ayma0_ - Financial Management
alr2shdi
Finalfinancialmanagement2.docx
Guidelines for Students to Submit the Assignment:
1) The final assessment for semester 2, 2019-20 will be done through comprehensive assignment for a maximum of 50 marks. The schedule of the final assessment is available in the college website. https://www.hct.edu.om/about/the-college/announcements/final-assessment-timetable-041620
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Case studies
(Suggested time: 48 hours)
Instructions: Read and analyze each case carefully. Answer all the questions.
Case I: (2 +3= 5 marks)
Uniliver Corporation is a well-established Trading Company in Muscat. It belongs to top performing companies in the country and they got numerous awards for the past years for their good performance in the market. The Finance Manager, Mr. Ahmed is tasked to make the impossible, possible. The company needs provide regular salary to their 6,000 employees, pay all their suppliers on time which at present, available cash will not enough since their collections are very slow due to COVID 19 issue; which is affecting all economic activities in the world.
From the above scenario, answer the following questions below. (Minimum word count for answers in case study is 50-100 words)
a. Identify and explain at least 3 main functions of Ahmed as financial manager, displayed in the case. (3 marks )
b. If you were Mr. Ahmed what would be your recommendations on how and where they can get the funds for the company requirements? Justify your answer. (2 marks)
Case 2 (2 +3= 5 marks)
Mr. Badar, the CEO attended the meeting on first week of January, 2020, and discussed with the Board of Directors in opening a new investment venture as part of their expansion. To do so, the company needs an additional capital of RO R.O 1,000,000 and they all decided to assign their marketing and finance departments to prepare a business plan for new investment venture before their next meeting on June, 2020.
The following are some of the considerations which the Board of Director may look into: (1) The stock’s price for oil and gas companies are very low,(2) real estate business is promising and government treasury bills is also available since the Muscat Security market opened the market for trading. (3) They have to think on some sources of financing for the project.
The stakeholders learned about it and they made a petition for the decision of the Board of Directors on the ground of impracticality due to the current crisis that the returns will not be realistic.
From the above scenario, answer the following Questions below. (Minimum word count for answers in case study is 50-100 words)
a. Which investment venture they should select? Explain your answer by highlighting the potentials of the new venture. How they will finance it? ( 2 marks)
b. Would you agree on the argument of the shareholders? Analyse on how the shareholders can influence the company Board’s decision? (3 marks)
Case 3 (2 +2+1= 5 marks)
Ms. Bushra has been working as a bank manager for a long period of time. She was promoted from her previous position as head of loans division. She is very knowledgeable on the Central Bank rulings and policies regarding interest on loans and deposits.
Being exposed on the workings on accounts, loans management, she was offered to become consultant of the biggest investment company in the country. As a consultant, she is offered higher salary and bigger benefits and it’s a big break on her career, so in the end; she accepted the offer.
She looked into the current events happening the financial market:
· Currently, the Muscat Security Market is reporting growth in the market index and it is showing positive indications of moving forward.
· The BP (Britain Pound- sterling) as presented in the exchange rate chart is showing increase against US Dollar stating mid of April till end of the month.
· Falcon Insurance, a subsidiary of Al Anwar Holding, float an initial public offering on the Muscat Securities Market (MSM).
· Oman Reinsurance Company - will issue shares to the investing public.
The recommendations and suggestions are vested with the finance manager now.
From the above scenario, answer the following questions below. (Minimum word count for answers in case study is 50 - 100)
a. If you were Bushra, in which types of Financial Markets would you recommend for them to invest based on the above 4 current events? Justify your answer. (3 marks)
b. How would you explain the risk and return trade off of each financial markets you have chosen? ( 2 marks)
CASE 4 (2 +3= 5 marks)
1. Following the EOQ model, Khamis Footwear sells an estimated 8,000 of pairs of shoes, quarterly. It estimated order cost per year is R.O. 20 with corresponding R.O 80 holding cost per year.
a. Solve for EOQ ( 1.5 marks)
b. If there will be an increase for demand for pair of shoes for 40% with corresponding increase of 10% in order cost, what will be the new EOQ? (1.5 marks)
b. Based on the computed EOQs, what can you recommend to the company (1mark)
CASE 5 (2 +3= 5 marks)
Mr. Hakim the CEO of ABC company is not very happy regarding the liquidity status of the company. According to the reports of finance manager there is possibility of short fall of cash for the next months to come. So he is thinking now, on how company can effectively maintain the efficient cash management? He even hired Ms. Marya, as external financial analyst to help in deeper analysis of the company’s cash conversion cycle.
