Assessment task: Question 1
You are given the option of receiving annual instalments of $9,000 at the end of each of the next five years or a single payment of $95,300 at the end of the fifth year.
Which option would you choose assuming the current rate is 8%? Provide your calculations to demonstrate why?
The management of North Point Ltd is considering the purchase of a new machine and wishes to do some financial modelling as part of the decision-making process. They believe in this instance that calculating the Net Present Value (NPV) would be the most appropriate technique and have provided the following information to you:
| Capital outlay |
$15,000 |
| Cash income per annum |
$60,000 |
| Cash expenses p.a. other than tax |
$22,000 |
| Depreciation p.a. |
$2,000 |
| Economic life of machine |
5 years |
| No salvage value |
|
| Rate of tax |
30% |
| Require rate of return |
20% |
Assessment task: Question 2
You are required to calculate:
a. The net profit after tax for all years and the annual cash flow
b. Net Present Value
c. Should the management accept the project and why?
d. Briefly identify and explain with suitable examples other financial modelling techniques and tools.
NOTE: Do not restrict your answer to other modelling techniques that would be used in situations similar to the one being made in this question. Include, for example, models which attempt to explain the relationship between variables, and the probability that a borrower might default on a loan.
The management of North Point Ltd is considering the purchase of a new machine and wishes to do some financial modelling as part of the decision-making process. They believe in this instance that calculating the Net Present Value (NPV) would be the most appropriate technique and have provided the following information to you:
| Capital outlay |
$15,000 |
| Cash income per annum |
$60,000 |
| Cash expenses p.a. other than tax |
$22,000 |
| Depreciation p.a. |
$2,000 |
| Economic life of machine |
5 years |
| No salvage value |
|
| Rate of tax |
30% |
| Require rate of return |
20% |
Assessment task: Question 3
You are required to calculate:
e. The net profit after tax for all years and the annual cash flow
f. Net Present Value
g. Should the management accept the project and why?
h. Briefly identify and explain with suitable examples other financial modelling techniques and tools.
NOTE: Do not restrict your answer to other modelling techniques that would be used in situations similar to the one being made in this question. Include, for example, models which attempt to explain the relationship between variables, and the probability that a borrower might default on a loan.
Assessment task: Question 4
The financing decision, determining the optimal capital structure policy of a company, is one of the most important decision faced by management and must consider both what will provide the best return for shareholders and regulations imposed on the organisation by regulators. Explain.
In your answer you should explain:
a) Capital adequacy requirements for financial services organisations in general and deposit taking institutions specifically based on financial product mix and the Basel Accords,
b) Asset pricing models and their use in identifying organisational value and capital structures, and,
c) Economic theories relevant to the valuation of assets and provide practical examples of their application.