Present ae Tie Preset abe of ie. (1 +0¢ "n= number eds unt pay Diszount te) Pet (ae ee ake ok kom, a 1 0960 0990 0971 0962 0952 0943 0935 0926 0917 om 1 2 0980 0961 0919 0925 0907 G89 9873 D857 O82 Cee 2 3 0871 0942 0915 0489 cess ca; oa1e O74 O72 O71 5 5 0951 0906 086s o8ze O78 O747 O713 O6sl O60 OG 5 § 9942 0868 0837 0790 o785 0705 O66 0820 0596 os 6 7 0833 0871 o813 0760 O71 oG8s 9823 O88 O87 Osa Sf 8 0923 0853 0789 731 677 Gee? ose Ose 0802 oa? o 3 0914 0837 0765 0703 645 O89 O54 0500 O40) OMe 300905 0820 O76 O67 sla 9498 O58 Dass 0422 O60 10 1 0895 0804 0722 850 0585 0527 0475 0429 O388 0350 11 12 0887 0788 9701 0825 O8s7 0487 O448 O37 O35 D319 12 13 0879 0773 o681 O61 0550 0469 O41s G368 O32 9290 19 140870 0758 0661 0577 O80 O4e2 0988 0340 Gams Oats a 38 0861 0743 642 0555 O48] O41? G382 0315 0278 OF) 1s CE ee Reto 0301 0803 88s 0877 0870 0862 cas 084 om Om : 1 2 9812 0797 0783 079 O75 O73 D731 O78 O10G OEM F 3 0731 0712 068 ors Cass Dell Dee O60) O83 OS 5 2 0689 0695 o612 ossz os7e oss2 oss O51 0499 Due? 5 0883 0567 0843 519 0497 O476 Oa8s 0437 Oly OMe S983 0507 0480 0486 0432 o410 9999 0370 552 O58 6 7 0482 0452 0425 0400 0976 Oa 0813 O3Ie O29 O20 f 8 0454 0404 0376 0351 o327 D305 D285 O2ee O29 Ono 3 0391 0361 0399 0308 ozs! 0263 D263 D208 0009 OI 8 10 0382 0322 0295 oar G2 0207 0208 GIS! Gite oles 1S HL O317 0267 vinl 0237 0215 198 178 O162 O18 O15 32 0286 0257 0281 0208 O17 oles Oil 0197 Ose Ol 1 33° 0258 0229 0201 ole o163 Gies 9190 O116 Olek OO 1b 34 0232 0205 o181 O16 181 O15 O11 Doe O08 Cor I 35 0208 0183 0160 O14 0123 103 Ga95 DoE OOM oes IE‘Arnal Tale Preset vate fn amr oft, Leh Dicount ate Pe a oe 10% ee ee 1 0990 0960 0971 0962 0952 oa) 0995 0928 Om17 oom 2 revo 194 1913 Yass asp asa Toe 1768 1757 \99e 3 29m 2808 2829 2775 2723 2673 Beek 2577 Da51 2487 4 9902 308 3717 Sa00 3508 Sag 3387 3312 $200 S00 5 4959 4719 4500 4as2 4329 $212 4100 3999 3e50 3098 S 8795 3601 5417 5282 5078 4917 4767 4623 4405 4255 7 6728 are 6230 6002 S70 5582 5359 S206 $033 4868 3 7652 F305 7020 S468 6210 $9 5747 $893 5335 5 ase ie 7986 ios 6802 6515 8247 S998 5759 0 5471 8983 680 772 7360 TOU GTO Gm G18 10368 97879253 8306 7887 7493 7439 605 6495 12 11255 10575 9954 9285 Gass gas 7360 7556 Tas eels 13 12434 11348 0635 S986 S398 Bass Gas pon 7487 Fed 1413004 12195 11296 10563 S89 9295 B75 Bae 7780 7367 18 13965 izei9 11998 11118 10380 9712 Sloe 8559 Bust Fe00 Lc 10901 0893 08S 0877 0870 O86? O85 08M EI OON 2 M3 1650 rees 1637 1625 180 1585 e0 Ise? 1508 3 2444 24oz 2961 23ce 228 2246 2al0 21M 210 21Ge 4 3102 3087 257s 2514 2055 2798 203 2600 2639 2400 5 399 3005 3517 3433 5352 3274 S199 Sie 3088 boat § 4251 4111 3998 Sasa 578e 36a 3560 3.458 S410 3926 7 4712 4568 4423 4298 G16 4089 Soe 3812 $708 S608 8 Side 4968 4799 4699 Gag) 3c 4207 4078 Same gear 2 $557 saz 5132 4a 4772 4607 4451 4903 4163031 10 5889 5650 S26 52i6 S019 4882 659 4age 4509 eSe HL 6207 S938 5687 5453 5254 S029 4036 4656 4486 4327 12 6492 Gis S918 S660 Suzi S197 4989 788 Sell nase 13 6780 Gua 6122 S62 E563 538 S118 S910 4919 488 M4 6382 6628 6302 G00 5724 S469 $229 Sone ager fell 33 Tis 6811 G4s2 E162 S087 S875 S32 Sos Gare 78 Endo Questor Paper 8 14 15 2 aFinancial Management ‘Anmed Shati as ccHaRM ne Sune nthe ne fur Selo the new game ar espace everyone folly = yesucion one) 380000 70.000 “E900 6sio00 Selig pee pe ge) sae sis Float Infrmitlon on Fg fr the ert ya of product sas follows? 7 ice stata est ssA0perzane une variable podicton cos S600 Fred cone 4.009 ‘ih fre prodsion overtand. Fras’ wie ering $00,000 Atough tis prosueton machine sexes to havea i top ‘tan ye, gnvecrmet lepton tows Orn bef aim tea cox ofthe Imaching sgt he manuf of» pg prot. Cel alowaceas wil thratore be ‘Soimed on 4 pt-ne Sas oer foe yar ‘Chim ne py an prota cate of 3 por yar anew belitie ar eed othe {earn whe ey are. Cher eur on arnt datoun te of 208 when Sopa ‘ew cpt invertmenc ignore nbaon, Regulate (a) Calete tenet present aus of the proposed investment and omen on your fncigs. ‘ena 1 ett nae aie, es wppebetrs te itt rch re vsnen Spats treurm ‘Bai (rota 25 mat) Pages Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of AccountancyMirchawala’s hub of Accountancy Financial Management ‘Ahmed Shafi 7 aupco: fret neem ne Sita cua ic den nr ed ig Gown ties cate murs ats Po as aS “Sober ee nny se ie he soe carta vase ate din dan Sage ot wet vet 2 2 aye « Detar Bérition / "-xSmies 6m my ‘eisine sroductn sx toe Gong nv ode millon Wa par yen and he -peroenp ove any Deas tor sei eaona hi "The carrent eng prs of Cg a $8.00 pa Mogan i the vib arto ra ‘0 or tora. Other vara carts of araduton oe S190 gee Horan, Fes cnt a procucon anata wih ie nen nshine Won We S2A0000 Inte TACT rodusian inresing 6 $20,009 per yar each subsequent Yo" operat, ‘uo. co sav tax one wearin tee a.an enoul Pte of 30% and ein clita ‘owancesomcowble Geprataion)on'¥ 25% reduank tren bar. A BAC Slowancs ie ained inthe gl en of operon ‘bus co ust sahara ilghtad avragecot of eal when appre vee oles. hep cost of equal 32% ad a befortan eos dab of BOmielongers Angre of he company on amehataue bees, cons BCRamoty ana eo equved (2) Cateate tne nt prises value bung thé Ht Aasne and als on te oii he Ati Si oe 2 aera Ree ca «aaa eee ee Soe erase eRe Sicnseatone ee Spores (teak Suet rae Mirchawala Publishing ACCA | ICAEW | CFAFinancial Management Abmed Sta me TRECOR Ibe sole 35000 ec” Co emacs denundforProwst ab allo Demand tents) «35000 «agg sng00 28000 ‘ne stn for Pra i eicatad obe 610 run ard he vale crt of ation b tipected “0 be 740 pe an teemantl nal feed rosucton rhea of $15,000 pe yew be Ie, fling pean eats ea cure Sling pean corre recy seen fallow: Increase sling oie a edit Deore irae att rat pare gd redone. eae rons ig di nia ind ee (oreo te cop pl ear 208 ta bales te an Mann achat itr yon ib nS fa py 0K Vpn a» Bccaceoa ies = ees (0) Cates ne tes aa bag he nt mac and sme fig worth eran $0 oe ® etree return on coal amployed faceunting rate era tnvesnee an comtheoben aur aig 8 ry (a), Situs end scene ne wakes nha Pt of tn In aprng pat Investment (or) Page 0 Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala's hub of AccountancyFinancial Management. ‘Ahmed Shafi 26 seco (vontor) Sabeo bad se000 een tin hed rained ser coh pre apc eh oe od Profucng and sling rit wl ea fr cried rites sng Doar thio! vai of woing apa wibin Seca ndenta tc tte snot ech ‘rr nvstmert in working epi or proce il pd to be Tt see even or 5 cope tx of 30% parr in tha yea in whic theta prof oir Unity eg te ‘Seduce by eaitallowarcs on mane (asatowale deprectaon)woln Sco fm im on stigtne tas over the fours eof he prfsed tmezment. The ‘SC Co ues nomial (money terms) arta cst of capa a 12% for inertment Mirchawala’s hub of Accountancy (a aha sna ed inet int 1) chau tae tin ih rap er ae (now on oe Page 10 Mirchawala Publishing ACCA | ICAEW | CFAFinanc 1 Management (5 sewn nt one ree a a ws ercnd i