FNSACC511 Provide Financial & Business Performance Information

Question 1.

a.) When a company makes a donation to a charity, it is said that “The company is being a good …………….. ……………. “

b.) “The owners of a company are the shareholders. To make them as happy as possible, the Financial Manager would want to maximize dividend payments.'

c.) What is a statement of Advice (SOA)? What type of advice will require a SOA to be issued to a client and what are the consequences of breaching the ban on conflicted remuneration?

d.) Which of the following would not be a part of the `Financing' role of the Financial Manager.

e.) Other than the ‘factoring of debtors’, sources of funds are found in:

f.) A source of funds can be a commercial bill. The purchaser (investor) in the commercial bill receives income or profit as a result of:

g.) Complete each of the below sentences from the list of following choices:

h.) You are the Accounts Payable Officer and your boss has instructed you to delay payments. Give one advantage and one disadvantage of stretching payments.

i.) Define financial risk and identify strategies that an organisation could put in place to overcome unforeseen events.

Question 2.

a) You have $100,000 to invest for 10 years and don't know whether to invest in:

· An Interest-Bearing Deposit in which interest would be added to the account each half year. The account pays 8% p.a. compound, or

· Property. You have been told that property values double every 10 year

b) If I borrow $300,000 over 10 years to buy a new home at 8% p.a. reducible quarterly:

c) I will need $10,000 in 4 years’ time. I decide to start a Sinking Fund investment account which will pay 4% p.a. compounding quarterly.

d) You have won the major prize at the local sports club. They offer you your choice of any one of the following:

· Prize 1 Receive $12,000 in 4 years from now.

· Prize 2 Receive $1,400 at the end of each year for 10 years.

· Prize 3 Receive $6,000 at the end of the 8th year, also the end of 9th year and also the end of 10th year.

REQUIRED: Calculate the present value of each of these prizes. You can assume an interest rate of 8% p.a. compounding yearly for all prizes. There is no need for you to choose the best prize.

Question 3.

a) COST OF FUNDS Murray Ltd has the following capital structure:

· $4 Ordinary shares · Retained earnings · 12% $5 Preference shares · 10?bentures ($500 issue price) · 11% Mortgage Loan ADDITIONAL INFORMATION:

· The current market price of the ordinary shares is $6 and the next dividend to be paid is expected to be 50 cents per share

. The company dividends are expected to grow by 6% p.a. 

· Preference shares have a current market price of $7

· $500 debenture has a market value of $519.45

·The debentures mature in five years’ time at their issue price.

· The mortgage loan rate is still appropriate in the market.

· The company tax rate is 30% REQUIRED: Calculate the cost of each source of Capital. Final answers to two decimal places.

b) WEIGHTED AVERAGE COST OF CAPITAL. Murrumbidgee Ltd have the following capital structure:

· One fifth of their funds (market value) have been obtained from the combination of ordinary shares and retained earnings.

These have a cost of 14%. · One eighth of their funds (market value) have been obtained from preference shares which have a cost of 12%.

· One quarter of their funds (market value) have been obtained from debentures. Their pre-tax cost is 7%.

· The remainder of their funds (market value) are from an 8% mortgage obtained very recently.

ADDITIONAL INFORMATION:

The balance sheet includes $3,000,000 in ordinary shares and $1,000,000 in Retained Earnings. The Company Tax rate is 30%. REQUIRED: Calculate the Weighted Average Cost of Capital. Final answers to two decimal places.

QUESTION 4

a) Darling Ltd is thinking of investing $9 million immediately in a 3 year capital project and have calculated the annual profit after tax (and loss after tax in year 2) and annual cash flows after tax as follows:

Year 1 Profit $3m Cash flow at year end $6m Year 2 Loss ($2m) Cash flow at year end $1m Year 3 Profit $1.603 Cash flow at year end $4.603m ADDITIONAL INFORMATION:

Residual value at end of year three estimated to be NIL. Darling Ltd have a cost of capital of 18% p.a. REQUIRED: Calculate the following: i) Accounting rate of return on Average Investment

QUESTION 5

a) Use your knowledge of the Accounting Equation to answer this question. If the ratio of Total Debt to Total Assets is 50%, calculate the ratio of Total Debt to Total Equity.

b) The following question is not related to question a) above in any way. The Balance Sheet includes the following items.

10?bentures 2,000 @ $1,000 $2,000,000

9% Preference Shares 200,000 @ $5 $1,000,000

Ordinary Shares @ $2 $4,000,000 ADDITIONAL INFORMATION:

· Net Profit Before Tax $700,000 · Net Profit After Tax $490,000 · Payout Ratio 30% Dividend Yield 10% · Debentures are the only liability causing an interest expense. REQUIRED: Calculate the ratios asked for.

QUESTION 6

a) Cooper Ltd.’s sales (all on credit) last year totaled $100,000 per month. They gave no discounts for prompt payments last year. This year, they introduced a 10% discount for prompt payment within 30 days. As a result, sales (all on credit) increased to $120,000 per month. A comparison of debtor payment patterns between last year and this year showed the following:

Year 30 days 60 days 90 days

Last Year, no discount 10P4%

This Year 70%* nil % * Entitled to 10% discount. ADDITIONAL INFORMATION:

· Bad debts rose to 10% of sales. · Variable costs remained constant at 30% of sales and are always paid at time of purchase. · The company's cost of capital is 2% per month REQUIRED: 1) Calculate the net worth of one month's sales Using last year's policy.

2.)You are asked to make a recommendation to Cooper Ltd., that is: Should they revert to the old policy, or should they continue with the policy of giving a discount?

QUESTION 7

a) Diamantina Ltd has a stock item with:

· An Economic Order Quantity of 100 units. · Safety stock level is 40 units. · Annual usage over a 52-week year is 1,040 units in total. · Cost per order is $480.80 and. · The carrying cost per unit, per annum is $100. ADDITIONAL INFORMATION:

The cost per unit paid to the supplier is $200. REQUIRED: Calculate under the above EOQ conditions: i) The order costs per annum.

ii) The carrying costs per annum.

iii) The amount paid to the supplier for the year.

b) A new supplier is offering the current price except that she will give a 1% discount for orders of 208 or more. REQUIRED: Calculate, using the same safety stock as above, the annual costs if Diamantina accepts the discount offer:

i) The order costs per annum.

ii) The carrying costs per annum.

iii) The amount paid to the supplier for the year.

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