to Equity Ratio would affect the decision of 
the financial institution if the company requests for a further loan. (3 Marks)          

IMPORTANT: 
24 hours extra / grace period  after the due date are usually available  to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience.  

OTHER IMPORTANT INSTRUCTIONS: 
DEADLINE: 
  •   Make sure to upload the solution file before the due date on VULMS.  
  •   Any submission made via email after the due date will not be accepted. 
FORMATTING GUIDELINES: 
  •   Use the font style “Times New Roman” or “Arial” and font size “12”.  
  •   It is advised to compose your document in MS-Word format.  
  •   You may also compose your assignment in Open Office format. 
  •   Use black and blue font colors only.  
REFERENCING GUIDELINES: 
  • Use APA style for referencing and citation.  For guidance search “APA reference  
     
    style” in Google and read various website containing information for better 
     
    understanding or visit  
    http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html 
RULES FOR MARKING: 
Please note that your assignment will not be graded or graded as Zero (0), if: 
  •  It is submitted after the due date. 
  •  The file you uploaded does not open or is corrupt. 
  •  It is in any format other than MS-Word or Open Office; e.g.  PowerPoint, PDF etc. 
  •  It is cheated or copied from other students, internet, books, journals etc. 
Note related to load shedding: Please be proactive 

Dear students! 

As you know that Pre Mid-Term semester activities have been started and load shedding problem is also prevailing in our country now a days. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs. 



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