at fr Yah el ni = ~ ai fur yu ln ruc ect sn prone PES ws ana ens) Sioa at eters wrt cn sed SSO (sh eat these age nthe capt nvsimant dean Iroc anaheim apie plc ‘tm (2) Clshtthe owing ees ete lvenent roe 3 eee edie TANCY 1 um ooo! em fe GON aro (0) stun your Ging In exch stctn of (h) shove sad edie wear he Ieesment root rant weep. ‘sme (rom 25 mat Mirchawala Publishing ACCA | ICAEW | CFA Ahmed Shafi Mirchawala’s hub of Accountancy[ALL FOUR gusto ave computsery and MUST be atemted ‘1 emo has udarakan mat esearch ata eat of $200,000 ts ett fees the te enh fos fan ‘vasrert jet ha epee bu yes ows . ea 1 2 3 4 + Ss evar ($000) 1250 2570 6850, 400 eat ($000) 500 1o00 2800 fe 1,790 ‘These foc cash Now ae Sle rg acount of gana nan of 47% per yee THe capa cox of he ‘avestrent pot. py th taro he flyer, wil be $2,000,000, The vecment pot wi ave 2 Sap lel he edo te out ya The lel af wing eave esa of och yeu ee fo be 10% tte sale ever n Ot an, opt stones woud be atti on be capa cast a he inesman pin a 25% ecuing bane ase. Dem Co past onsets at an anal le of 30% pt ya wih nbd an yer nares Dt Ca Noe ‘rn Corey ms) ain ot of xp 12% pe yen Regu (3) acute the net present vale of the ivetment rot nail tars an eemeent on is Bait acceptably (2 mash (©) Caelte the net present value ofthe Ieveiment poet in real ems and comment on is nc accept. man (©) phn ways in wich the dicts of Dara Coca be encouraged te achive the elect ofmasnitn shader west, ‘Gmans) (25 mats y 2 -32 The dco eta Co we caning a lame invetmant ret osig $2, sys a thet fe fs year apeaten. The toning natin elas meine ke Wort verz vers Yang Stes vote uniayead 520.000 24,000 717000 788,000, Sing pie (Stn) ‘30003000 20003000 Vanate costs (und 100 10206! 093 Fd et yea 700000 735000 773000 —641,000, “Ths ination nets dusting to ake cen of sllng pce ation a 4% pe yard able ot infin of ‘pu ya The ln cos, which ate insemeni ar edo he einen pees 3 Maral en Te year se volore is peed coe le terse ie. Feta Coy crprton xo 30% ore yearn areas, The company cn cai acalowaie Sean on 25% rescong onan bar ‘The vews ne ditcioso Fe Co af at 3 vesner pos mu etd ovo ya of oealns, wr an atone emi valet eno tou eo of hel ret cat. Elet rae lo ‘ec payback must be we, wih 9 mantra cures payback pes a a yu. Te ea alae (ostt capt of ola Cole 7% arate nominal aertnc et cape 12 (2) @ Cael the a preset vl of th pond invest rie (emaie) ( Caette he acount oye pti a the plumed nent pct (emai (0) ica the rani acceptably of the iveiman proeet mane (©) Cribay cus te vews fe sgt on Pata Casas apa (mane) eam a ro[32 Hebe Cos repnng tn rh 9 new pod a new mat whens ove uret bsinest cots. The pur hs uncharted et ring tn ot $500.00. fatwa ‘enw aasue be sucess Hebac Co piso chage sone sang cena andthe cen sg ceo stuton tht here dul wt eit ee ne new mark, vers sls voles Seng ces od arabe costa a: ots var 1 2 3 4 Site vourecaneiyean 2001000 wou}000 9001009 400.000 Sting gre un 1 eae ee note cons Sn) 3 ° 3 3 Selig es ene vara con are gen hve crt pce tome aloe aig ect af reas setng pce ‘ntaon ope ye! an rst cost ition &f 5% per yen. ‘ncemenal Se corso $500,000 pat en cer pice tee woul ak 3 2 eof poducng the ne ‘ook, as eel lar of 3 pr yes pee “he tah ovement cos rotucion earn fhe new re! wi S25 mation, pate 3 te sat ot Itelitye option, Peevton wil eae th rorya esos he new ae! expo Mv {ome tan du one cag The peguron eqUEMeM would Rave 9399 ve ae endo fu ye 91 5125.000 tre vate ens. Ios wokng ap of S15 ion wl be ese thes al thes yes apaaton. Wor apt lator of 63 pr yar eae as wahirg cata wi te ec in il ate ee of ut 8 ease Co ays expt ol 20% per ya wh he fbi ig stain te yar in hic aes. Tne ‘aroary can dom aualnwsbasepeion on 0 25% flung bares bast etl ves! cs, jedi the in! yar tops fo 9 hleengaionance or cha. Hebe Co caren has 9 noma thin yh vetoes fap (HACE) f 12% ano 9 el rian WAGE of 8, The company se {urent WAGE athe nt ter esera es ei: (a) Cac heat pet vali of he ovcimest prc in nomial ers ard comment it nc Sepa. ‘ameos (©) Discus how the capil ea ping mde an ast Heba Co inmatng = beter invextinet deci wit ‘respects new pret aoe. rans) (20 mais)COumYiyryyyyyy 5 © 2 tnt $f tame tele: Wa . fw 3i20 ee “ey a Melati, | ve Geach Go G9 S fe (218) 593) (670) 9°) fo 564 2166 Saye foo EDED a I "8 ws iy FO ee a” 99 {%b te ea OD C2 Qoi> 1966 \w) Rech TT ave (Way $3 558 ae 6240 ¢Y (ow) ou v0 Cay Yovo cA ge cA OY y £26 9 (Re?15 tg Coaraling te purchase orien machine, tng 1-5 milion 1 epace an eing maine which een Ear fus reese vone, The wea ml of rst tt or te ds [Pode fe ew machine whch has ees ep 00,0 un pe ys, ew Fl: Sse vote nse 380.000 30000 «00000 400,000 “Thee mie wi ier fed arval neces 145.000 pe yes, Vie coss rege BE {300 por ant ond sel pce expica Tobe S565 pt unt. These cas end stg pe eximaes rn ‘nen’ pice asa ot ke coo ol etal wlan, ich fens 0 Be 7 Be yu ‘ls exgectd hale new machine wi 68 replace ot yest du fo asec internat The eae (ate of enw mace eget be $200.00 a me fev Ti phase ple of the ten man pyle th a of theft yea ol he fore cl the mace, “ng cptlesien f $130 000 wt ees es a sa ote ouryea peed. def he operation ot Ineectng machine. This invesman wate cpt sexes Yo cease nominal er Bie with the (eee Ioan, up Co pay corpertin is one ean ars la ans eof 27% ard can calm 25% eucng alnes [oealowabe deprecation on he pucraze pee ol the Sew mace. The company Na 2 el ofex woighed (Noes cos el copial 6% and # nari eax weighed aeae cot ol capa of 1%, eae (a) Using nomial tems et rset vale appre evant whether purchasing the sew machine fs Arana accopabe (omar (0) ane eens wy nasal ance my Hn, ven whan compan has active iene pores sable fe ‘eran (asmans) 5 (eto.Financial Management Mirchawala Publishing ACCA | ICAEW | CFA ‘Anmed Shafi Poge 19 Mirchawala’s hub of AccountancyMirchawala’s hub of Accountancy Financial Management yee S10 Sones iansaees reectecueyarians) rE 8 Taceieaue la 6.200 Selecorat seta nial lm nrc anton’ 1) Wo 1b bin cane ag ning oivenoentparpaee™=. mart) (2) Bllnn ivan epson cn ein eet wt vert maleate ‘str ironing. Your i) ekGspha8 pal in (05 ite eal ate orc ty IN) tatprmet fe nd, c aneesnoa terve tne ong woe HUB OF accou Mirchawala Publishing ACCA | ICAEW | CFA NTANCY Ahmed Shafi Page 20Financial Management ‘Anmed Shati 4) LEAWINGER INC (oc _Lceminger In hs desided itm replace ite majoctrbge machine on 3,.Dacember 20%2, ‘Fhe ashi is exeenia tthe operations of the company. The eapany is, however, onaderng whater to purchare the mache eulrigh of it lave zen, Purchasing the rnehine outright “Techn is expects i os $360,000 ft ix puchised oath aye on s1"Becerber 2022. After for year Ihe company expects ne! es nology 1 mak the ‘machine redundant apd wil be sold oa December 20XS generating rosende of $2o00, Cspot algwance forinxprpots te tyne onthe sata he chine abe Inte of 5% per annim reducing belenee. 