Financial Management III Assignment

Assignment Task

Question 1

1.1 The dollar and euro have recently (as of 14 July 2022) achieved parity. Based on your knowledge of this concept, what does this mean for investors? 

1.2 Critically discuss the superiority of the relative purchasing power parity method of conversion over that of absolute purchasing power parity, making use of the Big Mac analogy and calculations of your own.

Question 2 

2.1 To fend off Elon Musk’s advances, Twitter instituted a poison pill as a defensive tactic. Do some research on what the details surrounding exactly what the company directors did and its impact on the company. 

• The definition and explanation of the poison pill strategy;
• The efficacy of poison pill strategy in hostile takeovers;
• Any historical examples of the poison pill strategy being applied; and
• The impact on both companies is concerned. 

2.2 Despite much criticism at the initial offer, could Elon Musk have proved to be Twitter’s “white knight”? Motivate your response with your own findings outside of the study guide. Marks will be allocated accordingly for:

• The definition and explanation of “white knights” in finance;
• The role of “white knights” in hostile takeovers;
• Any historical examples of this strategy being applied; and
• The impact on both companies is concerned. 

Question 3

3.1 The Gary Gold Company estimates its carrying cost at 15% and its ordering cost at R9 per order. The estimated annual requirement is 48,000 units at a price of R4 per unit. Required:

1. What is the most economical number of units to order?
2. How many orders should be placed in a year?
3. How often should an order be placed in a leap year?
4. How does cost-volume profit analysis assist businesses in their operations?

3.2 Discuss how the extension of credit can assist businesses with winning greater market share and increasing the sale of their products. Consider the negatives of adopting such an approach 

Question 4 

4.1 What is the difference between a lease and a loan, and which would you recommend to a family member or friend who owns a SMME and is trying to make use of this to finance their working capital needs? 

4.2 Compare and contrast ordinary and preference shares. How does ratio analysis assist investors when making the decision to invest in either ordinary or preference shares?

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