(a) Herbal World is a small, but profitable producer of beauty cosmetics using t
ID: 2331049 • Letter: #
Question
(a) Herbal World is a small, but profitable producer of beauty cosmetics using the plant Aloe Vera. Though it is not a high-tech business, yet Herbal's eamings have averaged around 18.5 lakh after tax, mainly on the strength of its patented beauty cream to remove the pimples. The patent has nine years to run, and Herbal has been offered 50 lakhs for the patent rights. Herbal's assets include50 lakhs of property, plant and equipment and 25 lakhs of working capital. However, the patent is not shown in the books of Herbal World. Assuming Herbal's cost of capital being 14 percent, calculate its Economic Value Added (EVA) SG Mutual Fund Company has the following assets under it on the close of business as on (5 Marks) (b) 1st August 2017 2nd August 2017 Market price per share Market price per share () 205.00 360.00 191.55 503.90 Company No. of Shares Q Ltd. R Ltd. S Ltd. T Ltd 2,000 30,000 0,000 60,000 200.00 312.40 180.60 505.10 Total No. of Units issued by the Mutual Fund is 6,00,000. (0) Calculate Net Assets Value (NAV) of the Fund. (i) Following information is also given: Assuming that Mr. Zubin, an investor, submits a cheque of 30,00,000 to the Mutual Fund and the Fund Manager of this entity purchases 8,000 shares of R Ltd; and the balance amount is held in Bank. In such a case, what would be the position of the Fund? (ii) Calculate new NAV of the Fund as on 2nd August 2017 (10 Marks)Explanation / Answer
(a)Assets:
Property ,Plant & Equipment=50 Lakhs
Working capital=25 Lakh
Total Assets=(50+25)=75 Lakhs
Amortization of patent right per year=50/9years=5.56 Lakhs
After tax earnings,considering patent amortization expenses=18.5-5.55=12.94 lakhs
Cost of capital=0.14*75Lakh=10.5 Lakhs
Economic Value Added (EVA)=12.94-10.5=
A
B
C
D=A*B
E=A*C
Company
No.of shares
Market price ,Aug1
Market price ,Aug2
Value on August1
Value on August2
Q
2,000
200.00
205.00
400,000
410,000
R
30,000
312.40
360.00
9,372,000
10,800,000
S
40,000
180.60
191.55
7,224,000
7,662,000
T
60,000
505.10
503.900
30,306,000
30,234,000
TOTAL
47,302,000
49,106,000
Number of Units=600,000
Net Asset Value (NAV )of the fund on August 1=47,302,000
NAV per unit=47302000/600000= 78.84
Cheque of 3000,000 will be entitled to(3000000/78.84)=38053.36 units
Number of units=600000+38053.36=638053.36 units
Additional Amount invested in R shares=312.40*8000=2499,200
Amount held in Bank=3000000-2499200=500,800
Total amount invested in market=47302000+2499200=49,801,200
Total Fund Value=49,801,200+500,800=50,302,000
NAV per unit=50,02,000/638053.36=$78.84
Total Fund Value on August 2=49,106,000+Additional Investment in R shares(8000*360)+Amount in Bank(500,800)=52,486,800
NAV per unit on August 2=52,486,800/638053.36= 82.26
(b)
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