Question: From the informations given below, you are required to prepare a projected balance sheet, profit and loss account and then an estimate of working capital requirements.
a) Issued share capital 5,00,000
6% debentures 2,50,000
Fixed Assets at cost 2,50,000
b) The expected ratios to selling price are:
Raw materials 45%
Labour 20%
Overheads 15%
Profit 20%
c) Raw materials are kept in store for an average of 1½ months
d) Finished goods remain in stock for an average period of 2 months.
e) Production during the previous year was 2,40,000 units and it is planned to maintain the rate in the current year also.
f) Each unit of production is expected to lag in process for half a month.
g) Credit allowed to customers is two months and given by suppliers is one month.
h) Selling price is Rs. 6 per unit.
i) There is a regular production and sales cycle.
(Calculation of debtors may be made at selling price.
Question: 2) Suppose the shares of two companies: C and D, have the following returns and probability
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Economy
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Probability
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Return C
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Return D
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Boom
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0.20
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0.24
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0.05
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Growth
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0.60
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0.12
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0.30
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Slump
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0.20
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0.00
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-0.05
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a) Calculate the expected return and the expected risk for each security
b) Calculate the expected return and expected risk for a portfolio comprising 75%C and 25%D.
c) The extent of the benefits of portfolio diversification depends on the correlation between returns of securities. Briefly discuss the relationship between the portfolio risk and coefficient of correlation.