ACC501 Assignment No 02 Spring 2019 Solution & Discussion Due Date: 22-07-2019
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SOLUTION Assignment No. 1 (ACC501 - Business Finance) Spring 2019
With Full Details and Explanation.
Question # 1
You are working as an investment analyst in a brokerage firm. Currently, one of your clients
visits your office to discuss a proposal regarding purchase of Saleem Corporation’s stock.
The firm has recently paid an annual dividend of Rs.5 per share. The client’s required rate of
return on such kind of stock is 12%. Dividend policy of Saleem Corporation is uncertain and
it may adopt any of the following policy regarding payment of future dividends:
a) The dividend will grow 0% till infinity (2 Marks)
b) The dividend will grow at the steady rate of 6% till infinity (3 Marks)
c) The dividend will grow 8% for each of the next 4 years followed by a constant annual
growth rate of 6% in fifth year to infinity. (10 Marks)
Calculate the value of common stock of Saleem Corporation under each of the above given
Question # 2 (5 Marks)
Elite Corporation has the following mutually exclusive projects.
Years Project A Project B
0 -100,000 -100,000
1 60,000 50,000
2 35,000 40,000
3 38,000 35,000
4 17,000 25,000
Elite Corporation is currently using the NPV technique to rank such kind of projects. You are required to suggest which project is more appropriate to undertake by considering the appropriate discount rate as 15 percent.
Special Note: Complete calculations are required for each question (1) and (2).
Incomplete calculations will result in loss of marks.
ACC501 Assignment 1 Solution Spring 2019
ACC501 Solution Assignment No 02 Spring 2019