Questions on Financial Management

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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