i. Advise the company on the best investment option for the maturing funds. ii. Based on your choice from part (i), if DEVCON Industries invests the lump sum of $20,000,000 on December 2, 2020 and leaves it in the account for 4 years, what will be the value of the investment on December 1, 2024?
i. Advise the company on the best investment option for the maturing funds. ii. Based on your choice from part (i), if DEVCON Industries invests the lump sum of $20,000,000 on December 2, 2020 and leaves it in the account for 4 years, what will be the value of the investment on December 1, 2024?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:DEVCON INDUSTRIES LIMITED
Income Statement
For the years ended Dec. 31, 2018 and
2019
2018
2019
so00's
s000's
Sales
900000
1125000
Cost of Goods Sold
300000
306600
Gross Profit
600000
818400
Selling and Administrative Expenses
150000
156000
Depreciation Expense
54000
57000
Advertising Expenses
18000
21000
Earnings Before Interest and Taxes
378000
584400
Interest Expense
3000
3000
Taxable Income
375000
581400
Taxation (35%)
131250
203490
Net Income
243750
377910
Dividends (40%)
97500
151164
Addition to Retained Earnings
146250
226746
Additional Information
Share Price
21
27.3
Ordinary Shares Outstanding
120000000
144000000
DEVCON INDUSTRIES
LIMITED
Statement of Financial
Position
As at Dec. 31, 2018 and 2019
ASSETS
2018
2019
LIABILITIES & EQUITY
2018
2019
Current Assets
s00's
s000's
Current Liabilities
so00's
So00's
Inventories
264000
276000
Accounts Payables
Notes Payables
138000
114000
Accounts Receivables
294000
330000
150900
132654
Cash and Equivalents
210900
270000
288900
246654
768900
876000
Non-current Liabilities
120000
90000
Total Liabilities
408900
336654
Net Fixed Assets
630600
690000
Equity
Common Stock
264000
276000
Retained Earnings
726600
953346
Total Equity
990600
1229346
Total Assets
1399500
1566000
Total Liabilities & Equity
1399500
1566000
Transcribed Image Text:In addition to the projects evaluated above, DEVCON Industries is
considering several other savings and financing options in an effort
to expand operations and improve overall efficiency of operations,
while fully investing idle cash.
(a) Based on Statement of Financial Position as at December 31, 2019,
the Company had
$270,000,000 is Cash & Equivalents. Of this, $20,000,000 was in
a fixed deposit that is due to mature on December 1, 2020. The
company is considering the following investment options for
these funds:
Investment Alpha
compounded semi-annually Investment Beta
Annual Interest Rate of 8.25%, compounded monthly
Annual Interest Rate of 8.5%,
Investment Gamma
Annual Interest Rate of
7.96%, compounded daily
Required:
i. Advise the company on the best investment option for the
maturing funds.
ii. Based on your choice from part (i), if DEVCON Industries invests
the lump sum of
$20,000,000 on December 2, 2020 and leaves it in the account
for 4 years, what will be the value of the investment on
December 1, 2024?
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