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ACC501 Business FinanceAssignment 01 Fall 2020 Solution / Discussion

ACC501 Business FinanceAssignment 01 Fall 2020 Solution / Discussion

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ACC501_Assignment_No_01_Solution_Fall_2020

ACC501_Assignment_No_01_Solution_Fall_2020

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ACC501 Assignment no 01 solution fall 2020

 Particulars Before Proposed Investment (Amount in Rs.) After Proposed Investment (Amount in Rs.) Sales 860,000 Net profit 95,000 120,000 Assets 1,075,000 1,205,000 Total Debts 430,000 560,000 Total Equity 645,000 645,000

Requirement # a) Compute N.M’s ROA and ROE before and after the proposed investment.

ROA Before Proposed Investment:

= Net Income/ Total Asset

=Rs.95,000/Rs.1,075,000

=0.0884

ROA After Proposed Investment:

= Net Income/ Total Asset

=Rs.120,000/Rs.1,205,000

=0.0996

ROE Before Proposed Investment:

= Net Income/ Shareholder’s Equity

=Rs.95,000/Rs.645,000

=0.1473

ROE After Proposed Investment:

= Net Income/ Shareholder’s Equity

=Rs.120,000/Rs.645,000

=0.186

N.M should go for the investment as ROA & ROE increased after proposed investment.

Supporting Calculations

1- Total Assets Before Proposed Investment:-

Total assets turnover ratio= Total sales/Average assets

0.8=Rs.860,000/Average assets

0.8 Average assets= Rs.860,000

Average assets=Rs.860,000/0.8

Average Assets=Rs.1,075,000

Average assets are assets before proposed investment

2- Total Debts Before Proposed Investment:-

Debt ratio= Total debts/ Total assets

0.4=Total debts/ Rs.1,075,000

0.4XRs.1,075,000 =Total debts

Total debts =Rs.430,000

3-  Equity Before Proposed Investment:-

Assets= Owner’s equity- Liabilities

Rs.1,075,000= Owner’s equity – Rs.430,000

Rs.1,075,000-Rs.430,000= Owner’s equity

Owner’s equity= Rs.645,000

4- Net Profit After Proposed Investment:-

Rs.95,000 + Rs.25,000=Rs.120,000

5- Assets After Proposed Investment:-

Rs.1,075,000+ Rs.130,000= Rs.1,205,000

Assets were purchased by taking loan Rs.130,000 and Rs.130,000 were paid cash from the business.

6- Debts After Proposed Investment:-

Rs.430,000+ Rs.130,000=Rs.560,000

ACC501_Assignment_No_01_Solution_Fall_2020

ACC501_Assignment_No_01_Solution_Fall_2020

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