178 oes fe gv in the yeur of | equistion bt no wring doe allowa year of disposal The aifference ‘erwnen the proces nd pd es =n in Oo eer a tepaal io hargesbleYortax am enor” Lessing” “The ‘conpany has aporosehed it bank: wih view 1 arangig esd ofinanee the Inachine negation, The bane hat fered to oplons wih respect leasing Which areas fellowes ' nance leate «Obert lease CConuet eh Gear) 4 1 ‘Ann ren 135,000 |__ $140,000 Fieerent payable 3X1 December 20X93 December 20X20 = Geverm RS ‘Fr bath the puiding rd he nance ese option, muntenane cons of $15,000 per yesr fre payabla the end ot cach yor ll lente einer bot nanee and operating obo) {an bp stumed tobe wloweble for purpose i Tal Sh the year of ppm. Assume that {cis payabe ote yer alert nd ofthe aeourting year in which the tmnsuction cur For the operating ene nl, conics ee fenvrable annually tthe discretion of either pary-Leaolagee ne has adequate sable profits to rllve sa ico Te ye oeportin tea be atsomed to be 30%. THE company ey “The compeay eae on semen” (2) Coleutate he et prj wae 9131 December 22, using the ae tax cost af sop fo . : (©. obi te ching ought {i)_ sing the finance lene i'eeqire the mtchine (Gi) “sing the operating lee fo Rogie the seni comer the inl ethos (22 marta) Page 17 Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of AccountancyJaw ooih 1 The at OAP to has ceed it ivesinent unt $1 lon x nest ye an i apg cap sa The company concen fo rt a lon Projet A "2.500000 ‘900000. Pome $2.200,000 s15s0000 Poet 2/0000 51350000 Projet 51,900,000 51'500,000 once $5)000100 brea Aue poets aw 3 poet for 28. Prec A.B, Cand Dae sean Pret Ban Dae mutly suse. Al bt pee vlus oe el ea Prete ‘hss swageaty inporent it meh ne Bose of OR Co hn ced mut be ues in ceo ne omoany ema compete, gees strane acepaciy Irmo igo Be recs fons Sis wure umes 12,00 13000 19,000 10.00 Satng ae n: 50 5 S00 37 “nate ow St 20 220 25 3 Foes ets S000) 750 750 750 790 ‘hese locale ng nt fling i inant 0% py, Arle nt ilaon of GOR ‘nit Pec , At he end of our yas, machinery rr the projec willbe 3a crap with valve of $400,000. ‘ratowabe depute on We il ewetret ca of Propel Es axattle on 25% sug tnaee Ess {30 OA? Co py caption io 20% pe ye, ne yar nas. Alri care alwanceavable [Sve ee te erty yar aera. (OP Cons» naming ltt of apt 13% prt Reus (a) cates nomi! tear mt eset val of Project E and crime on tenant ecepabiy of thsproet. (4 mat 10) Colne the masimum et pest value whieh cn be atin om lvetng th nea $10 ion, suming Here thatthe nomial ertat NPV a Project Ee Grate {e) Discus the reasons why he Bal a RP Co my hve deci nvm fds othe vt et Gros) (25 oynancial Management Mirchawala Publishing ACCA | ICAEW | CFA ‘Abmed Shafi Page 21 Mirchawala’s hub of AccountancyDegnis Co company which nsals ches and batons to customs specications. li plening to invest $52,000,000 Ine new facily fo conver vans aod Tucks Ino molohams, Ech searhone wil be designe ena ‘liv eaeaing to customer eqaerens, Boga Co expats maorhome preducton and sbes in the fst ur years (operation abe flu voor 1 2 3 4 Moroes produced and sold 250 300 450 450 “he seine pice fr « motthore depends onthe van ce tck which x converte, the quality ofthe unt instal hath er of conversion wor egueg. Degnis Co hes underaken esearch nol es 2 costs of liferent ings of rotememar whieh cou be selected by Cstomes, a follows Hetihome type Bese Standard suse Probeaity of section 20% “55 35% Sang pee (luni) 30.000 42,000 72,000 Conversion ent (S/n) 2300 29,000 «40,000 Fred cows ofthe production faciy ar exe to depend onthe volume of motorhome ation 28 flows Production volume untayes) «200-209 «300-399 400-499 Fred cows (S000) 4,000 5,000 500 Deanis Ce pays corporation tax of 28% pe yea, wit he ax Eblty being sated inthe yee a which it mises. The mgany con cli tax allowable depreciation on Ie east of he investment on 8 skalgiine basi rr ten yes. Degas Co evauatsimesinent projet sig an aterax count rate ot 11%. Requte (@) Calculate the expect nat pretet vale ofthe panned ivestment for the fst fou: years o operation 7 mans) (@) Aer the fourth year of operation, Oxgnit Co expec to continue Io produce and sl 450 motorhomes per yor ‘or be reseed ure quires: Calulte the effect on the expected nat present vale ofthe planned investment of continuing o produce Sha set motorhomes beyond the fre four years and comment onthe fancial acceptably of the planned Investment mas) (e) cetaly iscss the use of probably analysis in incorporating skint Investmert appraisal, (5 mars) (15 mars) 5 vPro.Financial Management sagaicy acento on re not ot eta bon tang nate ake) ‘Ahmed Shaft ‘fee srene nent edb og ene need ni id may eg a iy, Reema ches ie mca ett ‘noses Aeititatoccans Sa oeraaey Panaaeintaccrann 1 wine t mang pana: in eh on mi as hee at + Septem mage OF AccoUNTA\ Mirchawala Publishing ACCA | ICAEW | CFA NCY Page 13 Mircbawala’s hub of AccountancyFinancial Management ‘Ahmed Snat Jai NPV i supirlor to other technigues fu PAYBACK? [tase x scsi profit yr wT petra poe ous ae ad arma Tae ee ae eae eT PO, ative owe We [Depend ont aor ra ear onan. L How NPV cor tg ject are hi fzation? sleet in csiculation of NPV o¢ How NPV ealeulationscs ou fin mig ve Den arre 1 ntton tes zm constt way ath may cng to ean potent ce RC COUMIRNS Page 15 Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of AccountancyMirchawala’s hub of Accountancy Financial Management Ahmed Shafi Decision - Wlatuag “stem tn Cop, Gow Ap prasad. Mirchawala Publishing ACCA | ICAEW | CFAMirchawala’s hub of Accountancy Financial Management ‘Amed Shafi ustonton ey rea a) ‘000 asm = Beethro Siesnpanian Soar te FE mld a Fallonng eats is sabe nan sares (05 / share) s00 is —e CCOUNTANCY Beinn iS Pi ar nr cuneate res i@ 502) nares 2000 5,00 5220 s100 naming na ny canbe sumac reps 2S/eharen, Rend fe under Cm Page 24 Mirchawala Publishing ACCA | ICAEW | CFAFinancial Management ‘Ahmed Shafi IVERSFICATION samneaiacanics rane shres 50 ehre 19000 xdeenires ‘8000 Cure snare ae 3s pene tig $20/510 noi ACLs ht ny bet ESLARCUtin ening wo etre sew nay dfs brpona ithe elected ata et {sedng comput ne ey, 2 whe Sune het et aloes dour shar 2/8 2000 x devours 3500 creas share rer ot 02 $25) recog 5330/5109 vomin #¥2 Lghas a eve bt of eS and eee ke Beales ReTSHUc ud We deters windy Y wus OF ACCOUNTANC Page 25 Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of Accountancye+ Ik") } ee \S YO {SD0D+ > eve Cen ¥F ime Cm Sve ir}Mirchawala’s hub of Accountancy Financial Management Mirchawala Publishing ACCA | ICAEW | CFA ‘Amed Shafi Page 30Financial Management ‘Abmed Stat 2 NG we nave om be Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of Accountancy|AMHCo wishes calcul ts cant cast of apa for ue 8 count ain invecent appa. The follwing feanclintraton reais AMM Cer Financial postion sateen extracts a a 31 December 2012 000 eauiy ‘rdnay shares (nomial value £0 cents) fesenes 22,000 Longer taties "4% Prloere shares (nominal vae $1) 7% Bond