Description

SWISS BUSINESS SCHOOL

Branch Campus Rak

FINANCIAL MANAGMENT

SBS -MBA

Assignment STUDENT

GENERAL INSTRUCTIONS

Answer all the Questions. (Word Limit-2000-2500 words)

Shaybah Plc

All values in BD Millions

Income statement for the year ended 31stDec 2023

2021 2022 2023
Turnover 786 841 1000
Cost of Sales 503 564 730
Gross Profit 283 278 270
Admin costs 109 122 145
Net Profit 174 156 125
Dividends 50 80 80
Retained Earnings 124 76 45

 

Statement of Financial Position as at 31stDec 2023.

2021 2022 2023
Non current assets 477 832 890
Current assets
Inventory 100 120 150
Receivables 120 140 140
Cash/Bank 42 21 10
262 281 300
Total Assets 739 1113 1190
Current Liabilities 154 192 93
Non-current liabilities 100 412 412
Equity
Ordinary shares 350 350 350
Retained Profit 135 259 335
739 1113 1190

 

*All current liabilities are trade payables.

Sector average ratios:

Return on capital employed 19%

Net profit margin 20%

Current ratio 1.6 Times Capital Gearing (book value basis) 55%

Return on equity 15%

Question 1

 Required:

1.1 Calculate the following ratios for Madeira Plc:

Gross Profit Margin

Net Profit Margin

Current Ratio + Quick Ratio

Net Asset Turnover

Receivable Days

Payable Days

Return on Capital Employed

Capital Gearing                                                (12 marks)

1.2. Comment on the financial performance of Shaybah Plc between the years 2021 and 2023 using the ratios above and any other financial measure you feel appropriate. (10 marks)

 1.3. In 2021 the share price of Shaybah was 20 BD per share. Today the share price is 25 BD per share. The finance director has attributed this success to the company maximising the sales. Carefully consider if this is true and what other goals might the company consider? (8 marks)

Question 2

UAE Invest Co is currently planning to buy a new machine which will cost AED 200,000. It is expected to generate new cash sales of AED 165,000 per year. The machine will be used for 5 years and at the end of this period it will be scrapped and not replaced. The scrap value of the machine is expected to be AED 30,000. Annual material and operating costs are estimated to be AED 105,000 per year.

PBP plc uses a discount rate of 10% in the investment appraisal process. The company has a target Return on Capital Employed (ROCE) of 20% per year and a maximum payback period of 3 years. Ignore taxation.

Required:

(a) Calculate the following figures for the project that PBP is appraising:

(1)Payback period;

(2)Return on Capital Employed (accounting rate of return);

(3)Net Present Value.

(4)Internal Rate of Return.

Comment on the acceptability of the investment based on your evaluations. (18 marks)

(b)Evaluate the advantages and disadvantages of each method culminating in a critical discussion of the reasons why Net Present Value is preferred by academics to other methods of evaluating investment projects. (12 marks)

Question3

 Required:

  1. Consider the theoretical cost of Debt, Preference Shares and Ordinary Shares rank them from most expensive to cheapest. (5marks)
  2. Recently one of your company directors has attended a finance conference, on their return the director has decided the company should fund all projects with internal sources of financing as they are essentially ‘free’. Another director argues that these funds are the same cost of equity. Critically discuss these statements, which do you agree with and why? (10marks)
  3. Discuss whether the company should raise finance (via any means) if it has a project available with a net present value ofBD100 million (8marks)
  4. Give an example of a type of business which might utilize high leverage (gearing) fully explaining how this would benefit them from a financial management perspective. (7 marks)

 

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Financial Management (October 2024 assignment)

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