Assessment Task 1: Class Activities Performance objective
Candidates will need to take personal responsibility for completing the class activities and maintaining all documentation in an orderly manner.
Assessment description
For this assessment you will be given a number of activities related to the PowerPoint presentations and class discussions.
Activity 1
1. How much interest will be earned on a fixed deposit of $8250 with Bendigo Bank for three years earning at 5.5% simple interest per annum? What will be the future value of the deposit in three years?
2. Hannah received a cheque from her parents amounting to $6000 on her sixteenth birthday. She decided to invest $5000 with St. George with an annual interest of 6% for four years.
(a) Using simple interest, what will be the total investment in four years?
(b) Using compound interest, what will be the total investment in four years?
(c) Which is better option for Hannah?
3. Austrian Ltd invested $25 000 at 8% per annum compound interest.
(a) Using tables, what will the Austrian Ltd investment be worth in 5 years?
(b) What rate of interest would be required to achieve a compound value for the deposit of
$40,262.50 in 5 years?
Activity 2
1. The following information is taken from the balance sheet of Cyrus Ltd as at 30 June 2012. The company tax rate is 30%.
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Bank
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1000
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Stock
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800
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Prepayments
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200
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Accounts receivable
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530
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Accounts payable
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1260
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You are required to calculate the following ratios:
(a) current ratio
(b) liquid ratio.
2. An extract from the end-of-year accounts of Blubbery Company shows the following information.
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$ $
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Sales
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55 000
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less Cost of sales
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Opening stock
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2 000
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Purchases
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12 150
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14 150
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less Closing stock
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_
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500 (13 650)
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Gross profit
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41 350
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less Expenses
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(28 150)
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less Taxation
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(3 960)
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Net profit
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$9 240
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You are required to calculate the following ratios:
(a) Debtors collection period
(b) Total asset turnover
(c) Rate of stock turnover
(d) Gross profit margin
(e) Net profit margin
(f) Return on total assets
(g) Return on net worth
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Other account balances:
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2012
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2013
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Accounts receivable
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5 800
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4 000
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Accounts payable
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|
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Total assets
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22 000
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Total Liabilities
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9 500
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Total equity position
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12 000
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Activity 3
Magnum Ltd
Magnum Ltd operates a retail business that sells 35 000 units of product annually, which it buys for
$17 per unit. The cost of placing each order is $6, while the annual carrying cost is $3.50 per unit.
You are required to calculate the following:
1. Economic order quantity
2. Number of orders to be placed each year
Activity 4
REV Company
REV Company Statement of financial performance
30 June 2012
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$
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$
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$
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Sales
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80 000
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100
000
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120
000
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Variable costs
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40 000
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50 000
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60 000
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Contribution margin
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40 000
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50
000
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60
000
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Fixed costs
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9 000
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9 000
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9 000
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EBIT
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31 000
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41
000
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51
000
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Interest
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2 500
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2 500
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2 500
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28 500
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38
500
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48
500
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Tax 30%
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8 550
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11 550
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14 550
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Earnings after tax
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19 950
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26 950
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33 950
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Choose the correct answer.
1. Over the range of sales level, what is the increase in sales between 80 000 and 120 000? A. 50%
B. 100%
C. 150%
D. None of the above
2. Over the range of sales level, what is the % increase in EBIT between 80 000 and 120 000? A. 62.35%
B. 64.52%
C. 62.53%
D. 64.25%
3. What is the degree of operating leverage at sales of $80 000, $100 000 and $120 000?
A. 1.22 times, 1.18 times, 1.29 times
B. 1.29 times, 1.07 times, 1.22 times
C. 1.29 times, 1.22 times, 1.18 times
D. None of the above
4. What is the degree of financial leverage at sales of $80 000, $100 000 and $120 000?
A. 1.09 times, 1.05 times, 1.04 times
B. 1.08 times, 1.06 times, 1.04 times
C. 1.08 times, 1.05 times, 1.05 times
D. 1.09 times, 1.06 times, 1.05 times
5. What is the combined leverage at sales of $80 000, $100 000 and $120 000?
A. 1.41 times, 1.30 times, 1.24 times
B. 1.40 times, 1.31 times, 1.26 times
C. 1.41 times, 1.31 times, 1.26 times
D. 1.40 times, 1.30 times, 1.24 times
Activity 5
Droop Company
Droop Company is considering two investment schemes.
Scheme 1 has a cost of $150 000 and an economic life of 5 years and has a residual value of $30 000.
