Part A
DBM Financial Solutions
You are a financial consultant working with DBM Financial Solutions and have a portfolio of clients you work with in achieving financial management solutions.
Client 1- Manhattan Limited
You have been approached by one of your clients, Manhattan Limited to assist them in the following matters. Manhattan Limited is an SME business with little financial expertise to manage their capital/ funding costs.
You have extracted the following information from their accounts regarding their capital structure:
$ 3,000,000 Ordinary shares of $1 each with a Market value at $ 1.5 per share. A dividend at rate of 5% will be paid out on these shares. These dividends are expected to grow at a rate of 4.5%. Company Tax rate is 30%.
$ 4,000,000 10% Preference shares of $1 each with a Market value at $ 0.9 per share
$ 1,000,000 Retained Earnings
$ 7,000,000 10% Mortgage
Required:
As their financial consultant, you are required to calculate the weighted average cost of capital of the company. Please tabulate your results in a table form clearly showing all workings.
Client 2- Sentosa Limited
Sentosa Limited has been losing sales to new competition in the market. As a result their sales revenue is declining. They have thus been evaluating a new project to add a new production line. They have asked you to assist them in evaluating the project.
Following is the necessary data projections for the project.
Capital Outlay $ 110,000
Cash income annual $ 50,000
Depreciation expense annual $ 11,000
Cash Expenses annual$17,000
Cash expenses do not include tax
Estimated life of asset 10 years
Residual value $0
Tax rate 30%
Required rate of return 18%
Required:
You are to calculate and analyse the above project using the following:
1, Net profit after tax for all years and the annual cash flow
2, ARR (using initial investment)
3, Payback Period
4, IRR
5, NPV
6, Suggest whether youwould recommend to the client to accept the new project or reject it. Your answer to this part should include reference to the calculations in 1-5 above.
Please tabulate your results in a table form clearly showing all workings for each part.
Client 3- Ashton Limited
Your client Ashton Limited has had inventory management and ordering issues for an item that they stock- bond007. They have asked you to assist them in understanding the relevant costs associated with the item and establish an Economic order quantity for the item.
Ashton Limited has provided you with the following data for item bond007:
Inventory usage rate is 120 per week
Safety stock level is 80 units.
Annual demand is 5500 units in total (assume 52 weeks)
Lead time is 3 weeks
Unit price $2
Order cost $ 7.5 per order
Carrying costs $0.35 per unit per year
Required:
1, Calculate EOQ
2, Calculate the desired re-order point
Client 4- Peppa Limited
Peppa Ltd has asked you to evaluate an investment option which they are considering to invest some vacant funds in. If the invest $4800 at the end of each year for 10 years, they will receive $84,230 at the end of that time. Peppa Limited has advised that they will go ahead with the investment if the interest earned on the investment is greater than 14.5%.
Required:
1, Calculate the interest rate which will be earned on the above investment
2, Calculate the value of interest earned over the 10 years
3, On the basis of your calculations should Peppa Limited go ahead with the above investment?
Part B
Quid Limited has provided you with the following figures for analysis. The following are the income statement and balance sheet for 2017. They have also provided financial ratios from 2016 for comparison purposes.
Quid Limited
Statement of Comprehensive Income
For the year ended 30 June 2017
The directors have requested analysis and comments on the company's performance and recommendations on how they might improve any areas of weaknesses identified in the analysis. They have also provided you ratio analysis from 2016 for comparison.
Required:
You are to perform a ratio analysis for 2017. Use various ratios to support your analysis and prepare a detailed analysis report commenting on:
I. Liquidity
II. Activity
III. Profitability
IV. Leverage
Attachment:- Assessment.rar