ECO403 Assignment 1 Solution Fall 2012

Commodities	1986		1987
Price	Quantity	Price	Quantity
Fish	10	50	13	70
Milk	5	100	7	100
Meat	7	150	10	155
Rice	6	70	10	90
Fruits	7	90	14	90

Requirements:
With the help of above data, calculate Togo’s:
Nominal GDP : Y = P x y
y = quantity
P = price
a) Nominal GDP for year 1986

Commodities	Nominal GDP
Fish	500
Milk	500
Meat	1050
Rice	420
Fruits	630

b) Nominal GDP for year 1987

Commodities	Nominal GDP
Fish	910
Milk	700
Meat	1550
Rice	900
Fruits	1260

c) Real GDP for year 1987
Real GDP y = Y/P
Where we multiple each year’s Quantities (y) with the previous year’s Prices (P)

Commodities	Nominal GDP
Fish	700
Milk	500
Meat	1085
Rice	540
Fruits	630

d) GDP deflator for the year 1987
GDP Deflator = (Nominal GDP/Real GDP) x 100

Product	GDP Deflator
Fish	130
Milk	140
Meat	142.86
Rice	166.67
Fruits	200

e) Labor force for year 1986 and 1987
Labor force = employed + unemployed
1986: 90 lac employed and 7 lac unemployed
Labor Force = 97 lac
1987: 87 lac employed and 11 lac unemployed
Labor Force = 98 lac 

Real GDP = Nominal GDP/CPI*100

Nominal GDP = ∑ p_tq_t

BNK603 VU Current Assignment No. 1 Fall 2012 Solution Soon

Scenario:

In Pakistan, average lending rate of banks is reported at 13.06 % while the deposit rate was at 5.82% in first half of FY2012. This higher spread in the banking sector has increased the banks’ income rapidly. But, this increased spread has been discouraging potential savings and also a constraint on investment activities. As a result, this higher cost of funding to the private sector has been reducing the potential growth of the economy with reduction in the business activities. This has an outcome of high rate of unemployment in the country.

According to State Bank of Pakistan (SBP), interest spread in Pakistan has mounted from 4.63% in FY2003 to 7.24% recently. Whereas, this spread is only 2% to 4% in others developed countries. The year-on-year growth in loans to private sector businesses has declined from 22.4 percent in FY08 to 0.7 percent by the end of recent year. Still, an increase of 269% in deposits base and 268% increase in bank assets has increased the banks’ pre-tax profit by 9,991%. A deposit rate of 5.82% and inflation rate of 12% depicts that real rate of return (inflation adjusted) is actually -6%, whereas it was 3% in 2001. This means that the depositors have been forced to lose their money due to the negative returns.

Required:

1. Discuss in detail the three most appropriate measures to be taken by State bank of Pakistan in order to control or bring down the higher spread in Pakistani banking sector.

2. Discuss in details any two factors inducing this higher banking spread in Pakistan.

Fin622 Current Assignment 1 Fall 201 Solution soon

Semester Fall 2012
Corporate Finance (FIN622)
Assignment No. 01
Due Date: 19-11-2012
Marks: 20

Capital Budgeting Techniques for Projects Evaluation

Learning objectives:
Understanding project evaluation techniques used to determine the financial viability of a project.

Learning outcomes:
After attempting this assignment, students will be able to understand how capital budgeting techniques can help in deciding whether to accept or reject a project.

Case

Tyres Manufacturing Incorporation (TMI) – a fast growing tyre manufacturing company in Pakistan has been serving nationally and internationally for the last 40 years. The company is a standard manufacturer of rubber tyres and tubes for all types of light vehicles running on the country’s roads. TMI is reliable name known for its quality products. Major customers of the company include people owing and driving vehicles manufactured by famous vehicle manufacturers in Pakistan.

To meet the rising demand for its products, TMI is thinking to expand manufacturing capacity for which two mutually exclusive investment opportunities named as project Alpha and Project Betaare under consideration.

The management has gathered necessary data which will be helpful in evaluation of the projects. Evaluation will be done through capital budgeting techniques. The company has to choose between these two equally risky and mutually exclusive projects. The expected cash flows of two projects are as follows:

TMI has estimated its required rate of return for each project at 12.3%. It has also estimated internal rate of return (IRR) for project Alpha at 14% and for project Beta at 12%.

Required:

You as financial analyst need to recommend one of the two projects that TMI may add to its assets. Your decision is subject to the following:

1. Calculate Net Present Value (NPV) and profitability Index (PI) for each project. (16 marks)
2. If you apply NPV criterion, which project should be selected and why? (1 mark)
3. If you apply Profitability Index criterion, which project should be selected and why? (1mark)
4. If you apply IRR criterion, which project should be selected and why? (2 marks)

Mgt301 Assignemnt 1 solution

Idea Solution:

Table # 01 Star (High Growth + High Share) Bakery	Table # 03 Question Mark (High Growth + Low Share) Milk CSD (Gourmet Juices)
Table # 02 Cash Cow (Low Growth + High Share) Water Ice Cream	Table # 04 Dog (Low Growth + Low Share) Juices

Reasons:

Table # 01: Bakery
In Lahore there is low competitor of bakery product. Only Butt Sweets are working in city but they are few. So Gourmet falls in star in context of bakery product. They need heavy investment to capture the market and get the high share.
Table # 02: Water, Ice Cream
In this situation, Gourmet need less investment and capture the high market share, because only one time investment made in filtration plant, then water will provided by gourmet.
Table # 03: Milk, CSD (Government Juices)
In Lahore, there is lot of milk shop. So Gourmet needs lot of cast to capture the market.
Table # 04: Juices
In Lahore juices are available, same quantity at same price at many shops. So if gourmet keeps these products. Then there is normal change, because people buy the same product at any shop nearest to home.