reseembie rsx years 3,000 lone tan tan 3,900 7,900 23,000 The otinary shares of ANH Co have an ex dv markt valve of $470 pet share and an oriny vided of 363 casper shore hes sl been pad. Hise idend peyments have been a olows: ear 2008 2009 2010 zou Divine per snare (ens) 309 322 335 350 “he prlerenceshanes cf AMH Co ste not edesmable ad have on ex dl mate! value of 40 ces per share. The 7% bons we adeemate a2 5% premio othe nomial valu of $100 pe bod and have an ex erst mate ‘alue of $108 50 per bond The bank an has a varible res rate hat Nas averaged 4% pe arin recent yeas ANH Co paye pot taxa an anual ae of 30% pe ea. Require: (3) Caeuate the marke valve weighted average cst of capital of AMH Co. (02 mars) (0) Discuss how the capital azat pricing model canbe used lo ealeuate a project-specific cost of capita! for |AMH Co refering in your sseusion tothe key concepts of sys risk, business isk and nancial tsk (8 mars) (e)_ Discuss why the cost of equity I greater than the cost of det. (mata (25 mars)Mirchawala = .1ub of Accountancy Financial Management ° Mirchawala Publishing ACCA | ICAEW | CFA ‘Ahmed Shafi Page 32ta Go asthe flowing capa tutu $000 000 uty and eserves asenes zaye0d 270.000 Nor-curent bilities 3% Perens share 55 Loan noes Bork sn 19000 289,000 “The orinary shares of Ons Coarsely vain & $4:26 per sha on a ex iden bss and have a nominal vale ot $0:25 pe save. Grinary dens are epee o grow nthe ue by 4% per yar and weve of ‘S02 par toe nas ut been pd The 58% serene shares have an ex send markt valu of $055 pa hare and @rominal ale of $100 per share, Thee store af inedeenabe, ‘The 6% lan nls of Ola Co ax curenty wang at 895-4 per oan ree on an ox inte! basis and wl be receered al rei nominal $100 pet bon ne ve ye! Le ‘he tonk oan has a direst te of 7% er ya ‘ol Co pve corporalon tae atte of 25%, (a) Catelte te atertax weighted average con of cpt of Dina Co on a market vale bass. ms) (©) Discuss the cnnectin betwen the ela costs cuces fiance and he eer Wray. “s mans) (e) plan te ferences btwetn sami ance and eter conventional nance. (¢ mars) (05 marie) ‘usc Bray stret25 sr) ss000 spucgebenre 7 S200 Fence pce Sysare Seas earei rene © 520/539 nqmindandhey ah ae egies ata Ey wim WG cANeN a nn Hates tt pec fatto bee ran en 021 0 ‘ear vdig #22 £20 nan ani Somtourptr sso Pool nde PH‘Seeton C- BOTH quetns se computor abd MUST be tempted Please wie yur ansvers tal ssf hese cuestns on th ie paps within the Canicate Answer Eel 3 The owing str of ean sion rematon fees eT Co 2 compen ted On ge Sac mate sm ™ pay an aie Sta capt 2 ened eorangt 13 ‘ele 3 ence ates nen tabs a “a Sis ao “equa abe s “Tre sae copa ol TU Co eno $12 0 eco shes Sal neeameble peleance ses. ‘The ian shes Tas Ce tae anor vale of $0.50 pr sae, an ox ied mast pice 87-07 per ore ar cums eval cee 7°52 pt Shave. Te in I 2087 wtb pad In he eK var 20x86 20x 200 zox. Dir sae oa oat 038 037 The 5% peferce shes la Co have # mine wo SO'SO pe shat nd an x ard mat ie 5031 posta ‘Thalonaser boowings tus Co coe of 1Omet lean rte ans Stan ah The Banham ms avaiable ‘The 7% lon ols have amin va $100 perenne ard 2 mace eof 10234 pr wan rl. Amu ‘lows hes Seon pd as the noe nls reszonae nu ease lS pombe Porna Ve (a) Cael ty afters had avrge cto opal! Ta Co ana maa as, (LL mas) (0) Discuss the ramtoces under whichis appt use the curent WACC of Ta Coin praing sn Investment poet mete! (e)Oieuse THREE aovanbges fo Tua oof using conver ae noes a2 sure of ree face, (emote) (20m_ 27 Tenant of FOR Coa ao ate ae we fe cron witnowt ile wid seg {i oan lh ompuy Ore, To congo tO 8c xo, he C0 ah ‘toot eae cet te ay sve ae 85) pr sae, NG en a enone 2 ok le 9 len ard her x et mai pica 108 per 100 Bo Tre ae hea Sct ctel NOR Co 7a he ne 30% The recent diets pr share fhe company areas flows. Year 2006 2007 2008 2008 too hited pe share (ens) 1938220 Hla 2180 ‘he tinance ier popes decease the weld average cost of capital of AQR Co, and hence intense is mat vale, ty surg 540 mien e tends tte oo vale ef $100 pe bond. These bonds would ay anual ‘eet ol 8% bel a nd! woud be redeemed 8 SX per opr ete 1 ye. Require (@) Calculate the market value aftrtax weighted average cst of ezptl ef AOR Co in the ‘allowing reumstances:| (0 belre te new issue of bonds takes pac; (i) ater he new sue of bons tales place. Comment on your ings. (02 matey (©) deni apd secure ity the ators at inuence the maha vale of taded bonds. (5 wats {e) Discus the director's view tha suing traded tons wil decease the weighed aver cst of capt of /AQR Co and thereby ineease he make ae of he company. (rans (25 mats) 43 10,Financial Management Mirchawala Publishing ACCA | ICAEW | CFA ‘Ahmed Shaft Page 33 @ bub of Accountancy Mirchawal2!Soest SSVI WIT FY Fry B Bsirs msi WACC Ir aera — Ke Wace | her J-[ ee (Coe e fing] [PS J ae 4 6 Te 2 +300000 | fee aie bye fe © L4or9 = &]\- flo ~ ‘De ee = 19000 (ee fo : io} se yt ey ee ak et? a 4 4 a A bres in ee A. Us =o)" tame ' y ri’ i a fe- te 22DMirchawala’s hub of Accountancy Financial Management Ahmed Shafi ‘39 Tirwen Go (FMC, 12/04) 45 mins Iban stk x pe Pour tang Tryon aso: Caren tert ot ore esis fo ga Noneures fas ‘ret 1.900 ces 0 oo “38 909 Tota asa, aa gg tae oe 1 ent 2612 tS “Tag als na “a ayaa 2s ‘ome rmato Presnrang rather e: tat Snes ant = ret ie it (bn vn Rs 19 vet ter oes ln ‘bathe x AC a eee poh ale (enans) » ar sn ep 409s Treo pa fs se te ern a is fri 4) boat odoret peo ret oust ors pres be tt ew dt ron {Wrage oh singe (een tte pepo rede nn oe a wou nce ewe oe ‘arshe of Tne. asome th he prhrags atten sams one ts) “Slut atone sy engin od reo ec for Tea Yor ‘eos an tp aa oh pen Sey on fa ‘ames (as2§ mats) Page 42 Mirchawala Publishing ACCA | ICAEW | CFAen ea UO ee Sta aio jet WP verte hiarahide of Pen | Tun F Shy be Fer sau | fay pe Beh So th) too} far paw “be Ved fy 6d xg) [S 600 len foug AMS, Tite ee 7 ea | _ 7932-90 a * —Ticagaeaee Funds stm FSb00 i. ro bf SE ee b - BB) fF tp 5 YA ban ne we 2a 7 Core Gehaver* da, cc tly | 7 ES gle. te rie! [slow tI6. 