Financial Management
Master of Business
Administration
Module : Financial Management
The Assignments:
1. Victory Ltd is a manufacturing
company wishing to expand their operations. The directors have planned to
finance the expansion program by raising the required funds from existing
shareholders through a 1-for-5 rights issue. The most recent summarized income
of the business is as follows:
RM in millions
|
|
Sales
Revenue
|
200
|
Operating
profit
|
25
|
Less
interest
|
-5
|
Profit
before taxation
|
20
|
Less
taxation
|
-4
|
Profit
for the Year
|
16
|
A RM3m ordinary dividends have already been paid for the
year.
The share capital consists of 150m ordinary shares with a
par value of RM1 a share. These are currently being traded on the Stock market at a price
earnings (P/E) ratio of 20 times and the board of directors have decided to issue the new shares at a
discount of 15% on the current market value.
You
are required to:
|
|
a)
|
Discuss the significance of the right mixture of capital
for an organization.
|
b)
|
Calculate the theoretical ex-rights price of an ordinary
share in Victory Ltd.
|
c) Calculate the price at which the rights in
Victory Ltd are likely to be traded.
|
|
d) Give a brief description of five methods of
raising funds and discuss their
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|
2. Transparent view Plc. develops advance solutions to help transport operators during foggy conditions. The company is considering various investment projects that should help improve their services. They have shortlisted three projects and asked you, as a company investment analyst, to recommend the best option. They have provided you with following information regarding the projects:
i) Project I will last for 3 years. The
initial expenditure is RM300,000 and the expected cash flow originating from
the project is RM150,000 for the first 2 years of the project and RM50,000 in
the last year of the project life.
ii) Project II will last for 3 years.
The initial outlay is RM250,000 and the expected annual cash flow originating
from the project is RM150,000 for the project life
iii) Project III will last for 4 years.
The outlays are estimated RM300,000 and the expected cash flow originating from
the project is RM100,000 in the first year and then increase by RM50,000 in
year 2, 3 and 4.
Current
cost of capital is 20%.
You
are required to:
(a)
Evaluate the three projects using:
(i)
|
Payback Period
|
|
(ii)
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Accounting rate of return (ARR)
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|
(iii)
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Net Present Value (NPV)
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(iv)
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Internal rate of return
(IRR)
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(b)
Explain, which projects should be accepted and why:
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||
(c)
|
Discuss
the factors management would need to consider in addition to
|
|
the
financial factors before making a final decision on a project.
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||
This assignment comprises a part of
the investment analyst's tasks, to be incorporated into the required report
format of 4,000 words (maximum) as follows:
Introduction (5%)
Task 1: The significance of the
right composition of capital and investment decisions together with the
objectives of the assignment
Main Body [80 %]
Task 2: What you understand by the
term capital structure and what construes an optimum capital structure
Task 3: What are rights issues and
how does an organization derive at the theoretical ex-rights price to charge
for the rights to be issued
Task
4: The calculations involved in arriving at the price the rights issued would
be traded.
Task
5: A critical discussion on any five methods of raising capital
Task 6: Evaluation techniques of
investment appraisal, using the information provided, including the
justification for the project to be chosen , under each technique used.
Task 7: Discuss the factors a
management should consider in addition to the financial factors before making a
final decision on a project
Conclusion and Recommendations
[10%]
•
Highlight
key findings, conclusions and recommendations arrived at the financial
management decisions above, with reference to the specific information provided
in the assignment, including a critical evaluation of the tasks 2-7 together
with limitations , if any..
References
[5%]
You are required to reference
research annual reports, books, journals articles, relevant magazines,
newspapers and any relevant online websites used in the report. The Harvard
Referencing style MUST be used in both the in-text and end of text
citations and references.
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