Archive

Archive for the ‘Investment Analysis & Portfolio Management’ Category

Dividend, Retained Earning and Share (Stock) Holders Equity Calculation

February 4, 2011 Leave a comment

Information:

Exxen limited was incorporated in January 2004 with authorization to issue 75,000 shares of Rs. 100 par value preferred stock and 1.5 million shares of Re. 1 par value of common stock. The company issued the 50,000 preferred shares at par. 700,000 shares of common stock were issued at Rs. 15 per share. The preferred stock was issued to pay a 9% cumulative dividend and is callable at Rs. 110. From the first year of incorporation to 2008 the company earned a total profit of Rs. 8,750,000 and paid dividend of Rs. 0.60 per share each year on the common stock. In 2009, the company reported a net Profit of Rs. 1,500,000 and paid no dividends to common stock holders.

Requirements:

Prepare the stockholder’s equity section of the balance sheet from the information given above at December 31, 2009.

Read more…

Advertisements

Preparation of Cash Flow statement of PEPSICO using Indirect Method example 2

November 21, 2010 3 comments

Note: In this second example of cash flow preparation, I am using the actual data of PEPSICO.

How to prepare cash flow from the start, you can check my post previous https://mohsinpage.wordpress.com/2010/11/15/preparation-of-cash-flows-statement-using-direct-method-example-1/. In my previous post used additional information extracted from the analyses of two year balance sheet. In this tutorial I will analyze whole two year balance sheet and will extract additional information in the categories of Operating activities, Investing activities and Financing Activities.

Analyze the Balance Sheet and income statement:

Below is the balance sheet of PEPSICO of 2000 and 2001 and income statement .of 2001

CONSOLIDATED BALANCE SHEET FOR PEPSICO,INC., AS OF DEC 31

Millions of dollars

2001

2000

Assets
Current Assets
Cash and equivalent 1649 1505
Receivable 2142 2129
Inventories 1310 1192
Other Current Assets 752 791
Total Current Assets 5853 5617
Fixed Assets
Property, Plant and Equipment 12866 11466
Less: Accumulated Depreciation 5990 4908
Net Fixed Assets 6876 6558
Net Intangible Assets 4841 4714
Other Assets 4125 3868
Total Assets 21695 20757
Liabilities and Shareholders Equity
Current Liabilities
Debt Due for repayment 354 202
Accounts Payable 1238 1212
Other Current Liabilities 3406 3381
Total Current Liabilities 4998 4795
Long term debt 2651 3009
Other long term liabilities 5398 5349
Total Liabilities 13047 13153
Shareholders Equity
Common Stock and other paid-in capital 35 667
Retained earnings 8605 6937
Total Shareholders equity 21695 20757
Total Liability and Shareholders Equity 21695 20757

Read more…

VU Specialization Certification:Fall 2010 Subject FIN622 Corporate Finance Assignment 1

October 29, 2010 Leave a comment

Subject: FIN622 Corporate Finance

Assignment # 1:

ABC corporation stock is selling for Rs. 150 per share according to Karachi stock exchange market summary. A rumor about the company has been heard that the firm will make an exciting new product announcement next week. By studying the industry, it is being concluded that this new product will support a growth rate of 20% in dividend for two years. After that it is expected that the growth rate in dividend will decline to 6% and remains same onwards. The firm currently pays an annual dividend of Rs. 4.

The rate of return on stocks like ABC corporation is 10%.

Required:

  1. Find out the values for D1, D2 and D3
  2. What will be the price of stock (P2) at the end of year 2?
  3. What will be the present value (P0) of stock?
  4. Should we buy stocks of ABC Corporation at Rs. 150?

Read more…

VU Specialization Certification:Fall 2010 Subject FIN630 Investment Analysis & Portfolio Management Assignment 1

October 29, 2010 Leave a comment

Subject: FIN630 Investment Analysis & Portfolio Management

Assighment 1:

Company A is currently selling for Rs. 90 and paying dividend of Rs. 10 per share. Dividend is expected to grow at rate of 5 percent per year. The required rate of return for investors is 17% to invest in the stock with the degree of riskness.

Company B is currently selling for Rs. 85 and paying dividend of Rs. 10 per share. For the next year dividend is Rs. 10.6 per share, which shows growth rate of 6 percent per year. The required rate of return for investors is 17% to invest in the stock with the degree of riskness.

A) Calculate the price of stock for Company A and Company B using Dividend Discount Model.

B) If you have to choose one of these two stocks, which stock you will buy?

C) If both companies have decided not to pay cash dividend but they are offering 10% stock dividend. If you are holding 500 shares of Company A and 1,000 shares of Company B, calculate total number of shares of each Company you will hold after receiving stock dividend.

Read more…

The Time Value of Money (Present Value and Future Value)

October 24, 2010 Leave a comment

Time Value of Money:

We know that money deposited in saving account of bank or financial institutions, then depositor earn money monthly, quarterly or yearly other then deposited money at some pre mention ratio of interest. Depositor will receive his actual money plus the interest on money. Depositor can reinvest the money (that interest received from principal amount deposited) too and get more.

Note:
• Earning money known as interest.
• The time (interest receive for an example after one year) denoted as‘t’.
• Deposited money known as par value or face value or principal value (this terminology is used with fixed income securities like bonds) can be denoted as Present Value (PV)
• Pre mention ratio of interest known as Interest ratio denoted as ‘r’.
• Sum of earning interest and the principal value at the end of t time known as future value (FV).
• Interest receive on reinvestment of interest amount is known as compound interest.

Methods of calculation of Interest:
There are two methods available to find the interest in FV. One is the formula and 2nd is the Future value table.

Read more…