The following are the data are provided to Ms. Marya :
· The credit purchases during the year is 200,000, while the accounts payable at the beginning is 150,000 and it became 50,000 at the end of the year.
· The total COGS is 200,000 while the ending inventory is 150,000 and the beginning inventory is 200,000.
· The credit net sales is 950,000 during the year, while the debtors at the beginning of the year is 60,000 and becomes 120,000 at the end of the year.
a. By using 365 days in a year, calculate: Cash conversion Cycle ( 3 marks)
b . If The target CCC of the company is 3 months,, compare it with the your computed CCC, what is the result? Analyse and give recommendations to the company. (2 marks)
CASE 6 (2 +3= 5 marks)
Z and K company is a partnership manufacturing company. One of the partners Mr. Zack was so sad on the day that he learned that the company he has built and worked hard almost all his is not doing good compared to last year performance. They have enough cash, they are very have high liquidity but what really went wrong?
He decided to talk to his partner who is his cousin whose specialization is more on sales and marketing and they decided to hire a finance manager.
Mr. Ali, the newly hired Finance manager was hired based on his experience and strong credentials. He gathered all the data needed and studied it f or one week. They scheduled a meeting and asked Mr. Ali to do presentations on the issue. Mr. Ali found out that the main issue is capital budgeting, the company is not following the correct process. For example: they have don’t know how to match their funds with short-term or long term investment. They don’t know how to analyze the returns of their investments. Sometimes when they bought new machine they don’t even check that it is better to rent than buy new one.
From the above scenario, answer the following Questions below. (Minimum word count for answers in case study is 100)
1. If you were Mr. Ali, how would you present the importance capital budgeting as well as the whole process to the owners? (3 marks)
2. What solutions can you propose to them to resolve the issues? (2 marks)
CASE 7 (4+1= 5 marks)
1. Assuming that BCD company is in the considering to engage in a new business venture and some investment companies submitted proposals to them with the following information:
|
Project |
PROPOSAL 1 |
PROPOSAL 2 |
|
Initial Investment |
300,000 |
250,000 |
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Estimated Life |
5 YEARS |
5 YEARS |
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Scrap Value |
20,000 |
10,000 |
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CASH INFLOWS: |
|
|
|
Year 1 |
50,000 |
25,000 |
|
Year 2 |
50,000 |
75,000 |
|
Year 3 |
120,000 |
80,000 |
|
Year 4 |
120,000 |
99,000 |
|
Year 5 |
150,000 |
100,000 |
|
Total Cash Inflows |
|
|
In addition, the standard discounted rate set by the company is 14 % for both proposals, refer to the table below.