198 ee a tau lero | mls &> Be 8 | OO ae3. The mace svezu of Ydnar Co has bean lechng ire He company's woking capital manage ‘Wa ona em fm cet 5 $26,750,000 fs tl athough sts of ade equ cest ‘ltrs sate atari ce win a as on vag cts ae een erg BORNTS, fu sles ne Ob date en net ome ‘decease surety sana S¢.153,000 ara Went Ce tat cost shorten rane ol 3 ra ‘ne ance det consi a toca far a fang company, Nod Co, woh was iid I ede ‘Range Ie ss ee of dor Caen wtecuee te. Nowe Cotes at Ran se exper ‘etoe voag rade evates ay 35 4, le cain ba by 7O% and cain afarensis by 330,000 ge year Kconclon th near ogreament state cmgay woul ako svar WesCo 80% thn sau iss aes 0a ese f 7 pt yea Nove Co woud cage an anus he of 075% of rest es, Asse al rae 360 dys in veh yo Requrets (0) Advise when te fart fren acetals Wider Co aes (0) Bit ces Now the crestvrtnes of patent castors ean be asst, mine omen 4 haa Go oir te $1, 200£00 ou gs. Te a ses i utr a9 2% Shen one cet state ie Gran C3, nc $390 ges, The igs ut wl 9 Sea nd eves of 320 00 wb pou oot le eh eee capa ano ray Co ot (che smn Eau ‘Senay Hoe SOSD seminal 20 ese 25 3s regret ales ie leant 20 srry “rm th oe by os ia be ued 0 ecm pat fhe en roles, Gch an Pte nas 8 ‘ronal rave SIGO arden et Int mvt vue e500, A Cause a Ce Bord sue oat als ‘rer Cio rete roa nis 9 5 sem Is mara say tte pr ter Reenter ct “The pref oo of rene Co na te oe afc by erection of te ean aes “Theses pr shre tena Cos caren S042 pw sar an el eins a 58 40,000 pty, Tne eomesny go ewgoaon a 30% prea | Rega: state te fet on the wealth fhe shareolen of Granary Co of wing the net ets se ans 6 {deem tain 8. ‘onan 8) Discuss wher Grearp Co mipsel optima opal sete lowing the igs se, (7 man) (05 mets)Financial Management ‘Ahmed Shafi 4 tpjuy clam cd mec ie Sole means gare ee Nae ateioaee na Sera SENeai ane nase seas Income eterna sm moe ” Com tens a Pt ar od 6 tee 20 = 2 rt tar lz Sotto nl pon ematn Eat ‘ese stares ($1 rina Slee ¢ Lento ain ee 00 ond 1s : 2 ‘9 et cay nw 511259 5100 na ret tm ape at yt ow SE SNEPME Slime ene Sopp nan Soe pdr gun (a) Cea tha cree hs el pr sar Bar Co ewig th hs a (3 rat (2) Cate nd ci war nga rd yh et ae etal ne ‘ancliysccapale tthe sarees Ba Co, ele that ‘Set peering rt a nant oma (e) Cae an ces te ct ide te ah aud by dfs laste by bck bonds on te ‘octal te Bu Co, at mse y Bs teat overage i Bs bo ae et egy ad ‘i aa) (2 compar snd cot he ancl acta fx tock eared compary teh at Bat Co nd he ‘ancl cece erp erst uch ms ep hay cima (25 art) Page 43 Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of AccountancyFinancial Management Mirchawala Publishing ACCA | ICAEW | CFA ‘Ahmed Shafi Page 39 Mirchawala’s hub of AccountancyMirchawala’s hub of Accountancy Financial Management Anmed Shafi Page 40 Mirchawala Publishing ACCA | ICAEW | CFA__- Indivect Quote (enema axwiole, ae locak auarency Rule OF < Lower role buying higher as) vokes ae Direc Quote (Local currendy | mmutbip Uy. Foxed a Lower rout § Me Eg). bw hod fxchany cobact D Weare in Par & must por 4ooo after Y monty. Rakes ae $f Per speE 0: colb— 0-907 | Lmrt fed o-001f —o-00l8 , | Beoontteat® O0LY = O-Ob)4 C Rog tw mode Pk will be involved in hedgi ing under fed exchange contact We are ia UK + enust pay S000 attr 3 months. Raks ae k/oss spé__0:86 = o-$€ 3 mnt hod 6°87 — 0: 88S rw os4—-oune How mucly £ wll be involved in bette onda, Crud aohange coitock - - ztre Owe ore in VAE and must Pay Sooo Dinar. alte, 2 months Rater are intAED spot ol-old 2 month fwd 0:04 ol 8 a h 0:0R- 0:10 Ron tow mud AED wil) be involved in hedging und fl ex conlve ok: . @ we ore tn USA ¢ will receive To000 Souk Reiyah cher, 6 months Rakes orc: SAR * pot 36-86 [rth fud 34-6 ~ 85-9 Bie Ane Pass Gu ny Sr - 361Wwe ore 19 burope% must pe) $Goo00 movth Rakes are E15 spe 0 AF —0- 98 nate Fad 0°98 — 0 a1 no WR = 3996 rw mache 4 well be involved in hedging onda bhud ex contvact . CRS 2 oO We atein UK* will Por Tooo after 3 mont rales ove? Elk spot — rre-l24 2 maths hud 24-026 2 tt eo teak hae pw mur Su) be involved in hedging, under, wl exchange contyoct . 2. keFinancial Management ‘Anmed Snafl \Gueston: Noa ‘company nr ahas a pay £100 ahr 3 months Sp aes PAR /E 125-280. compeny can ‘borrow in KE. 2 BK pr annum and can deposi in PAR 7 per menu. Company can depen £n.9K ‘eranqum Ban bvrowin £4208 pe anna. Whats he cost im PHR wh MONEY MARKET HEDGE? ‘pst n Past 2% per annum can borrow in PAR at 25% er sanum. can Borrow In DHS at 10 annum cin depen DHS 9% er ann. What te recat PE wth Mt? ‘Question: so Acompiny Usha te pay €3000 afer émonth. Spot te €/ 12.35 2.28, company ean bo ‘ceneper annum can epost in at py pe a, Wea Borrow nS a8 per ennum Ben In § 253% per anu, Whatiscot ln wth MM? BEGOMNE — Of pe annum. ean depaen doa a Page 51 Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of AccountancyMirchawale’s hub of Accountancy Financial Management ‘Ahmed Shafi Mirchawala’s Hub of Agcountancy |Acompanyin UAEhas}ofay000 at ster 6 monte pot a DAS / Ah 0035 .0224) Company ca brow i yea 8% per sour and an depen Rat at pet sen Cmpany fn pot in HS a 5 per sma con oro INDE aC 7H eran Ws the cst nS in MONEY MARKET HOG? 2usston. usa ‘A company Paw cet 3600 YENS shar mann. po tn PERVENS [2 205. Comoe, ‘an dest Puna 25% pe annum ea row PRR pe ana. ean Baraw ENS [10% peau an dapost ENS ALEX pa neu, Whats te recep nM Wh ‘Susion. Na Ushatts pay 00 ahr amon Spe ates 8/ 15-48). Company ch borow Et Inga perannin, whale ebeln Sh ROH? ‘Sussna company puleiand hs trac NCY SR EN te on . root in 108 pe whnum ean aep In ‘Frontneaenotanmedsieh Page 52 Mirchawala Publishing ACCA | ICAEW | CFAMirchawala’s hub of Accountancy Financial Management ‘Ahmed Shafi 4.8.2 Example; Money market hedge (1) AU cmp i Dani bie Ke St 0 owe mets ie Ty wp hae Fesio0= 750 par. Te copay en bsewn Sieg fmt x 880% per aru and (nape tre 3 pom our sn. Wit eh confound whe meey mae ewan wc orn wl epee? ney market hoege (2) lon sf 25020 a tro trey a Sis aay. Ty peo 22810 pe he cero Sng 3 nord 80% pe am” {dan br Sts Frans oS reno i 0 aren Wha oats pounce wth ‘mene are ead wt tifa ae eu pes? 4.8.2 Example: Choosing th cheapest method ‘Truman at out ede oa US np, nd muy 40000 ft tae mona tine Te cpu’ anes araor wale neg spt on thang aan hove meots wc congayasaly eee te + Using tear exer contacts Ut ony matt owt oloncg + atg ie peat: ‘Toa ftovig ana tec an ear ite any eau cor wary Doser Beronnente Desa a Barer et 4 mora ; up 098 40 Sirona 7 Pa 100 vas ‘ectanentepor 01 Sea ‘Siaees os ‘ont oar feases pear? 3 fot fra Hae saa siete aoe ae re orey 3 Setting ap 2 money market 2 foroign carrency receipt lithic wed ron curney ell tom et Torantac roomeersnerth eso Sept cecrmeperan aarti Sup nse nonsooy apd, potaeatetiorert sed -mamamresp (Bape nt (8) Te becan ton Page 50. Mirchawala Publishing ACCA | ICAEW | CFA| 102 Ziggazigto Co (6/12, amended) F7 18 mins “2egmto Co les meu and company whose ard shares ae alway he amber fon tay. The Samet crancy he lai has recy bepn expetg toa Euepen coy an epee Eltopean exons gata Co could cat on pono European courts nan ret at 3% pe et ad borrow at pay. Th company could ot cash on pen ns oe curt at nana ret tof ‘te a and brew 6% pu yar natn he Eropancouy le 3 per ear wns none home our of Zope Co le Spr yor. “Tefen xchange te ate cata to Zope Co: urn spt cng te 2000 ore pers ‘Shomer one hone rte ‘isso re pees ‘ney onward exange ra 1180 sre pes equ (3) Clete wht ores exchange contact 2 & mney art hee wuld be Hrancly preted by ‘peat Cotonede shure sre rc (emer) (0) alate oar exacted (tre) spelt prea by purchasing power ay tory an expan ey eon between De expel (tre) sae and theca few excurgy (marta) (ott = 10 mars) > 1 mescemen leery acetone eae nov eons Rae any rpc oun gh ire er ei (0 erate wot mony matt deo forward mae ees