The BCG matrix
Product portfolio method
The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. It has 2 dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product's market grows the better it is for the company.
Placing products in the BCG matrix results in 4 categories in a portfolio of a company:
1. Stars (=high growth, high market share)
- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash.
- frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept.
2. Cash Cows (=low growth, high market share)
- profits and cash generation should be high , and because of the low growth, investments needed should be low. Keep profits high
- Foundation of a company
3. Dogs (=low growth, low market share)
- avoid and minimize the number of dogs in a company.
- beware of expensive turn around plans.
- deliver cash, otherwise liquidate
4. Question Marks (= high growth, low market share)
- have the worst cash characteristics of all, because high demands and low returns due to low market share
- if nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog.
- either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash

The BCG Matrix method can help understand a frequently made strategy mistake: having a one-size-fits-all-approach to strategy, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation.
In such a scenario:
A. Cash Cows Business Units will beat their profit target easily; their management have an easy job and are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their businesses which are mature and not growing anymore.
B. Dogs Business Units fight an impossible battle and, even worse, investments are made now and then in hopeless attempts to 'turn the business around'.
C. As a result (all) Question Marks and Stars Business Units get mediocre size investment funds. In this way they are unable to ever become cash cows.**************** These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become a cash cow (or star), or otherwise companies are advised to disinvest and try to get whatever possible cash out of the question marks that were not selected.
Some limitations of the Boston Consulting Group Matrix include:

• High market share is not the only success factor
• Market growth is not the only indicator for attractiveness of a market
• Sometimes Dogs can earn even more cash as Cash Cows

ENG301 Fall 2012 Assignment No. 1 Solution

Question # 01

1..... EXAMPLE When the teacher uses very difficult or unfamiliar words the students may not comprehend them.

Communication Barriers Semantic

2.....EXAMPLE Communication fails if there are hasty judgments, refusal to listen to a problem, distraction, acceptance of words literally, fear of criticism, day dreaming, impatience, etc.

Communication Barriers Emotional

3..... EXAMPLE The undesirable sound such as that arising out of dragging a table or sneezing or banging of the door or the window panes or creaking of the door or the fan etc. can pose a distraction.

Communication Barriers Physical

4.... EXAMPLE People, who suffer from ailments such as anxiety and depression, tend to misunderstand what is being said about them.

Communication Barriers Physical

5..... EXAMPLE A speaker may also ruin her credibility with listeners with defensive behavior: instead of accepting new information or that she was incorrect; she may justify a mistake or refuse to admit it altogether.

Communication Barriers Values Attitude

6.....EXAMPLE Seeing things through the lens of our own unique life experiences may lead to assumptions, stereotyping and misunderstandings of others whose experiences differ from our own.

Communication Barriers Perceptional

7....EXAMPLE The audience fails to get the intended meaning if the words or expressions used are too complicated or uncommon. Semantic

8.... In case of written communication illegible writing or bad photocopies lead to miscommunication.

Communication Barriers Physical

9.... EXAMPLE When a listener is fearful that she won't understand what's being said, she tends to shutdown and stop listening as a defense mechanism for future mistakes.

Communication Barriers Psychological

10 ...EXAMPLE If you are experiencing a high level of stress, you may be unable to adequately communicate your own needs or to really hear what another person is saying Communication Barriers Value Attitude

Question # 02

Point 1

This is a downward flow of communication. In the organization decision are made by the top management then these decisions are communicated to the lower management ,then this management makes further downward communication to the low level of management then they further communicated to the supervisors , this is the whole process of downward communication . In this specific instant the president is message is comminuted to the vice president accounting this is downward communication because message is communicated from the top management to the middle management.

Point 2

At this point up ward flow of communication is made middle management to top management, to make decisions president needs information or feedback from the employees, middle management, in upward flow communication is started from supervisors to the top management, supervisor report to low level management, low level to middle level to top level which is the president or CEO or board of Directors.

Point 3

At this point horizontal flow takes place .In order to perform a job, duty, or for the preparation of meetings and to corporate on important issue, communication on the same level .in this hierarchy vice president production communicating to vice president marketing for some cooperation or discussing a issue may b exchange of ideas for launching new product in market. At this communication is taking place at middle level.

Point 4

At this point upward flow of communication is taking place a head (supervisor) of department B of Accounting is communicating to vice president Marketing regarding some issue may b availability of funds for new advertise campaign. 

...........

Solution # 02:

1.Downward Flow

2.Upward Flow

3.Horizontal Flow

4.Upward Flow 

.................

2

Communication fails if there are hasty judgments, refusal to listen to a problem, distraction, acceptance of words literally, fear of criticism, day dreaming, impatience, etc.(Psychological)

The undesirable sound such as that arising out of dragging a table or sneezing or banging of the door or the window panes or creaking of the door or the fan etc. can pose a distraction.(physical)

People, who suffer from ailments such as anxiety and depression, tend to misunderstand what is being said about them(emotional)

Seeing things through the lens of our own unique life experiences may lead to assumptions, stereotyping and misunderstandings of others whose experiences differ from our own.(perceptual)

The audience fails to get the intended meaning if the words or expressions used are too complicated or uncommon.(semantic)

..................

in case of written communication illegible writing or bad photocopies lead to miscommunication.(PHYSICAL)

When a listener is fearful that she won't understand what's being said, she tends to shutdown and stop listening as a defense mechanism for future mistakes.(PSYCHOLOGICAL)

If you are experiencing a high level of stress, you may be unable to adequately communicate your own needs or to really hear what another person is saying(EMOTIONAL)