JIMMA UNIVERSITY

COLLEGE OF BUSINESS & ECONOMICS

DEPARTMENT OF MANAGEMENT

Program: Master of Business Administration (MBA)

Year 1: Semester: 2
Course Title: Financial Management

Lessons taken from cases provided in lecture form

Student Name ID. No

1. Nejash Nasir………………………………….RM/0105/16-1

Submitted to: Dr Matewos K. (Phd)

June 3, 2024
LESSONS TAKEN FROM CASES WE LEARNED IN CLASS

# Case one:
➢ Navigating Agency Problems: From the case I understand there is personal interest in the
company’s common goal. Understanding how to solve this problem is an important issue
in achieving the common goal.
➢ Importance of Corporate Governance: The case focuses on the role of corporate
governance mechanisms, including independent board oversight and transparent financial
reporting, in avoiding agency problems.
➢ Aligning Incentives: preparing incentives will enhance employees’ morale and increase
productivity at organization level.
➢ Enhancing Transparency: Providing necessary information for concerning body will
support to have a wise resource utilization, businesses performance and create
transparency.
➢ Investor Education: educating the investor about agency problem and corporate
governance will also another important issue to solve underdeveloped financial
management.
➢ Generally, this case study provides how to identify the available problems in organization
and how to solve the existing problems in better way.

# Case Two.

In this case the challenges that faced by CFOs in balancing corporate growth and share holder
value maximization is identified

❖ Capital Allocation Dilemma: It is a must for CFOs to carefully assign resources between
investing in organic growth, acquisitions, R&D, or returning capital to shareholders
through dividends or buybacks.
 ❖ Risk Management: Plan for growth will carry some issues some risks like operational,
financial, or strategic risks that must be avoided by CFO.
❖ Market Expectations: CFOs need to effectively manage shareholder and market
expectations regarding growth prospects and financial performance.

The case study outlines strategic approaches for CFOs, such as strategic planning and capital
budgeting, to align investment decisions with long-term objectives and shareholder value
creation.

Overall, the case emphasizes the delicate balance CFOs must strike between corporate expansion
and shareholder value maximization, and the need for careful, strategic decision-making to
reconcile these potentially competing goals.

# Case Three.

A. Financial Ratio Analysis: financial ratios for the XYZ Manufacturing Company and the
industry average for the year 2023 is presented by the case. This analysis helps to make a
comparison within the industry.

B. Ratio Evaluation: It is known that to do more detailed analysis is to evaluate company’s

performance, but if financial ratio is better than industry average it shows the company is better
than competitors.

C. Recommendations for Improvement: The case study asks for recommendations to improve
the performance of the XYZ company. This would require a deeper understanding of the
company's operations, competitive position, and strategic goals. Potential areas for improvement
could include optimizing costs, improving efficiency, enhancing product quality, or expanding
into new markets.

At all, in this case analyzing the financial performance of the company s made ,but more
evaluation is necessary to give recommendation.
# Case Four.

In this case key calculation and projection is presented for a given company

❖ Calculating Additional Funds Needed (AFN): This helps to decide the amount of
additional funds the business needs to finance its planned sales growth.
❖ Forecasted Total Assets: By using the asset turnover ratio, the case calculates the
forecasted total assets based on the expected sales growth.
❖ Forecasted Increase in Assets: This calculates the increase in assets required to support
the projected sales growth.
❖ Forecasted Increase in Accounts Payable: This projection estimates the increase in
accounts payable based on the cost of goods sold and the net profit margin.

In this case all necessary data is provided such as current year's financials, sales growth rate,
asset turnover ratio, and accounts payable turnover ratio, to perform these calculations.

# Case Five

From this case I understand the below points.

Objective of the case:

❖ The instructor aims to help students apply various capital budgeting techniques in a real-
world scenario.
❖ It emphasizes the importance of considering both quantitative and qualitative factors in
investment decisions.
❖ Investment Projects: Azure Lodging is evaluating three potential investment projects:

Project A: Coastal Resort Development in Myrtle Beach

Project B: Urban Hotel Renovation in Atlanta

Project C: Boutique Hotel in College Town, Athens

Each project has distinct characteristics, such as initial investment, expected cash inflows,
project life, risks, and strategic fit.

Financial Analysis:

❖ The management team is tasked with evaluating the projects using the following capital
budgeting techniques:
❖ Net Present Value (NPV)
❖ Internal Rate of Return (IRR)
❖ Payback Period
❖ Profitability Index (PI)

This case provides a comprehensive set of information for students to apply their financial
management knowledge and skills to analyze the investment decisions facing Azure Lodging.

# Case Six.

As a student of financial management, the key insights I gather from this case study on the
capital structure decision at XYZ Manufacturing Company are:

Teaching Objectives: Explore the implications of changing a firm's capital structure in a

practical context.

Apply capital structure theories, such as the Modigliani-Miller theory, and evaluate the impact
on the firm's financial health.

Impact on Return on Equity (ROE): The proposed change in capital structure has the potential
to increase shareholder returns through a higher ROE.

Tax Shield Benefits: The increased leverage provides additional tax shield benefits, adding
value to the firm.

Financial Distress Costs: The costs associated with financial distress, such as higher interest
rates and potential bankruptcy, must be carefully evaluated.
Analysis: The analysis concludes that the tax shield benefits, and higher ROE must be weighed
against the financial distress costs.

Macroeconomic Assumptions:

Sensitivity analysis should be performed to assess the firm's financial health under various
economic scenarios.

Comparison with Industry Standards:

Understanding industry benchmarks helps gauge the competitiveness and relative financial
standing of XYZ.

Stakeholder Impacts:

The decision's impact on shareholders, creditors, and employees must be considered and
communicated effectively.

Conclusion:

The decision to increase leverage must be justified by strong operational performance, as per the
trade-off theory and Modigliani-Miller theorem.

The case provides a comprehensive analysis, allowing students to explore the complexities of
capital structure decision-making in a real-world context.

# Case Seven.

I understand the below points from the given case study

NPV Calculation:

Project A: Coastal Resort Development (NPV = $5.68 million)

Project B: Urban Hotel Renovation (NPV = $8.29 million)

Project C: Boutique Hotel in College Town (NPV = $14.12 million)

IRR Calculation:
Project A: 16%

Project B: 18%

Project C: 20%

All IRRs exceed the required rate of return of 10%, indicating the projects are viable.

Payback Period Analysis:

Project A: 5 years

Project B: 5 years

Project C: 5 years

The payback periods are reasonable, further supporting the project viability.

Profitability Index (PI):

Project A: PI = 1.13

Project B: PI = 1.28

Project C: PI = 1.71

A higher PI indicates a more desirable project, with Project C being the most attractive.

Risk Assessment:

Project A: High tourist seasonality and hurricane risk

Project B: Economic downturns and competition from new entrants

Project C: Fluctuations in college enrollment and local economic conditions

Generally, this shown me qualitative and quantitative analysis is very important and and plays a
vital role in the success of opening and expansion of the business.