nos reed on Rr ounce ™ pemernatran rt B “Accounts payable management . PKA Co fas tsed 2 foreign supplier for the First ume anc must pay'$250,000 to the supplier in six months" time. The financial manger Is concerned that the cost of these supplies aay fise in cute termis ond hat decided to hedge the currancy tisk of this n-count payable, The otlowing Information has been provided by the comnany's bank: 1 Spot rate ($ ner eh Lage £0,002 &: Six months forward rate (S per: 1.979 +0.004 Money market rates available to PKA Co: : ‘ . Borrowing Deposit one yenr eurp interest rates: 6.1% 5.0% (One year dollar interest rates: 40% 3.5% ber sid that PEA Cohas no surplus eash at the present tle Assume that it ie dow 1 Dee “heauites: Evaluate whather » money market hedge, a forward market hedge or a lead payment should be used to hedge the foreign accouint payable [8 martes) (Total: 25 marks)en ea UO ee Sta aio jet WP verte hiarahide of Pen | Tun F Shy be Fer sau | fay pe Beh So th) too} far paw “be Ved fy 6d xg) [S 600 len foug AMS, Tite ee 7 ea | _ 7932-90 a * —Ticagaeaee Funds stm FSb00 i. ro bf SE ee b - BB) fF tp 5 YA ban ne we 2a 7 Core Gehaver* da, cc tly | 7 ES gle. te rie! [slow tI6. 198 ee a tau lero | mls &> Be 8 | OO ae7 ang co a Arann crest manutacrng arg hem of acer whch dhe ob exported shorty the Usted Sats, The has een peda Us lars he Cink pedo ay 80000 3D ‘This i Malet Cos fst saleto an American clent since most of sexperts normal go to ‘Ala, The client has agreed to pay Mallett Co three months frm now. The folowing relevant additonal informaton i aolable. Spot ate 0.7233 US dolars tothe Australian dollar US doar terest rate 33% per annum ‘Austral dollar interest ate 29% per annum (4) What wil be the Australian dolar receipt I the transaction Is hedged using the ‘money market? A as7sz8 avo 3B a6sss4 AUD cc 1a7m69auD > 1276008 aUD (6) Which ofthe following relatonships suggests that curent long-term Interest rates canbe used to predict future short-term Interest rtes? ‘A Bxpectations theory 8 Fiheraffet © Interest rate party © Purctising power party (0) Whatis the 3-month forward exchange rata? ‘A. (07205 US doles tothe Australian dol 807226 Us dois tothe Australian dol © 07240US dota tothe Australian dollar 0.7261 US dota tothe Australien doll (4) One risk that a company which exports and imports may face Is that of exchange fosses when accountng resus ofits forelgn branches or subldaies are converted into home currency. ‘Whats the name usualy event thls typeof isk? A Ezonomic sk 8 Pola rik © Tranactlon le © Translation rk (e) Why is 2 currency option 2 partculatysultable device to reduce exposure to currency movements when tendering for a contrat priced in afregn currency? ‘A Cheapest means f achieving hedge 18 Least sky means of achieving hedge Least unfivuratleeffetin the publshed acount CZ Ymay state coat an here the crency44 GW Costa company whic is s8e as 2 pool rst or acqulsion by Frail nays. The vake fhe ‘copay ras here been 8 rate f publ abate In veer weaks andthe ‘along ing net e las vor 2009 20102012012 rot ater tx ($m) 858987 “etal ions (Sm) 506256 ‘Staten of acl peson information for 2012 sm Sm Non-curet assets 910 Cunent assets Ieniny 38 ‘ade eosiatles rr) tl assets 33 Eat ace Ordo shares 200 esanes a2 672 Norcure ites 88 bonds 250 (cunt ties 7A “ol tes 33 Te shares of GWA Co have a nominal (gr valu of spa hae anda mat vale of $4.00 er hae The cost of eqly ofthe company i 9% par ya. The business soc of GWW Co has an average prelerings rat 17 tines. The 8% bors are feeamable a ning pa vake of $100 per bond seven ja tine end he efor cot of Gat of GM Co is 6% par ea, ‘The expect rt maliable values of the nan-uent sss ae the inventory ate $86-On and $1-2m, pete. Inte event of eulstn ony 80% ofthe ade rcahabies ar expects to be ale eguteds (a) Caleta the value of GW Co wsng the folowing methods: (©. macht capitation equity mace vai), (@ et asset value (iguldaton basi, (ah plclearings rao method using the bsiess sector average pleesnigs ai: (i dviand growth mol eng (1) the average strc dvdend growth rate; (2) Gordons growth model heb, mae, ‘The total mari wil be spit equly betwaen each prt 0 mars) (©) Discuss the rate mers of the valuation methods In pt (a) shove In datrmbing » purchase pce fr ‘curw co, ‘Bnacis) (6) Calcite the folowing values or GW Cor (the bao mace voi ofthe Bonde of Wo, Gebel ai (bok vale bac (i) debvegly ai markt value ba) Discuss the uel ofthe deal rato In assessing the fnncia ek of GWW Co, ‘The ttl mar wl be spit equal between each part, 7 mes) (25 matis) 5 (Pr,The fair sonar test questo 21 25. ing ota nine onary shares with 2 rominal vale of $025 et swe Tha shoes a vas onan fier: pla rare saw 2086 ond eompuny hes it bd 8 Odes SO per sae Recan hens te vat 20x 20X58 20x4 20K 200 r Dwitenspershwe S450 so428 $0408 $0389 $0270, ‘ig Cosa ha in su on ots wh a edenmabi i sevan Rate a thro ale $100 per oan “The nae ecto ing Co wins fo seine he vate he company. fing co rasa cist teu of 10% per yea refrac of et of 4% payne. The conan say comer 21 Using the vend growth model whats We mara veh ofeach edna hae? 8 $00 © $945 8 si1201 © sles? 23 The foance nt of ing Co has bun ado cate ha at asst ae INAV fe coma. ‘Woe of he tong formule cen ceracty the NAV of Rng ot 1 Non-carent ases ls a cae ases Nana ass ls cert ase ss ais 1D Nonsense nt cen eet es non cure tater 24 Whit fhe allonng stalaments about valuation meted tet 1A The cogs ye ts ips eons Wyte earings yes 8 The eqy mate valu snub fshaes lips by shat pice, ps he mit veo bt {The cet vataon mee! makes the uveasorabi asuraon ta merage Godel ott 15 The pcan avo mano den exrrge by the clergy obserie Cs company tat sed on a mae sock exchange. The company hes suse to mini pibly Inthe le to years ef oar exaromie cnon ins home curry and as acorequenc has Ged nl {© py-a dicend in the cnet year Howe, hr te now tg tenor recovery apo Calg Co ‘optic that payment of didende can be resumed in he have. Feast nan norman fing fo Te cmpany i as allows: ver 1 2 3 Ewrngs $000), 3,000 3500 4.300 Divcers 000) ‘i ‘500 1.900 The company i apie that ning and dee wi nresa afer Yet 33 constant annua ae of 3% pes CofC carenty has a ble cost of det 5% pu year and an equ bao 1-6, Ona mare ave bss, the company i curentyfranend 75% by aquy and 25% By Seb ‘ut te couse of th at vo yar th company ace fo ee i ging nd was abet ede 9 ge ‘aroun of et. ice tee ee now Ga sg of economic eve, Ca Copan ae fer deta ase {o modernise some a i once sels on supp the expected gowth in earings. This aol deb auld man ta the capt suc the company would change ard would be nancea O% by equty and "40 oy ct on amare oun tai. The bore tak co of Cre Co weld insease 1 BX per Ya 2 ‘he ety beta of Cag Co wold ncase 2 “Theiss ale olen s 4% pry nthe ey hk prema 8 pa yer nda sme ecanamie 2ctvy te goverment has reduced ott ax at freeones to 20% per