• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6
  7. 7
  8. 8
  9. 9
  10. 10
  11. 11
  12. 12
  13. 13
  14. 14
  15. 15
  16. 16
  17. 17

Questions on Financial Management

Extracts from this document...


Management Development Institute of Singapore Questions on Financial Management UNIVERSITY OF WALES MASTER OF BUSINESS ASMINISTRATION MBWD5 0306A SONG YANG G0262693X CHEN HUIHUI G0260998W TU XIAOXIN G0174023M LI XING G0231389N 17/Aug/04 TABLE OF CONTENTS Page QUESTION -----------------------------------------------------------------3 a) i. NPV and IRR ---------------------------------------------------------3 a) ii. Sensitivity Analysis -------------------------------------------------5 b) Merits and Drawbacks of the Use of IRR ------------------------7 QUESTION 2 --------------------------------------------------------------9 a) i. Dividend model ------------------------------------------------------9 a) ii. Earnings based model---------------------------------------------9 a) iii. Assumptions --------------------------------------------------------10 b) Price earnings ratio---------------------------------------------------10 QUESTION 3-------------------------------------------------------------13 a)i. earning per share---------------------------------------------------13 a)ii. Level of earning at which EPS will be same----------------13 b) Factors that limit the amount of debt----------------------------14 c) Dividend Payment Policies----------------------------------------15 Bibliography -----------------------------------------------------------17 QUESTION 1: Capital Expenditure Decisions and Investment Criteria a) i. NPV and IRR The worksheet for Cash Flows of the Pentre plc ('000) Year0 Year1 Year2 Year3 Year4 Year5 Investments: 1. Production line 2. Ad & Marketing 3. Working Capital (20% of sale) 4. Change in net WC (8000) (2000) 0 (360) 360 (72) 432 0 432 0 432 0 432 432 Total cash flow of investment (1,2,3,5) (10360) (72) 0 0 0 432 Income: 5. Sales revenues 6. Total cost 7. Opportunity cost 8. Depreciation 9. Residual value 10. Income bf taxes 11. Tax (35%) 12. Net Income 0 6000 (2600) (25) (1500) 1875 (656.25) 1218.75 7200 (2960) (25) (1500) 2715 (950.25) 1764.75 7200 (2960) (25) (1500) 2715 (950.25) 1764.75 7200 (2960) (25) (1500) 2715 (950.25) 1764.75 7200 (2960) (25) (1500) 500 3215 (1125.25) 2089.75 Operating Revenues and Costs ('000) Year Sales Volume Price Sales Revenues Fixed Cost Direct Cost($120) Total Cost 1 2 15 18 400 400 6000 7200 (800) (800) (1800) (2160) (2600) (2960) 3 4 5 18 18 18 400 400 400 7200 7200 7200 (800) (800) (800) (2160) (2160) (2160) (2960) (2960) (2960) Cash Flows of Company ('000) Year0 Year1 Year2 Year3 Year4 Year5 Sales revenue Cost Opportunity cost Taxes Residual value Cash flow (Operations) 6000 (2600) (25) (656.25) 2718.75 7200 (2960) (25) (950.25) 3264.75 7200 (2960) (25) (950.25) ...read more.


* 0.5718 = 116.17 / (15%-3.75%) * 0.5718 = 590.45 V0 = 2000 + 415.25+ 590.45 = 3005.7 a) iii. Assumptions > There are no taxes. The absence of corporate income taxes is assumed. > There are no costs of financial distress. For example, there are no transactions costs, and all securities are infinitely divisible. > There are no asymmetries of information. It implies that the expected values of the probability distributions of expected operating earnings for all future periods are the same as present operating earnings. > The investment and operating policies of the firm are given and investors are assumed to be rational and to behave accordingly. b) Price earnings ratio A price-earning ratio is a commonly used way to simplistically value a company, determine what a company's stock should be worth. It is also known as "P/E", is calculated by dividing the company's stock price by the company's earnings per share, or "EPS". The P/E ratio gives an indication of how many times shareholders paying for a company's stock compares a company's earnings. P/E ratios can be used to compare against other companies, or against a company's own historical P/E ratio. Investors usually are willing to pay a higher P/E for companies they judge will be growing faster than the norm even though they do not pay those earnings out in dividends but retain them to fund future growth. If that growth is realized, the price of the company's stock usually grows faster than the overall stock price of the slower growth or higher dividend paying company. However, if estimated earnings are not realized or the stock market itself loses favor with the investor, such as higher interest rates attracting investment capital, the downside potential is greater as well. The risk is not just the ability of the company to create profits, but the investment risk in the higher price you paid relative to earnings. ...read more.


