STA301 Assignment No. 2 Solution

Assignment No.2 (Course STA301)

Fall 2010 (Total Marks 30)

Deadline

Your Assignment must be uploaded/ submitted before or on

23:59 29^th November, 2010

Assignment No.2 (Lessons 12 to 18)

Question 1 

25=10Marks

a)
On which basis
Chebychev's
inequality and empirical rules are dissimilar?

b)
Why we calculate measure of skewness and kurtosis?

c)
For what purpose simple linear equation is used? Also explain the drawback of the simple linear equation.

d)
Differentiate between an experiment and a random experiment.

e)
In deterministic experiment, can we apply probability theory? Explain.

Question 2 




3+2+5=10Marks

a)
Suggest the skewness of the data from the following information.

b)
For a certain data:

Mean = 62.83, Median = 61.5

And Standard Deviation = 8.516

Find mode and Pearson's coefficient of skewness

c)
Find the first four moments about mean from the following data.

X= 14, 20, 22, 34, 30, 18, 26, 28, 16, 25

Question 1 




8+2+=10Marks

a)
For following data calculate

i.
simple linear equation Y on X

ii.
simple linear equation X on Y

iii.
From the slops calculated in above cases, calculate coefficient of correlation.

Hight=X

5.6

5.2

5.5

6.0

6.1

5.0

5.4

5.2

5.3

5.6

5.1

Weight=Y

67

65

66

75

69

62

64

68

65

65

62

b)

How many different words can be formed from the word 'BLOGOSPHERE'?

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Solution:

Question1: A:
On which basis Chebychev's inequality and empirical rules are dissimilar? 
Empirical Rule and Chebychev Inequality
If Chebychev Inequality gives the lower bound for probability. For the present problem the lower bound for the probability is 0.75 and actual probability is 0.87. There is no contradiction between empirical rule and Chebychev Inequality


Q NO 1: C
A linear equation is an algebraic equation in which each term is either a constant or the product of a constant and (the first power of) a single variable.
Linear regression implements a statistical model that, when relationships between the independent variables and the dependent variable are almost linear, shows optimal results. 
Linear regression is often inappropriately used to model non-linear relationships. 
Linear regression is limited to predicting numeric output. 
A lack of explanation about what has been learned can be a problem. 
Linear Regression Software Solutions

QNO1: D
In an experimental study, the reasearcher manipulates on of the variables and tries to determine how the manipulation influences other variables.


A Random Experiment is an experiment, trial, or observation that can be repeated numerous times under the same conditions. The outcome of an individual random experiment must be independent and identically distributed. It must in no way be affected by any previous outcome and cannot be predicted with certainty. 

Examples of a Random experiment include:
•The tossing of a coin. The experiment can yield two possible outcomes, heads or tails. 
•The roll of a die. The experiment can yield six possible outcomes, this outcome is the number 1 to 6 as the die faces are labelled 
•The selection of a numbered ball (1-50) in an urn. The experiment can yield 50 possible outcomes. 
•Percentage of calls dropped due to errors over a particular time period. The experiment can yield several different outcomes in the region 0 - 100%.

Mgmt611 HRM611 Online Quiz Announced

On-Line Quiz (No.02) Announcement

Quiz will cover video lecture no. 01 to 20

Schedule

Opening Date and Time
November 24, 2010 At 12:01 AM (Mid-Night)

Closing Date and Time
November 26, 2010 At 11:59 PM (Mid-Night)





24 hours extra time is not available

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Read the following instructions carefully before attempting the Quiz.



Instructions 



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Fin622 GDB Solution

Semester "Fall 2010"

"Corporate Finance (Fin622)"

This is to inform that Graded Discussion Board (GDB)

will be opened according to the following schedule

Schedule

Opening Date and Time

November 22 , 2010 At 12:01 A.M. (Mid-Night)

Closing Date and Time

November 24 , 2010 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

" Capital budgeting"

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

_________________

Discussion Question



XYZ Company is one of the biggest manufacturing concerns of the country. Being the finance manager of XYZ Company, you have been assigned a task to evaluate three projects. The future cash flows from the three projects are summarized in given table.



Project A
Project B
Project C

Initial investment
45,000
70,000
50,000


Cash inflows

Year 1
20,000
20,000
30,000

Year 2
20,000
26,000
28,000

Year 3
20,000
30,000
35,000




Consider the discount factor to be 14% and that the company has sufficient funds to take projects.



