**QUESTION # 1:**

**Mr. Sohail is currently residing in New Jersey (USA) with his family including his wife and his 5-years old** **son Ali. He earns such amount of money, which is quite enough to run his house so he often gets worried** **when he thinks about his son’s education in future as he knows that the tuition fees in the state colleges are** **quite high at the moment and they will be even higher in future. Annual tuition fee in one of the state** **colleges is currently $14,500 and it has been increasing at a rate of 8% annually. Ali will be able to join the** **college after 10 years. Mr. Sohail has set aside $15,500 to invest in order to meet the education expenses of** **his son in future.**

**Required:**

**a) What will be the tuition fee of state college after 10 years? (4)**

**Formula: **

fv=p*(1+rt) or fv=p*(1+r)t

**b) At what rate, Mr. Sohail should invest his $15,500 so that the value of his investment equates the tuition** **fee of state college after ten years? (6)**

part b) … required rate should be found using this…

>> 31304 = 15500 x {(1+ x/100)^10} => (1+x/100)^10 = 2.0196

**QUESTION: 2**

**ABC Company is involved in the shoe manufacturing business and some of the financial figures of the**

**company are as follows:**

**Sales $750,000**

**Net Profit $80,000**

**Total assets Turnover 0.75 times**

**Total Debt Ratio 0.36 times**

**The company wants to increase its profits but it requires more investment of $250,000 in assets for opening** **new outlets. The company wishes to finance its new assets in equal proportion of debt and equity. There** **will be an increase in sales that will lead to a positive change of $20,000 in the profit of the company.**

**Required:**

**a) Calculate the Return on Assets (ROA), Return on Equity (ROE) before investment. (4)**

Total Debt Ratio= Total Assets- Total Equity / Total Assets

here the equity amount is not given

putting the values in eq.

(0.36* 1250,000)- 1250,000=Total equity

Total equity = 800,000

**b) Do you think there is an impact of new investment on ROA and ROE? Support your answer with**

**calculations. (4)**

**c) As a manager of the company, do you recommend this change or not? (2)**

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