eat The cuen verage pienso of ed companies sar to Cat Cos 5 ies. Roquked (a) Estimate the value of Calg Co using the pielaings rato method and ici the useuess of the variables at you ave ose (dma) (2) Caletat the cunt costo ly of Cai Co and, using ts value, ealealate te value of he company slg the eden valuation mal. (Sans) () Calelte the cunet weight average after cost of capa of Cthig Co and the weighted averee stertax cat of capt fellowing he new debt su, and comment on th ference betwee thet ales. 16 mass) (Discuss how the sharholers of Cote Co can ass the pling In each case the ature ofthe ik bing assessed ent to which they face the ftowing rk (0. Business risk (0) Flaca ek, (ap systema k. (@ mais) (25 mats) 7 (ro.Financial Management ‘Anmed Shat QV Sates povins Fendd were 100,090 OOS wee J 300,050 wile Op. dap wor | 190,060, weve (octal, “Seercoseg tb $0,050 “soul” Soh nasa et tet we aera intent 90,080. Cnet rake“ cena metas 20,080 . Grevele” rake He G7, wile tok ¢\ Casita won IS] Ter ah 2 Leggs Bintan Vane Cadet, |vea: Caskgton maloed, Sa UY) $b QE trekinle Deprenatte. of a bemee s Qr Sates jor Hae Pears 4 : Dini unre _& Hoo, e00 ah kip unre ¥ 200, india dng iedaties Qf 60,600 = Witey derrsa $50,005 and Cash ineaded for Oral’ Teylacement sa § tog 050. 7 Say Gl ne ab ee 19]. dt enbareg = BLO Obed : Ay amis, Are pups ted othe YP ecee Sere wale si 2 dove Wing te $A |Man 7 =. trades ok C120] Gop newual yu bate LQ 2 Bee ton tet dude G6] = Fix tore Le S01 2g! 4 vn free Cooipiow Matod = Ue free vue GIB. Ounat mapuket reinrn “te (SF Be Pago 61 Mirchawala Publishing ACCA | ICAEW | CFA Mirchawala’s hub of Accountancy{, Inen O10 S000. ond lod! a ei vcenfory conlvads v 6 cell Cus Customs tn Ud jce of 0 ( BO a ao ee Het) i. ual, obe fons eveoe & lisplon 2 by]4 cel! Witenes m C40 C4£yose di la {it 12D Lene, 0. i (adie if iG in iy “gli nol 47 Qs owe \ a) ae oY doe slasdeed ic oro \ ces sa Pe - Sai Wig Sper Nar ) tes ee (on stf syes ioe 2 Boece - 0 eaptrtak Sf te Oe tee soblakenD:ts welt (4 2m 14)(tt fende Lint ind He cogs tats Cut Lovet: " a Ld goed Hk Lalas ie i ac| Management PAGE 68 X ple has the following figures {tom ils mosl recent secoun! Récoivables eee eee eee Trade payables ie era ee ee Avarage raw material invenlory —— rs Avstage WIP inventory ——————_= tS Average finished goods inventory. ——————+2 - Siles (80% on ca oe Materials usage Sag t Materials purchases (all en credit) —________—~ 18 Preduelion cost a a : Coat of sales aaa yes Te fequired! SCaléulsite the relevant working capital ratios. Round sour answer sts the Agares| day.” - vital mumsapenicnt I Py MUilustration 2 — Working capital inve | X ple has the following expectations for ie aye oF ACC “Sales. * : Moalerials @ » "Other costs a . Profit 23 ie following working capital ratios are expecied lo apply. ; i entory Gays 30 dey | Receivables days oer 1 Payables days > geea J , ak taihnd guclasi's poltiy. ad Meat, Mat cnn te sale cheat £8aoe YT TV VY ¥ ¥Heh tety rp oe ne?(e2) iy a‘a (DEC 07) PKA Co is a European company that sells goods solely within Europe. The rece appointed financial manager of PKA Co has been investigating the working’ cap! Management of the company and has gathered the following information: Inventory management The current policy is to: order 100,000 sunits when the inventory level falls to 35,000 units. Forecast demand to meet production requirements.during the next year is 625,000 units. The cost of placing and processing an order is €250, while the cost of holding a unit in stores Is €0.50 ‘per unit per year. Both costs are expected to be constant during the next year. Orders. are received two weeks after. being placed with the supplier. You should assume a $0-week year and that demand Is constant throughout the year. | Accounts receivable management s’ credit, but the financial statements of PKA Co ble period in the last-financial year was 75 days. The a percentage of sales, which are all on to 8%. Domestic customers are allowed show that the average accour financial manager also n credit; Increased in the la: sre Accounts payable managen PKA Co has used a foreign supp 0 first time and must pay $250,000 to the supplier in six months’ time. The financial mariager is concerned that the cost of these supplies may "rise in‘eufo terms and has decided to hedge the currency risk of this account payable. The following-information has been provided by the company’s bank; Spot rate ($ per €): 1.998 + 0.002 Six months forward rate (5 per €): 1.979 + 0.004 Money marker rates availa die to PKA Cot Borrowing Deposit One year euro interest rates: - 6.1% 5.4% ‘ One yéar dollar interest rates: 4.0% 3.5% Assume that it is now 1 December and that PKA-Co has no surplus cash at the cy quired: U NT AN ee i. the ain rae Sin Nene and discuss the conflict may arise between (3-FLG Co has anual credit sales of $4-2 million and cost-of sales of $ assets consist of inventory-and accounts receivable. Current liabilities cor payable. and an overdraft with an average Interest rate of 7% per year. The two months’ credit to its customers and is allowed, on average, One month's. cre suppliers. It has an operating cycle of three months. Other relevant information: Current ratio of FLG Co : 14 Cost of long-term finance of FLGCo _ “1a Required: (a), Discuss the’key factors which determine the level of investment In current assets. (6 marks) {b} Discuss the ways in * management of accoun: é {c) Calculate the size of the of FLG Ca, the-net + wordfte capital of the ng Ks current assets: | + ie (6 marks) {d) FLG Co Mihes to minimise its inventory costs. Annual demand for @ raw’ material costing $12 per unit is 60,000 units per year. Inventory management costs: for this raw material are as follows: ks per one Ordering cost: : ~$0:5 per unit per year Holding cost: : The supplier of this raw material has ‘offered a bulk purchase discount of 1% . orders of 10,000. units: or more. Jf bulk purchase orders are made regularly; expected that annual holding. ‘cost for this raw w material will increase to $2 per year. Required: (i Calculate the total i. of in economic ord. ir - ce alit) Determine whi ee the ‘discount oftered Aap . minimise the total‘cost of inventory for the raw mate: a3) PlotCo sets both Product P and Product Q, with sales of both products occuring evenly throughout the year. Product P The annual demard for FreductP is 300,000 urits and an order for new inventory is placed each month. Each order costs $267 to place. The cost of holding Product P in inventory '5 10 cents per unit per year. Butler inventory equal to 40% of one month's sales i maintained Product @ ‘The annual demand for Product Q is 456.000 units per year and Plot Co buys in tis product at $1. per uit on 60 days credit. The supplier has offered an ealy settlement ciscount of 1% fr satlemert of invoices within 30 days, Other inforation Plot