Required:



I. On the basis of NPV approach, which project(s) you would select if the projects are independent and why?

II. On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why?

_________________

To find out the NPV use this calculator click this link
http://www.zenwealth.com/BusinessFinanc ... lator.html

Also watch this video clip at u tube regarding our GDB, just waste 6 minutes and find out your own GDB answer

click the link below
http://www.youtube.com/watch?v=oA8le4Fn ... re=related
_________________________________

After discounting all cash flows of projects with its opportunity coats, the net present
values of all three projects are (NPV)
Project A_NPV: +1432
Project B_NPV: -12200
Project C_NPV: +21485

1: On the basis of NPV approach, which project(s) you would select if the projects are independent and why?
ANS _1 :If the projects are independent so the projects that have +NPV should be accepted in the given scenario project A and C have positive NPV

2: On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why
Mutually exclusives are those projects where we have to choose only one out of different options.
If the projects are mutually exclusive the one with higher positive net present value (+NPV) should be chosen

Ans_2: So in given scenario the best project is C with the higher positive npv 21485 among three projects so rationally chose project C

Reference: Financial Management Theory and Practice 8th edition _BRIGHAM AND GAPENCSKI
Chapter #9 page #398

.............

Project A: NPV: 1432.64 Project B: NPV: -12200 Project C: NPV: 21485 On the basis of NPV approach, which project(s) you would select if the projects are independent and why? Ans: I will select project C first and after select project A on second because both have positive NPV. On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why? Ans In mutually exclusive I will select project C because it has positive NPV and also have larger amount 21485.

.............

Solution:

I.                    On the basis of NPV approach, which project(s) you would select if the projects are independent and why?

Ans :

First Project C will be selected and then project A will be selected as both have positive NPV.

II.                 On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why?

Ans :

In case of mutually exclusive, only Project C will be selected because it has positive and higher NPV value i-e 21485

 

Calculations:

 NPV net present value

I , initial investment = 45000

R , rate = 14% = 14/100= 0.14

t , time in years

CF = cash inflows

Project A :

I , initial investment = 45000

NPV = - I0 + CF1 / (1+r)t + CF2 / (1+r)t + CF3 / (1+r)t

         = -45000 + 20000/ (1+ 0.14) 1 + 20000 / (1+0.14) 2 + 20000/ (1+0.14)3

        = 1432.64 ( positive NPV)

Project B :

I , initial investment = 70000

NPV = - I0 + CF1 / (1+r)t + CF2 / (1+r)t + CF3 / (1+r)t

         = -70000 + 70000/ (1+ 0.14) 1 + 70000 / (1+0.14) 2 + 70000/ (1+0.14)3

        = -12200 ( negative NPV)

Project C:

I , initial investment = 50000

NPV = - I0 + CF1 / (1+r)t + CF2 / (1+r)t + CF3 / (1+r)t

         = -50000 + 50000/ (1+ 0.14) 1 + 50000 / (1+0.14) 2 + 50000/ (1+0.14)3

        = 21485 ( positive NPV)

 

 

Fin621 GDB Solution

Semester "FALL 2010"

"Financial Statement analysis(FIN621)"

This is to inform that next Graded Discussion Board (GDB)

will be opened according to the following schedule

Schedule

Opening Date and Time

November 22, 2010 At 12:01 A.M. (Mid-Night)

Closing Date and Time

November 24, 2010 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

" Accounting Principles and its Application in Financial Statements "

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

_________________

"Suppose you are working as an accountant and the president of your firm Mr. Ali has a little back ground of accounting. This morning, he approached you and said:

"Last year we purchased a piece of land for Rs. 200,000. During this, the inflation has driven prices up by 12 %, and an expert has also just told me that we can sell this land for Rs. 300,000 whereas our balance sheet still shows the land at Rs. 200,000. It should be valued at Rs. 300,000 or at least at Rs. 224,000 (after the effect of 12% inflation)".

Identify accounting principle(s) (GAAP) applicable to this situation which negates Mr. Ali's Claim. "

...............

Solutions:

According to me Answer Must be
1) Going Concern
and
2) Cost Principle

................

Prudence principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked

Cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.

...............

Just 3 concept oppose the valuation of fixed assets
+Cost principle(historical value recognition)
+Going concern assumption(fixed assets are not for resale purpose,thats y valuation doesn't matter
+The objectivity Principle(assets are valued verifying by independent expert)

These three principle are reject the purpose of revaluation in "GAAP"Remember IAS and FRAS standards promote revaluation of fixed assets,i think IAS 7,OR IAS8(Revaluation)

"Error & ommision are accepted"

...........

These are the accounting principle(s) (GAAP) applicable to this situation.


Goging Concern Assumption
An accounting guideline which allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments
Cost Principle
The cost principle is an accounting concept that states goods and services should be recorded at their original or historical cost. This concept is mainly used when recording short- and long-term assets and liabilities or equity investments. 
Objectivity Principle
It is the principle of accounting which states that the books of accounts should be prepared on the basis of verifiable data.

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