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MGT201 Financial Management GDB No 01 Fall 2020 Solution / Discussion
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For option 1
F V = PV x (1 + i) n
FV=100000*(1+0.06) ^20
FV=320713.55
For option 2
F V = PV x (1 + i) n
FV=50000*(1+0.1) ^10
FV=129687.1
FV=50000*(1+0.12) ^10
FV=155292.41
FV=129687.1+155292.41
FV=284979.51
Q2.
Option one is better than for investment
Note: if you found any mistake then correct ur self I am not responsible in case of zero marks
MGT201_GDB_Solution_Fall_2020
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Project A
Profit margin = 25%
Payout ratio = 960,000/2,400,000 = 40%
Expected Estimated retained earnings = 8,700,000x25%x (10.4) = 1,305,000
Project B
Profit margin = 30%
Payout ratio = 1000, 000/2,500,000 = 40%
Expected Estimated retained earnings = 7,800,000x30%x (10.4) = 1,404,000
Answer no 2
Project B is more profitable as compared to project A.
So Project B is suggested project.
MGT201 GDB 1 Fall 2020 Solution idea:

Project A 
Estimated Sales for next year(Rs) 
8,700,000 
Profit margin 
25% 
Net. income(Rs) 
2,400,000 
Dividend(Rs) 
960,000 
Formula :
=Estimate Sales X Profit Margin x Plowback Ratio
Plowback Ratio= 1 payout Ratio
Payout Ratio = Dividend / Met Income
Payout Ratio : = 960,000/2,400,000 = 0.40
plowback ratio = 10.4 = 0.60
=Estimate sales x profit margin x plowback = 8,700,000 x 25% x 0.60 =1,305,000

Project B 
Estimate sales for next year (Rs) 
7,800,000 
Profit Margin 
30% 
Net. Income(Rs) 
2,500,000 
Dividend(Rs) 
1,000,000 
Formula :
Estimates Sales x Profit Margin x plowback ratio
plowback ratio = 1 playout ratio
payout ratio = dividend / net income
payout ratio = 1,000,000 / 2,500,000 = 0.40
plowback ratio = 10.4 =0.60
=estimate sales x profit margin x plowback ratio = 7,800,000 x 30% x 0.60 = 1,404,000
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