Finance Study Material and Solved Assignments

FINANCE
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Question 1
Current dividend pay-out ratio = 60%
Profit after tax (FY2018) of AAR = $500,000
Net profit after tax (FY2019) = 20% higher
Karina Adams owns % of ordinary shares of AAR = 10%
Cost of furniture = $5000
Total bill amount = $35,000
Market rate of interest = 8% p.a.
Amount she consume in June 2020 =?
Now,
 Total dividend paid in FY2018
= Current dividend pay-out ratio * Profit after tax = 60% * 500000 = $300,000
 Income in the form of dividend for Karina Adams on June 2019
= Total dividend paid in FY2018*% of ordinary shares of AAR = 300,000 * 10% = $30,000
 Total expense in FY2019
= Cost of furniture + Total bill amount = 5000 + 35000 = $40,000
It is apparent from the above that her income in FY 2019 is $30,000 and total expenses would
be $40,000 and hence, she would require additional $10,000 so as to meet the expenditure.
Therefore, she needs to take a loan of $10,000.
 Estimated profit after tax FY2019
= 1.2 * 500,000 = $600,000
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It is essential to note that the dividend pay-out would be same and therefore, the estimated
dividend income of Karina Adams FY2020 = (0.1*0.6*600000) = $36,000
 Interest imposed on the loan in FY2019
= (0.8*10000) =$800
 Amount that would be consumed in June 2020
= Estimated dividend income – Loan repayment amount – Interest amount
= 36,000 – 10,000 – 800 = $25,600
Therefore, $25,600 would be consumed by Karina Adams in June 2020.
Question 2
Cost of house = $750,000
% deposit from FC Bank = 20%
Rate of interest = 7.2% (Compounded monthly) = 0.6% p.m.
Time = 10 years or 120 months
Interest rate on loan increased = 9.6%
(a) New monthly repayment when James pays off loan by agreed date
Equal monthly instalment
Loan = (1-20%) * 750,000 = $600,000
EMI = 600000∗0.006∗( 1.006 )120
( 1.006 )120−1 =$ 7,028.51
The relevant amortization table for the first three years is shown bwlow,
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Working:
1) Closing loan balance = Opening loan balance – Principal repayment
2) Principal repayment = EMI – Interest
3) Interest = Opening loan balance * Interest rate per month
Outstanding loan
(at the end of three year)
= $ 462,687.16
Rate of interest(New) = 9.6% p.a.
=0.8% per month
Remaining time =7 years =
7*12 =84 months
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