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(solution) FIN303 Financial Management Assignment 1 - Individual


Detailed workings and explanations required in this assignment. Much Thanks! Would appreciate if full workings could be compiled.


FIN303

 

Financial Management

 

Assignment 1 - Individual Assignment/TMA01

 

July 2016 Presentation FIN303 Assignment 1 Individual Assignment

 

This assignment is worth 25% of the final mark for FIN303 Financial Management.

 

The cut-off date for this assignment is 14 October 2016, 2355hrs.

 

In this assignment, you are expected to:

 

?

 

Compute and interpret financial ratios

 

?

 

Evaluate investment proposals

 

?

 

Apply knowledge to decide appropriate financing plan and dividend policy

 

___________________________________________________________________________ Modern Technology Corporation is involved in manufacture and sale of computer hardware.

 

It was started in 2010 and has shown considerable growth. The financial statements of

 

Modern Technology for the years 2014 and 2015 are shown in Exhibits 1 and 2. Exhibit 1

 

Modern Technology Corporation

 

Balance Sheets as of December 31 ($ in millions)

 

Assets

 

Current Assets

 

Cash

 

Accounts Receivables

 

Inventory

 

Total

 

Fixed Assets

 

Net Plant and Equipment

 

Total Assets

 

Liabilities and Owners' Equity

 

Current Liabilities

 

Accounts Payable

 

Notes Payable

 

Total

 

Long-term debt

 

Owner's equity

 

Common Stock and paid-in-surplus

 

Retained Earnings

 

Total

 

Total Liabilities and Equity

 

Number of shares outstanding SIM UNIVERSITY 2014 2015 84

 

165

 

393

 

642 98

 

188

 

422

 

708 2731

 

3373 2880

 

3588 312

 

231

 

543

 

531 344

 

196

 

540

 

457 500

 

1799

 

2299

 

3373

 

33 550

 

2041

 

2591

 

3588

 

33 Assignment 1 ? Page 2 of 4 FIN303 Assignment 1 Exhibit 2

 

Modern Technology Corporation

 

Income Statement for the year ending December 31 ($ in millions) Sales

 

Cost of Goods sold

 

Depreciation

 

EBIT

 

Interest

 

EBT

 

Taxes (34%)

 

Net income

 

Dividends

 

Addition to retained earnings 2014

 

2180

 

1199

 

260

 

721

 

160

 

561

 

191

 

370

 

122

 

248 2015

 

2311

 

1344

 

276

 

691

 

141

 

550

 

187

 

363

 

121

 

242 ___________________________________________________________________________ Question 1

 

Analyse the financial performance of Modern Technology by calculating the following ratios

 

and by explaining the changes in ROE. Return on equity

 

Gross profit margin

 

Net profit margin

 

Total asset turnover

 

Debt/Total assets

 

Equity multiplier

 

Current ratio

 

Quick ratio

 

Receivables turnover

 

Inventory turnover

 

Payables turnover

 

Fixed assets turnover

 

Total debt ratio

 

Debt-equity ratio

 

Times Interest earned

 

Return on assets 2014

 

16.09%

 

45.00%

 

16.97%

 

0.646309

 

31.84%

 

1.46716

 

1.18232

 

0.458564

 

13.21212

 

5.547074

 

3.842949

 

0.798242

 

31.84%

 

46.72%

 

4.50625

 

10.97% 2015

 

14.01%

 

41.84%

 

15.71%

 

0.644091

 

27.79%

 

1.384794

 

1.311111

 

0.52963

 

12.29255

 

5.476303

 

3.906977

 

0.802431

 

27.79%

 

38.48%

 

4.900709

 

10.12%

 

(30 marks) SIM UNIVERSITY Assignment 1 ? Page 3 of 4 FIN303 Assignment 1 Question 2

 

The beta of Modern Technology is 1.1. The risk-free rate is 4% and the market risk premium

 

is 7%. Calculate the cost of equity of Modern Technology.

 

(10 marks) Question 3

 

The dividends are expected to grow at a constant rate of 5% every year for a long period from

 

2016. Calculate the stock price of Modern technology as of January 1, 2016.

 

(10 marks) Question 4

 

Long term debt consists of 10 year bonds issued on January 1, 2013. The bonds bear coupon

 

of 8% paid every 6 months at the end of June and December every year. The current yield to

 

maturity of these bonds is 9%. Calculate the market value of long-term debt as of January 1,

 

2016.

 

(20 marks)

 

Question 5

 

Modern Technology is planning to generate a new device which would require investment of

 

$10 million. This new device will produce cash flow of $3 million at the end of every year

 

for the next 5 years. Calculate the net present value of this investment. Use the cost of equity

 

calculated in Question 2 as the discount rate.

 

(15 marks) Question 6

 

Working capital management is vital for the operation of a company. Discuss the issues that

 

should be considered in managing working capital.

 

(15 marks) ---- END OF ASSIGNMENT ---- SIM UNIVERSITY Assignment 1 ? Page 4 of 4

 


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