This Study Resource Was: North South University
This Study Resource Was: North South University
Midterm Assignment
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Fin410
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Section 6
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Submitted To:
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Submitted By:
NAME ID
Rehnuma Hasnath 1722212630
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1. A)
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760,000/(3,500,000+1,200,000) = 16.2%
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SGR=RR*ROE
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0.343*0.162= 5.55%
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Tax rate= tax/taxable income
410,000/1,170,000=35.04%
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tax
Less: interest paid (30,000) (30,000)
Taxable Income 1,170,000 1,236,600
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6,370,000*(5.55%+1) Accounts payable: 1,234,935
6,723,535 Long term debt: 500,000
Equity: 3,774,801
Common stock:3,500,000
Retained earnings: 274,801
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New D/E ratio: 1,734,935/3,774,801=46%
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The new D/E ratio is greater that current D/E ratio
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Therefore, it is not within the businesses capacity to take the external loan.
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1B)
2019 2020
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2,610,00 3,010,00
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Current asset 0 0
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Inventory 0 0
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Current
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Acid test
ratio 0.777778 0.871795
Cash ratio 0.051 0.153846
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The current ratio has increased in 2020 from 1.93 to 2.57showing an improvement in the
liquidity position. However, the new ratio is even greater than the standard ratio,
indicating that there are spare resources that should be utilized.
The acid test ratio has also risen in 2020 from 0.778 to 0.87. This is also greater than the
standard ratio. This may be because the business is not efficiently using its current assets
or current liabilities.
There is also a rise in the cash ratio, indicating the business is very liquid and has enough
cash to meet its short term obligations. This happened because cash increased by a huge
amount in 2020.
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The brand Nike, Inc. was valued at 34.8 B USD.
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The EPS of Nike, Inc. in 2020 was $1.6 which is lower than 2019 EPS $2.49. The EPS is
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fluctuating over the years, which does not show constant growth. The net income of the company
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fell drastically in 2020 which resulted in the fall in EPS. The number of common shares
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outstanding has a downward trend from 2017-2020. This means that the company the company
has been buying back their shares.
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The P/E ratio of Nike, Inc. in 2020 is 35.5 and has increased from 2019. This implies that
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investors paid more in 2020 for the company’s earning power than in 2019. The reason for
paying more may be because investors expect future growth of the company.
According to yahoo Finance, the stock of Nike is highly overpriced and its future return is likely
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to be poor.
However, the profitability of the company is high, with revenue as high as $38.5 B in 2021 and
operating margin 10.87%. Investing in a profitable company is less risky.
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The stock price of Nike Inc. has a growing trend in the past years, indicating that it may grow
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further in future, however, the rise may have been due to stock repurchases.
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2.
Basic Earnings per share= (Net income-Dividend on preferred stocks)/Weighted average
no. of common shares.
Earnings available to common shares=1000000-(10000*5)= 950000
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Weighted average no. of common shares= 90082.19
Therefore, Basic EPS= 950000/90082.19
10.55
Diluted EPS=Net Income After-tax cost of bond interest/ Weighted average no. of
common shares/diluted Shares)
Net income-Preferred dividends (20%, not convertible) +After-tax cost of bond
interest=1000000-(10000*20%*5)+(2000*1000*10%*(1-40%))= 1110000
Weighted no. of common shares outstanding= 90082.19
Preferred stock conversions = 10000*80%*3=24000 shares
Bond conversions = 2000*2= 4000
Diluted EPS=1110000/(90082+24000+4000)= 9.40
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3. Asset Turnover ratio=Sales/Total assets
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3.7=Sales/88,000
Sales=325,600
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8.8%=Net Income/325,600
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Net income=28,652.8
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=> Equity=Assets-Labilities=88,000-25,000=63,000
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ROE=29,385.4/63,000=46.64%
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4. Beginning total Equity+ Retained Earnings+ Comprehensive Income=End of Total equity
330,000+220,000+Comprehensive Income=585,000
Comprehensive Income=585,000-550,000=35,000
Comprehensive Income=$35,000
To calculate diluted EPS, we have to add 20,000 options to 1,000,000 becoming 1,020,000
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Diluted EPS=1,250,000/1,020,000=$1.23
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6. Bitcoin is a digitalized currency that can be bought, sold and exchanged without any
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intermediary like a bank. All bitcoin transactions are verified by a massive amount of computing
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power. No financial institution or clearing house is required for transactions here and it is not a
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currency issued by the government of any country. The individual bitcoins are not valuable as a
commodity.
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During recent years, cryptocurrency market has been booming. Many crypto startups have
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emerged in the space during this pandemic to cater to the ever-increasing demand for
Bitcoin and similar cryptocurrencies. Bitcoin is considered as a protection against market
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volatility. The current economic condition also brings about a situation for people to hold
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less cash and stay protected against market fluctuations. Moreover, the confidence of
corporate giants on cryptocurrencies has added more merit to it as a currency. Even if the
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people are unwilling to use it for transactions, many want to convert their cash into crypto
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because they believe that its deflationary nature makes it a better store of value and a
hedge against inflation.
In terms of whether cryptocurrency disrupt the financial market-
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The trend of cryptocurrency is widely being accepted by the multinational firms and also the
trend and perspective of people towards cryptocurrency is changing. Cryptocurrency has been
legalized in many countries and recently India has also lifted the ban from dealing in
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cryptocurrency. If cryptocurrency is regulated properly with proper norms then it cannot cause
harm to financial system.
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