6 marks) (b) Suggest four methods to reduce the length of the cash cycle. i) The importance of trade payables in a company's working capital cycle; and (4 marks) (ii) The dangers of over-reliance on trade credit as a source of finance. Variable costs are incurred at an amount of 0.5% of the value of each property sold and these costs are paid in the month of sale. PKA Co's recently appointed financial manager conducted research into the company's working capital management and gathered the following information:
3 marks) (b) Calculate the cost of the current ordering policy and determine the saving that could be made by using it. Let's assume that there are 365 working days in each year. a) Discuss the working capital financing strategy of HGR Co. i) on the bank balance within three months, if you do not take any action; and. ii) bank balance within three months, if the financial director's proposals are implemented. After the end of this five-year period, no further sales of the product are expected.
5) 20% of the net profit is distributed to the joint venture partner the year after the profit is realized. a) Calculate the net present value of the project at the company's required rate of return. Suppose that all cash flows arise at the end of the year, apart from direct investment costs. Sales of the new game are expected to be very strong, following a positive review by a popular PC magazine.
Charm Co uses an after-tax discount rate of 10% when valuing new capital investments. a) Calculate the net present value of the proposed investment and comment on your findings. 11 marks) (b) Calculate the internal rate of return on the proposed investment and comment on your findings. At the end of the four-year period, the new machine is expected to have no scrap value.
If the machine is purchased, payment will be made in January of the first year of operation. Capital allowances for tax purposes are available on the cost of the machine at a rate of 25% per annum, reduce the balance. Calculate the revised net present values of the three turbine options given capital rationalization.
Issuance costs are expected to be $220,000 and these costs will be paid from the funds raised. Ignoring issue costs and any use that may be made of the funds raised by the rights issue is calculated:. i) the theoretical price ex rights per stock; ii) the value of rights per existing stock. A 1 for 4 rights issue should be made at a 20% discount to the current share price of $2.30 per share. share to reduce leverage and the company's financial risk.
If the new financing is raised through a rights issue at $7.50 per share, but a major expansion of the business is not. yet started, calculate and comment on the effect of the rights issue on:. i) JJG Co share price;. ii) profit per share of the company; and. iii) debt/equity ratio.
Issue debt to purchase the machines
He decided to replace 100 of his grinding machines with 100 new types of machines that had just been introduced. The company is unable to issue additional capital and is therefore considering alternative ways of financing new machinery.
Long-term lease
Short-term leases
The current preference share price is 77c and the dividend was recently paid. As the new CFO, write a memo to the chairman that explains, in language understandable to a non-financial manager, the following: i) Assumptions and limitations of the capital asset pricing model; and. ii) An explanation of why IML Co's share price may rise following the announcement of a loss. Assume the market valuation of the next ordinary dividend is 4c, then compounded at 12% per annum indefinitely.
Suppose the tax is due at the end of the year in which the taxable profit arises. 8 marks) (b) Without further calculations, explain the impact of the new bank loan on WEB Co's. iii). Suppose the tax is due at the end of the year in which the taxable profit arises.
The returns on the new camping business are likely to have a very low correlation with those on the existing farming business. The estimated capital beta of the main competitor in the same industry as the proposed new plant is 1.4, and the competitor's capital gearing is 35% equity and 65% debt at book values. a) Calculate the after-tax cost of debt of FAQ's credit notes. 3 Sixty percent of the shares in the competing company are owned by the directors and their relatives or associates.
Assume that you are an independent consultant hired by MC to advise on the company's valuation and the relative merits of a public listing versus an outright sale. Explain the valuation methods you used and discuss their suitability for assurance. proper valuation of the company. It has outlets in most major towns and cities in the country.
Alternatively, each bond can be converted into 20 ordinary shares of the company on that date. THP Co plans to buy CRX Co, a company in the same business sector, and is considering paying cash for the company's shares. The company's current earnings per share are 80 cents per share and earnings have grown at an average rate of 4.5%. per year in recent years.
10 marks) (b) Calculate the total value of the target company, NGN, using the following valuation methods:. i) Price/earnings ratio method, using the price/earnings ratio of KFP Co; and. 6 marks) (b) (i) Calculate the sterling value of the contribution earned from exports to each of the customers (A, B.