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Year
1
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Year
2
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Year
3
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Year
4
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Year
5
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Profit after tax
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200
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8 000
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9 500
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9 000
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10 000
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add Depreciation
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6 000
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6 000
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6 000
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6 000
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6 000
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Net cash inflows
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6 200
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14 000
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15 500
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15 000
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16 000
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Cumulative cash inflows
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6 200
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20 200
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35 700
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50 700
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66 700
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Scheme 2 has a cost of $160 000 and an economic life for 5 years. The annual after-tax profits are expected to be $11 000 annually.
The company requires a return on average assets employed of 12%. Depreciation is calculated using the straight line basis.
Required:
1. What is the accounting rate of return based on total investment for each scheme?
2. Which scheme would you select using the accounting rate of return method?
Activity 6
Select the box for a true or a false answer.
1. The decision to retire an asset will depend on its current salvage value.
- True
- False
2. Risk is defined as the degree of uncertainty associated with a future outcome.
- True
- False
3. Given the equation Rm = Rc + Rf, Rm is the required market rate of return.
- True
- False
4. Tax payments are usually made in the year following the year of income or by instalments.
- True
- False
5. The discounting process does not reflect the loss in value of the dollar due to inflation.
- True
- False
6. The greater the certainty in business decisions, the greater the degree of risk attached to your venture.
- True
- False
7. Depreciation on plant is not an allowable as a deduction for taxation even though it represents a non-risk cash expense in the accounts.
- True
- False
8. The decision to retire an asset will depend on the present value of future cash flows from the equity.
- True
- False
9. Given the equation Rm = Rc + i, i stands for interest rate.
- True
- False
10. All business decisions will carry out some element of risk as they are based on future estimates and assumption.
- True
- False
Activity 7
1. Define the term ‘lease'.
2. How are rentals on leases treated for tax purposes?
3. Name and explain the two categories of lease.
4. Enumerate at least two characteristics of a finance lease.
5. List at least two characteristics of an operating lease.
6. Enumerate the steps in the evaluation of a finance lease.
7. Explain the following terms:
(a) direct lease
(b) sale and leaseback
(c) leveraged lease
Assessment Task 2: Case Study
Performance objective
Candidates will apply the knowledge gained over the duration of the course to prepare financial statements, including journal entries required to create the financial reports.
Assessment description
For this assessment you will be given a case study with several tasks aligned with our course, and you are to complete the written report alongside the course material
Case Study Project 1
Orion Inc. has just hired you as a recent finance graduate of Victoria University. The financial manager of the company wishes to test your familiarity with financial ratios and your overall ability to work with financial statements.
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Orion Inc.
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Balance sheet as at 30 June 2012
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$
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Cash
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Debtors
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Stock
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Total current assets
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FIXED ASSETS
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300 000
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Total assets
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Creditors
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Long-term debt
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Total debt
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CAPITAL
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100 000
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RETAINED EARNINGS
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175 000
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Total debts and equity
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The following additional information is given:
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Average collection period (360)
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30 days
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Interest paid on long term debt at 5%
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5000
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Debt to equity ratio
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75%
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Liquid ratio
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1.1
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Current ratio
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1.2
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Sales to total assets
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2 times
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Case Study Project 2
Multinational Info-Tech Company is currently looking for an experienced and highly motivated financial manager to join their team. One of the managers asks you to prepare a set of questions for the interview.
Required:
1. Enumerate some of the responsibilities of a financial manager.
2. What are the three types of company reports that are used in gaining information about the firm?
3. Who are the users of financial information? Give examples.
Assessment Task 3: Project/Research Assignment
Performance objective
Candidates will apply their research skills to find the answers to the assessment tasks
Assessment Task 3: Project/Research Assignment
Assessment description
For this assessment you will be given several tasks aligned with our course, which you must complete financial transaction or research legislation and complete in an appropriate document including references to all sources used.
Task 1
1. Differentiate the three main forms of business ownership in Australia.
2. What are the three basic financial statements?
3. Explain the internal and external sources of finance.
4. Describe the main function of financial management.
5. Wealth maximisation as a principal objective of a company has its advantages. List three of these.
6. If you were to start the following businesses, discuss what business structure you would use and why:
a. Milk bar
b. Nando's franchise
c. Mortgage broking firm
d. Call Centre.
