FIN0008 MANAGING BUSINESS FINANCE

Java Python FIN0008 MANAGING BUSINESS FINANCE

CONTINUOUS ASSESSMENT 1

Individual Assignment (30%)

Total marks: 30 marks

Instructions:

1. Deadline: Date specified on Canvas Learning Management Systems.

2.   In your cover page, include your Full Name and Student number.

3.   Answer ALL questions.

4. All workings and answers must be shown and typewritten in Microsoft Word.

Please be reminded that plagiarism and collusion are serious offences, and all cases will be referred to the administration. Grades will be withheld until investigations are completed if the submission is suspected of plagiarism or collusion.

Question 1:

Mr. Lim is an owner of a successful company and has  S$1 million cash to invest. He has approached you for advice on the difference(s) between money market and capital market instruments. While you understand that he prefers to keeps his funds  safe, what type of instrument should he invest his cash. Provide justification for your answer.   (4 marks)

Question 2:

Explain how a finance manager can use ‘inventory turnover ratio’ and ‘total asset turnover ratio’ in financial ratio analysis to better manage a firm.   (4 marks)

Question 3:

As a financial manager, you are provided the following information:

•   The investment is financed by $50,000 ordinary shares, $30,000 preference shares and $20,000 bank loan.

•   The firm’s weighted average cost of capital is 6%.

•   The investment will generate net operating profit after tax (NOPAT) of $30,000.

•   The firm’s tax rate is 20%.

Calculate the Economic Value Added (EVA) of the following investment. Should the firm accept or reject the investment? Explain your reason(s).   (4 marks)

Question 4:

Your firm is considering investing in one of the following companies: Co. MC or Co. BC. The following tables show their financial results for the current year end:

Statement of Financial Position as at	Co. MC $'000	Co. BC $'000
Assets
Non-Current Assets
Property, plant and equipment	40,000	15,000
Current Assets
Inventory	2,000	300
Account receivables	1,400	300
Cash and cash equivalents	600	900
Total Assets	44,000	16,500
Equity and Liabilities
Share capital and reserves
Ordinary share capital ($1 each)	14,000	3,000
Retained earnings	7,600	4,300
Non-Current Liabilities
Long-term loan (payable in 2028)	20,000	7,200
Current Liabilities
Account payables	1,600	1,300
Accrued expenses	200	200
Current Tax Payable	600	500
Total Equity and liabilities	44,000	16,500

Required:

(a)       Compute the following ratios for Co. MC and Co. BC for the current year. Give your answers to 2 decimal places.

(i) Current ratio

(ii) Debt Ratio                  (4 marks)

(b)       With the use of financial ratio analysis, explain whether Co. MC or  Co. BC has better

ability to meet its short-term debt obligations. Justify your answer.                                (4 marks)

Question 5:

Your firm is evaluating whether to invest in new equipment that cost $200,000. With the investment, it will be able to generate revenue $80,000 annually, with costs $40,000 annually. The equipment shall be fully depreciated over four years using the straight-line depreciation method. With the investment, your firm would need an additional net working capital of $30,000. Given that your firm’s cost of capital is 8% per annum and tax rate 20%, calculate the following:

[All workings and answers must be shown]

(a) Calculate the INITIAL INVESTMENT of the new equipment.                                (1 mark)

(b) Calculate the annual OPERATING CASHFLOWS of the new equipment.                  (2 marks)

(c) Assuming the firm can sell the equipment for $10,000 at the end of four years. Calculate the TERMINAL CASH FLOW of these equipment?                         (2 marks)

(d) Calculate the NET PRESENT VALUE of the planned purchase and determine whether the corporation should go ahead with the purchase of these equipment