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The details
regarding unit costs and selling prices are as under :
X
Y
Materials
12
6
16
Labour
8
8
20
Selling Price
50
96
36
Materials
12
6
16
Labour
8
Variable Costs
20
Marginal Cost
40
8
20
6
14
20
50
Selling Price
50
36
96
Unit Contribution
10
16
46
P/V Ratio
16x100/36
10x100/50
46x100/96
CONTRIBUTIONx100/SALES
20%
47.92%
STATEMENT
44.4%
OF MONTHLY PROFITS
OCTOBER 2014
Contributionfrom X
320000
20000x16
Y 20000x10
Z 20000x46
Total
200000
920000
60000
--------------
Fixed Expenses
PROFIT
1440000
540000
------------- 900000
NOVEMBER 2014
Contribution from
X 40000x16
Y 26000x10
Z 10000x46
TOTAL 76000
Fixed Expenses
PROFIT
=
=
640000
260000
460000
-------------
1360000
540000
820000
Higher profit has been earned during October when the sales volume was
comparatively on lower sidethan November2014
Reason:- During October 2014 the sales volume has been on lower side but sales
volume of Z which has got highest P/V Ratiowas more than November2014 .The
OF
SHARES
AND
BONDS
OBJECTIVES:Efficient Capital Market - The knowledge of capital market and having complete
information about its functioning will assist the Finance Managre to take suitable
decisions regarding capital structure and investment of available funds with the
organization in the market.It is obvious that some securities are of high market
value while some are having low market value. He will have to be appraised with
the factors affecting capital market .And taking the same into consideration the
investment and financing activities can be designed suitably.It will facilitate the
exploitation of relevant va
riables in the favour of the organization to
maximize the value of the firm.
Financial Assets:The assets are of different types viz. Tangible Assets and Intangible
Assets. Again another classification may be Fixed Assets ,Current Assets and
Fictitous Assets.
By the term Financial assets we mean Shares ,Debentures ,Bonds other securities,
sale deeds of properties, lease deeds ,agreements, hypothetication documents
Insurance papers etc.
CONCEPTS OF VALUE
Book Value of asset=Acquisition value-Scrap Value.
Book value of Debt=Outstanding amount appearing in the books of accounts.
Book Value Of SHARES
ASSETS-LIABILITIES= Net worth
Book value of Shares=Net Worth/No. of Shares.It is also called historical value of
share.
Replacement value of share:-It is the sumtotal of amount which will have to be
spent for replacing an asset .It does not take into account intangible assets.The
total amount earned per share in this fashion will be replacement value of the firm.
LIQUIDATION VALUE: Liquidation value is the amount which will be realized if an
asset is sold out in the market.It also does not take into account the value of
intangible assets.total amount realized by disposing of all the assetswhen divided
by number of shares will give liquidation value of one share.
IF NPV of these taken together is more than the Market value of the firm than it is
said that it is overvalued and can be purchased above face value.If these two taken
together are equal to the the market value then theinvestor will be indifferent.If
these taken together are less than market valuethe bond is said to be undervalued
and is worhe purchase at less than face value.
VALUE OF BOND
It depends upon (a)expected cash flows (b)Estimate of required rate of return
(c)coupon payments and (d)redeemable payment
If the bond is not encashed or retired prematurily,
P =SIGMA(N,T=1) C/(1+r)t +M/(1+r)t
square,t=3 means cube and so on;
+100x0.497
=40.224+49.70
=89.92
Ans. Rs.89.92
Exercise for practice: Calculate the value of the bond of face value Rs.1000 whose
coupon rate of interest is 12%. Maturity Value 10 years,and required yield is 13%
Given :PVIFA 13%, 10 years =5.426 and PVIF 13%,10 years =0.295
946.12
Ans. Rs
P =Sigma (t=1 to 2n), C/2/(1+r/2)to the power (t) +M /(1+r/2) raised to the
power(2n)
=C/2(PVIFA r/2, 2n ) +M (PVIF r/2,2n)
Example:Calculate the value of Rs 100 Bond having 12%coupon rate ,8years
maturity when required rate of return is 14% and interest is paid half yearly.
Answer:P=Sigma t=1 to 2x8 12/2/(1+16/2)raised to the power 16 +100/(1+16/2)
raised to the power 16.
=6(PVIFA 7%, 16 years ) +100 (PVIF 7% ,16 years)
=Given PVIFA 7%,16 =9.447
=Rs.90.58
Exercise for practice:A Rs.100 par value bond bears a coupon rate of 14% and
matures after 5 years. Interest is payable semiannually .Compute the value of the
bond if required rate of return is 16% .Given :PVIFA 8%,10 years =6.710 ,PVIF
8%, 10 years =0.463
Ans.93.27(Rs.)
RELATIONSHIP between Coupon rate ,required yield and price:Price is inversely
proportional to the yield. Cash flow increases and thus price increases.As the yield
increases NPV of cash flow decreases.
Example: A Bond carrying coupon rate of 14% issued 3 years ago for Rs.1000 (at
par )by S.Bros.The original maturity period of the bond is 10 years. The interest
rate has fallen in last 3 years and investors now expect 10% return.Calculate the
value of the bond.
Given :M=1000
C=1000x14%=140
N=10-3=7 years
R =10%
P =Present value of the firm
M =1000
C=140