Dividend is payable in full on shares held for a duration of 12 calendar months during the financial year and on a pro-rated basis on shares held for less than 12 months. http://www.google.com.sg/search?q=cache:XweOBesthMcJ:incnet.income.com.sg/uishare/main.aspx+dividend+policy&hl=en 2. stable 'growth rate' - set target growth rate for dividend and strives to increase dividend by that amount every year ACOM CO., LTD. (Tokyo Stock Exchange) ACOM's dividend policy is to provide shareholders with stable dividend growth. Dividends for the fiscal year under review included an amount equivalent to the commemorative dividends paid last year in the interim and year-end dividends as well as a �5.00 per share increase in the term-end dividend, to �22.50. Consequently, the total year dividend for fiscal 1998 was �40.00 per share, a rise of �5.00 from the previous year. This represents a payout ratio of 13.3% and a 2.0% dividend on equity. www.c-direct.ne.jp/english/ divide/10108572/8572_98/8572e_02.pdf 3. Constant payout - pay certain amount of earnings as dividends (or pay a constant $ amount each year). Neptune Orient Lines (NOL) NOL is a global transportation company, with core businesses involved in container transportation and supply chain management. NOL intends to maintain an annual dividend of 8 Singapore cents per share net, or a full year dividend payout of 20% of net profits, whichever is higher. In line with this policy, the Board of Directors has declared an interim dividend of 7 Singapore cents per share net (8.75 cents gross). This dividend is issued out of existing Section 44 tax credits and is payable on 30 August 2004. http://www.nol.com.sg/newsroom/04news/040727.html 4. low regular dividend plus 'extra' - pay a low regular dividend and an extra at the end of the year (depending on the earnings performance that year) SINGAPORE Exchange (SGX) July 30, 2004 SGX proposed a final dividend of 4.075 cents per share and a special dividend of 6.5 cents, bringing the total payout for FY04 to 13.5 cents per share. It paid 40.5 cents per share in dividends last year, including a special 34-cent dividend from the liquidation of assets. http://business-times.asia1.com/story/0,4567,124036,00. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. P1- The role of internet marketing

    Banner advertisements are also a good method for promoting the products. Banner advertisement usually appears on the top of the page when viewing a certain website. Dell can use it to promote the new products that have been entered into the business.

  2. Assignment 4: ethical issues. The community. P4 and M3

    of money that needs to be paid when young adults are working. Panorama found factories related to Primark that is based on workers between 5 to 17 years old. They worked in a poor environment and poor wages. Businesses such as Primark intend to employ young children because they are not required any training and high costs.

  1. A2 Business CourseWork

    Alternatively you can create one. You can create a revolutionary, unique product that people will actually want to buy. * Price: In a recession this is even more important. The general consensus if that if price goes up, demand goes down.

  2. Sources Of Finance

    in the business it self rather than simply lending the money and they gain there money back by selling their shares when the business is more successful so the shares would have increased in value. The disadvantages of using venture capital are: * Using this financial source means having less

  1. Btec Business Level 3 Year 1 - Introduction to Accounting

    payment period in days: 100/840 x 365 = 43 days Rate of stock turn over Calculate using the following formula: Average stock divide by cost of goods sold 2006 * Rate of stock turnover in days: 560/40 = 14 days 2007 * Rate of stock turnover in days: 836/44 =

  2. Assess Effects of Corporate Personality

    This also means that when the owner of the company dies his shares are transmitted to his personal representative, this way the company can grow and increase its investments and capital. Disadvantages There is more complexity and expense in forming a corporation.

  1. In this assignment I will be explaining in detail the importance of cash flow, ...

    in some industries such as food retailing the costs of buying stocks are high so gross profit margins are typically low. In other industries such as air travel, the cost of taking each passenger on each flight is only a very small proportion of the ticket price.

  2. I am going to produce a report which assesses the working capital management of ...

    Current ratio 2010 2011 (£1153.80/£2210.20)= 0.5220 (£1641.70/£1890.50)= 0.8684 Current ratio= 0.5:1 Current ratio: 0.9:1 M&S current ratio has increased from 0.5:1 to 0.9:1 this means that liquidity has gone up and for every £1 owed M&S can cover with current assets of 0.9 times.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work