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Sorry i mistakenly deleted the post of Mr. Bilal.... if u dnt mind plz post it again...

This Balance Sheet also shows that ABC Company took loan from financial institution to purchase plant & machinery for Rs. 253,463.

Keeping the given information into consideration, you are required to answer the following:

1. What would be Debt Ratio before taking loan?
2. What would be Debt Ratio after taking loan?
3. Please comment that how the change in Debt Ratio would affect the decision of the financial institution if the company requests for further loan?

Solution:

This is an Idea solution by Asad Munir pls do not copy paste as it is. Intellectual and positive comments will be appreciated

Question No. 1

Cost of equity = [9 / (80-5)] + .05 = 0.17
Cost of preferred stock = 9/90 = .10

WACC = rD XD. (1-Tax) + rP XP + rE XE .
WACC = .30 x .13 (1-.35) + .30 x .10 + .40 x 0.17
WACC = 0.02535 + .03 + 0.068
WACC = 0.12335
WACC = 12.335

Question No. 2

Break even point in units = Fixed expenses / Unit contribution margin

Break even point in units Firm A = 24600 / (16-6.75) = 2660
Break even point in units Firm B =30600 / (20-9.75) = 2985

PLz help me of this Question

3.      Please comment that how the change in Debt Ratio would affect the decision of the financial institution if the company requests for further loan?

Question No. 1

Cost of equity = [9 / (80-5)] + .05 = 0.17
Cost of preferred stock = 9/90 = .10

WACC = rD XD. (1-Tax) + rP XP + rE XE .
WACC = .30 x .13 (1-.35) + .30 x .10 + .40 x 0.17
WACC = 0.02535 + .03 + 0.068
WACC = 0.12335
WACC = 12.335

Question No. 2

Break even point in units = Fixed expenses / Unit contribution margin

Break even point in units Firm A = 24600 / (16-6.75) = 2660
Break even point in units Firm B =30600 / (20-9.75) = 2985

See the attached file for one more idea solution

Attachments:

Thanks for helping......

i need accurate solution of GDB

See the attached file for another idea solution

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This Balance Sheet also shows that ABC Company took loan from financial institution to purchaseplant & machinery for Rs. 253,463.
Keeping the given information into consideration, you are required to answer the following:
1. What would be Debt Ratio before taking loan?
2. What would be Debt Ratio after taking loan?
3. Please comment that how the change in Debt Ratio would affect the decision of the financial institution if the company requests for further loan?
Solution:
This is an Idea solution by Asad Munir pls do not copy paste as it is. Intellectual and positive comments will be appreciated
Question No. 1
Cost of equity = [9 / (80-5)] + .05 = 0.17
Cost of preferred stock = 9/90 = .10
WACC = rD XD. (1-Tax) + rP XP + rE XE .
WACC = .30 x .13 (1-.35) + .30 x .10 + .40 x 0.17
WACC = 0.02535 + .03 + 0.068
WACC = 0.12335
WACC = 12.335
Question No. 2
Break even point in units = Fixed expenses / Unit contribution margin
Break even point in units Firm A = 24600 / (16-6.75) = 2660
Break even point in units Firm B =30600 / (20-9.75) = 2985

Ans1:

Debt Ratio= Total Debt / Total Assets

Debt Ratio before taking loan=195057/195057

=1 times

Ans2:

Debt Ratio after taking loan=448520/448520

=1 times

Ans3:

The loan which is taking for purchase of plant and machinery does not affect the Debt ratio of the firm.

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