Task 2
Part 1: Multiple-choice questions
1. A source of short-term fund where the vendor allows a period of time before payment is required is:
A. trade debtor
B. trade debit
C. trademark
D. trade credit
2. Short-term finance is widely used in Australia because:
A. it is easy to obtain by businesses with a good credit record.
B. it is interest free.
C. the level of financing automatically grows as the business expands.
D. all of the above.
3. An arrangement whereby the bank agrees to allow a business to overdraw its account up to its overdraft limit is a:
A. bank overdraft.
B. promissory note.
C. credit note.
D. letter of credit.
4. Bills of exchange that provide finance for borrowers who need more than $100,000 are called:
A. promissory notes.
B. trade bills.
C. commercial bills.
D. bills of exchange.
5. Which of the following is not a form of short-term finance?
A. bank term loans
B. trade credit
C. factoring
D. leasing
6. Which of the following is not a form of long-term finance?
A. mortgage loan
B. intercompany loans
C. money market corporations
D. international currency loans
7. Which of the following is not a feature of an ordinary share?
A. limited liability
B. permanent capital
C. par value
D. all of the above
8. Which of the following are sources of equity funds?
A. debentures and unsecured notes
B. mortgage loan and bank loan
C. deferred shares and share options
D. commercial bills and promissory notes
9. Which of the following is a form of short-term finance where the use of an asset is obtained without the cost of purchase?
A. lease
B. factoring
C. floor plans
D. asset sale
10. A type of share where the shareholder has a priority over other classes of shares in terms of dividend payments is:
A. ordinary shares
B. preference shares
C. unsecured notes.
D. secured notes.
Part 2: Group discussion
Now in your group discuss if you were running a corporate stationary supply business, what sources of funds would you use and why.
Task 3
1. How would you define the word ‘client' in the context of financial management? Who would be a principle client for a business?
2. What would be the expectations and objectives of a client that should be communicated with a financial manager?
3. Discuss briefly the different processes of checking the accuracy and reliability of data.
4. List some aspects that need to be considered when preparing financial advice for the client.
5. Give some examples potential risks that need to be identified and quantified to the client.
6. What are the different strategies that can be developed to improve communication with the client? Give an example.
Task 4
Part 1: Multiple-choice questions
1. Which of the following is the cost of funds employed in the business?
A. cost of debenture
B. cost of sales
C. cost of capital
D. all of the above
2. Which of the following statements is false?
A. Cost is determined internally by management.
B. Cost is determined by the investor in the capital market.
C. Cost is measured by the rate of return on investment.
D. All of the above are false.
3. All variables are needed in the computation of the cost of debentures except:
A. current tax rate.
B. current price of notes.
C. coupon interest receive.
D. share price at the end of the year.
4. Which formula is used to calculate the cost of debenture?
A. kd = i(1 - T)
B. kd = C P
C. kd = i(1 - t)
D. kd = P C
5. A company has issued $250 000 worth of 12% debentures with a current market price of $75. What is the cost of debenture if the tax on company profit is 30%?
A. 6.25%
B. 11.2%
C. 16.0%
D. 4.8%
6. Which formula is used to calculate the cost of preference capital?
A. Kp = Dp/P
B. kp = dp/P
C. kp = Dp/P
D. kp = Dp/p
7. What is the return on shares of a company that has issued 100 000 ordinary shares fully paid at
$1.50? A dividend of 10% is payable annually and the current share price is $2.30.
(i) The expected end of year dividend is: A. 15%
B. 23%
C. 6.52%
D. 6.5%
(ii) What is the cost of ordinary shares? A. 15%
B. 23%
C. 6.52%
D. 15.33%
8. A company that has paid an ordinary dividend of $0.25 is expected to grow at 4% per share. If the shares have a current market value of $4.50, then answer the following.
(i) The expected end-of-year dividend is: A. $ 0.24
B. $ 0.25
C. $ 0.26
D. $ 0.27
(ii) What is the cost of capital?
A. 9% B. 10% C. 11% D. 12%
9. The two sources of equity capital are:
A. debentures and notes.
B. preference shares and bonds.
C. retained profits and retained earnings.
D. ordinary shares and retained earnings.
10. The alternative ways of calculating cost of capital include:
A. the use of earnings per share.
B. estimating the expected shareholder returns based on past growth in the market price.
C. both of the above.
D. none of the above.
11. The weighted average cost of capital shows:
A. other ways of treating issue costs, other than making adjustment to the discount factor.
B. the average cost of all sources of long-term finance employed by the company.
C. several ways of calculating the growth such as the weighted average past growth.
D. the costs associated with the new issue.
Part 2: Group research
In your group, research interest rates (Reserve Bank Cash rate) for the following countries and find out why their rates are high or low:
a. China
b. India
c. Australia
d. United States
e. United Kingdom
f. France.