Based on the above details solve for:
a. NPV for 2 proposals (4 marks)
b. If you were the owner of the company which proposal would you choose based on NPV? Explain your answer. (1 mark )
CASE 8 ( 4+1 =5 marks)
1. Mr. Been received 2 is an owner of biggest hotel in Salahlah and he wanted to open new business in Muscat. He is considering 2 choices: restaurant or hypermarket. Has initial capital of R.0 800,000. His accountant showed him the projected cash flows:
|
Year |
Restaurant |
Hypermarket |
|
1 |
160,000 |
100,000 |
|
2 |
180,000 |
250,000 |
|
3 |
200,000 |
300,000 |
|
4 |
250,000 |
400,000 |
|
5 |
600,00 |
300,000 |
a. Payback period for 2 proposals (4 marks)
b Which proposal would you choose based on payback period ? Explain (1 mark)
Case 9 (4+1 = 5) This is the Financial Statements of 2 textiles companies: AB and CD:
|
Particulars |
AB Company |
CD Company |
||
|
|
|
|
|
|
|
Income Statement |
OMR |
OMR |
OMR |
OMR |
|
|
|
|
|
|
|
Sales |
|
250,000 |
|
160,000 |
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Less: Cost of goods sold |
|
|
|
|
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Opening stock |
90,000 |
|
30,000 |
|
|
Add: Purchase |
210,000 |
|
120,000 |
|
|
|
300,000 |
|
150,000 |
|
|
Less: closing stock |
(110,000) |
(190,000) |
(50,000) |
(100,000) |
|
Gross profit |
|
60,000 |
|
60,000 |
|
Less: expenses |
|
|
|
|
|
Wages and salaries |
14,000 |
|
10,000 |
|
|
Other expenses |
21,000 |
(35,000) |
18,000 |
(28,000) |
|
Net profit |
|
25,000 |
|
32,000 |
|
Balance Sheet |
|
|
|
|
|
Fixed assets |
|
|
|
|
|
Equipment after depreciation |
|
12,000 |
|
3,000 |
|
Motor after depreciation |
|
18,000 |
|
13,000 |
|
Total Fixed assets |
|
30,000 |
|
16,000 |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
Stock |
110,000 |
|
50,000 |
|
|
Inventory |
62,500 |
|
20,000 |
|
|
Bank |
7,500 |
|
10,000 |
|
|
Total Current Assets |
|
180,000 |
|
80,000 |
|
Total Assets |
|
210,000 |
|
96,000 |
|
|
|
|
|
|
|
Long term Liabilities |
|
50,000 |
|
10,000 |
|
Current liabilities |
|
|
|
|
|
Creditors |
27,000 |
|
6,000 |
|
|
Accounts payable |
7,000 |
|
4,000 |
|
|
Total Current liabilities |
|
34,000 |
|
10,000 |
|
Total Liabilities |
|
84,000 |
|
20,000 |
|
Financed by: |
|
|
|
|
|
Equity |
100,000 |
|
40,000 |
|
|
Retained Earnings |
13,000 |
|
4,000 |
|
|
(+) Net Profit |
13,000 |
|
32,000 |
|
|
Total Equity |
|
120,000 |
|
76,000 |
|
Total Equity and Liabilities |
|
210,000 |
|
96,000 |
Based from the financial statement shown above: For AB and CD textile companies calculate:
a. Current Ratio of both companies and interpret the results. (3 marks)
b Quick ratio of both companies and interpret results. (2 marks)
CASE 10 ( 3+2 =5)
Balance Sheet Sand and Stones Companies for year ended, December 2019
|
Particulars |
SAND COMPANY (O.R) |
STONES COMPNY (O.R) |
||
|
Fixed assets |
|
|
|
|
|
Building |
|
520,000 |
|
300,000 |
|
Land |
|
580,000 |
|
230,000 |
|
Total Fixed assets |
|
1,100,000 |
|
530,000 |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
Accounts receivable |
250,000 |
|
350,000 |
|
|
Inventory |
300,000 |
|
420,000 |
|
|
Cash on hand |
500,000 |
|
110,000 |
|
|
Total Current Assets |
|
1,050,000 |
|
880,000 |
|
Total Assets |
|
2,150,000 |
|
1,410,00 |
|
|
|
|
|
|
|
Long term Liabilities |
|
350,000 |
|
300,000 |
|
Current liabilities |
|
|
|
|
|
Sundry Creditors |
950,000 |
|
55,000 |
|
|
Accounts payable |
350,000 |
|
45,000 |
|
|
Total Current liabilities |
|
1, 300,000 |
|
100,000 |
|
Total Liabilities |
|
1, 650,000 |
|
400,000 |
|
Financed by: |
|
|
|
|
|
Equity |
300,000 |
|
300,000 |
|
|
Retained Earnings |
50,000 |
|
400,000 |
|
|
(+) Net Profit |
150,000 |
|
310,000 |
|
|
Total Equity |
|
500,000 |
|
1, 010,000 |
|
Total Equity and Liabilities |
|
2, 150,000 |
|
1,410,000 |
Based form the financial statement shown above: for Sand Company and Stones Company calculate:
a. Debt to Equity Ratio of both interpret the results . (3 marks)
b. Between 2 companies, which has a better balance sheet position? Explain Briefly (2 marks)
END OF QUESTIONS
