Financial Management

Question 1 (a)

Cost of equipment = RM300,000.00

Project Duration = 3 years

Disposal Value = RM60,000.00

Step 1:

Depreciation Cost = Cost of investment – Disposal Value / Project Duration

= RM300,000 – RM60,000 / 3 years

= RM80,000

Step 2:

Year | Profit / Loss (RM) | Depreciation (RM) | Disposal (RM) | Cash Flow (RM) |

1 | (10,000) | 80,000 | - | 70,000 |

2 | 125,000 | 80,000 | - | 205,000 |

3 | 20,000 | 80,000 | 60,000 | 160,000 |

a(i) Step 3:

Year | Cash Flow (RM) | Discount Rate (15%) | Present Value Cash Flow (RM) |

0 | (300,000) | 1.000 | (300,000) |

1 | 70,000 | 0.870 | 60,900 |

2 | 205,000 | 0.756 | 154,980 |

3 | 160,000 | 0.658 | 105,280 |

Positive NPV = RM21,160 |

a(ii) Step 3:

Year | Cash Flow (RM) | Discount Rate (15%) | Present Value Cash Flow (RM) |

0 | (300,000) | 1.000 | (300,000) |

1 | 70,000 | 0.800 | 56,000 |

2 | 205,000 | 0.640 | 131,200 |

3 | 160,000 | 0.512 | 81,920 |

Negative NPV = RM30,880 |

A = 15%, B=25%, a=21,160, b=30,880

IRR(Internal Rate of Return) = A+[B-A x a/a+b]

15+[25-15 x 21,160/21,160+30,880] = 19.07%

Question 2 (a)

Liquidity Ratio (Year 20X0)

1. Current Ratio = Current Assets / Current Liabilities

= £110 / £60

= 1.83 : 1

2. Acid Test Ratio = Current Assets - Inventories / Current Liabilities

= £110 - £42 / £60

= 1.13 : 1

3. Average Collection Period = Accounts Receivable / Sales x 365 days

= £38 / £450 x 365 days

= 30.81 days ≈ 31 days

Efficiency Ratio (Year 20X0)

4. Total Assets Turnover = Sales / Total Assets

= £450 / £971

= 0.46 times

5. Accounts Receivable Turnover = Credit Sales / Accounts Receivable

= £450 / £38

= 11.84 times

6. Inventory Turnover = Cost of Goods Sold / Inventory

= £150 / £42 = 3.57 times

Leverage Ratio (Year 20X0)

7. Debt Ratio = Total Debt / Total Assets

= £100 + £60 /...