Co finances working capital with short-term finance costing 5% per year. Assume that there are 365 days in each yeas Required: (a) Calculate the fallowing values for Product P: (0 The total cost of the current ordering poticy; (marks) (The total cost of an ordering policy using the economic order avantty: mais) Gi) The net cost or saving of introducing an erdering policy using the economic order quantity, (1 mark) (0) Calculate the net value in dollars to Plot Co of accepting the early settlement discount for Product Q. mots) (€) Discuss how invoice discounting and factoring can aid the management of trade receivables. (6 marks) (2) Wdentity the objectives of working capital management and discuss the central role of working capital ‘management in financial management. (7 masks) (25 marks)Poe Ae Sur PE. Apne PyF co 16 Hooked fa wha lady Teres Are & folios: ir {7 fay wil be w 0 Gen eve) bore . fader wil! charge a 4 o¢/ al lutnpata - facl& will Advare Fo/ Wind\ at int va | [- Qbbue Cured C : Opa Fann claimt be wil | veclue calleclér Penod 2S GOY! G Chee aah WUE 18 1-51 of coh Ser face Wf chaqe 4 area ye ¢asoov (uy. vidoe 0 ft ua wothThe finance director of Widnor Co has been locking to improve the company’s working capital management. ‘Widnor Co has revenue from credit sales of $26,750,000 per year and although its terms of trade require all credit ‘customers to settle outstanding invoices within 40 days, on average customers have been taking longet. Approximately 1% of credit sales tuin into bad debts which are not recovered. Trade receivables currently stand at $4,458,000 and Widnor Co has a cost of short-erm finance of 5% per year. The finance director is considering a proposal from a factoring company, Nokfe Co, which was invited to tender to manage the sales ledger of Widnor Co on a with-tecourse basis. Nokfe Co believes that it can use its expertise to reduce average trace receivables days to 35 days, while cutting bad debts by 70% and reducing administration costs bby $50,000 per year. & condition of the factoring agreement is that the company would also advance Widnor Co 80% Of the valve of invoices raised at an interest rate of 7% per year. Nokfe Co would charge an annual fee of 0-75% of credit sales. ‘Assume that there are 360 days in each year. Required: (a) Advise whether the factor's offer is financially acceptable to Widnor Co. (7 marks) (b) Briefly discuss how the creditworthiness of potential customers can be assessed. (3 marks) (10 marks)(Total = 20 marks) 81 KXP Co (12/12, amended) 39 mins, KXP Co is an e-business which trades solely over the internet. In the last year the company had sales of $15 million. ‘All sales were on 30 days’ credit to commercial customers. Extracts from the company s most recent statement of financial position relating t6 working capital are as follows: $000 Trade receivables 2,456 Trade payables 2220 Overdraft 3,000 In order to encourage customers to pay on time, KXP Co proposes introducing an early settlement discount of 1% {or payment within 30 days, while increasing its normal credit period to 45 days. Itis expected that, on average, 50% of customers will take the discount and pay within 30 days, 30% of customers will pay after 45 days, and 20% of customers will not change their current paying behaviour. KAP Co currently orders 15,000 units per month of Product Z, demand for which is constant. There is only one supplier of Product Z and the cost ot Product Z purchases over the last year was $540,000. The supplier has offered a 2% discount for orders of Product Z of 30,000 units or more. Each order costs KXP Co $150 to place and the holding costis 24 cents per unit per year. KXP Co has an overdraft facility charging interest of 6% per year. Required (a) Calculate the net benefit or cost of the proposed changes in trade receivables policy and Comment on your findings. (S marks) (b) Calculate whether the bulk purchase discount offered by the supplir is financially acceptable and comment ‘on the assumptions made by your calculation. (5 marks) (c) Identity and discuss the factors to be considered in determining the optimum level of cash to be held by a ‘company. (5 marks) (4) Discuss the factors to be considered in formulating a trade receivables management policy. (5 marks) (Total = 20 marks)Cdeclt » fnnsiel Zach tion) 2 cp a ee SS Sesuritisntion pearl’ ittiguid Aigele jrbo Asset Backed shares => Yield Gap Yield on shaver is higher thea debt boy p > vised Yield Gof Yield om shares is Lowes theo _ ‘ Leb Aeaty pas Ket Sine bonenbe jean sy Money Moarlcet clefosit (SB bose 2) Cov’ 3s (cestficabion Debo.. 4s ie 2) Rebes (aed i pe WY) Zommercial bher (cerb{icatin leg ee 5) Bankers Acc oftanre (sesh ag oy yt mate se amg i ‘eink at ots a a A Ciitcipel the Meade eaeifiale iaiuell againat deposile feeBien re ( sPavchatles,, Coslores , bat, Supplions C Gout commenily , Reputadtord bots) th 1- Managers ae eats Godot ‘d q , Pea Scheme fo eacevrege Qcheevemenk_ Cr elder of jechiver ie Peo Sar AS “a 42 NS must enehore | > Perfor mane plated bey S share chhin ghemer, _ slawe Fe _sowev Be Achievemek of 36's a Economy ( av relowter vt towert Cost) ’ ; D. Efpreieny (ar ovkBak from maninom inbab) 3) Bhai ocasvrneh of jes) SeaSina curse tijd. Agel gabandeet Backed shaver => Yeetd Gu Yield on shaven is Riyker then debt Reverse 5 => Revised Vield Gap Yield ou shames is Lowes then Md) oe Basket Tnstomeats \Cevtifie Lendl againat, yu Ae Kes F doy me Q) Money Mariel defostt (cov ufiel 2 Con's (cestfieation Defooorts eee, ee eee edn cake a) Refes (casbiticaion Vek ssa cd Teche is gone pincer 6 UW) Gommereiut babes (cosh {cation leghie oe S) Bankers Acceptance (cesbijebor Fa ae Ried i ha ya Me ; toate / (tured ad fricips ty He baw:cee SES al Silvellon uate dex J ysers of finance. dead directly, Eee Ae — — ae Splatt (betes, Pomeiiol Tat teins) a fe 5s R Capel! ples R ERE a) |S See BY Eve cortney etek (GREE. > Sexwsibisalion + Corsatling Ubud Agel jae Ask Backed sRavea on shares is higher then dob yield Gok \ Reverse - p => Revised Viold Gag Vield own sharers is Lowes then clebt . Md) oe Basket Tnstomeats / \ Certifie us yl oe §) Money Miniet deposit (cor bm Rctout 7 ange Fite waned apt Lo D) Cops (cesifention © bebe ip i ada Ze i 2) Retns (cesbificabion Vik speed Belk ait goa nie UY Commercial habes (cosh {cation leghie oe Sat Be Aewetiance (conti ienbion Coy man rea ee : en rh ‘ tHe Pt ‘ ‘tured ad pricing te He baubt- ager MRTG TR ge mm amma aaas Yerencen Leben Sinanciad accovui Pi foment a Einaeciod z 4) Goncemed uate hook only D) Require hy Sor QD) formed oh fer lasded (ers) |2) No begal regurrenet u\ Monehors nabre D) Formek aA fer monagemen (ay Alan March fe Moncton both : Dbiechves, oe Sb ) Sofende. Financial yonl-Fnaaciedl cease objet pbjechue Misbne af fot fiaacad Pope eal v ane ce z coe risa ER _Wt See ver e,s SMV Yryyyyy Inv oc (eT, |