Jun 03, 2017

# Explain the BENEFITS of setting and implementing an agreed budget.

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FINANCIAL MANAGEMENT

Instructions to candidates:

a) Time allowed: Three hours (plus an extra ten minutes’ reading time at the start – do not write anything during this time)

c) All questions carry equal marks. Marks for each question are shown in [ ]

d) Non-programmable calculators are permitted in this examination

 1. a) Explain the BENEFITS of setting and implementing an agreed budget. [12] b) Explain the following terms: i A share prospectus ii A stock exchange [4 each]

2. The following data relates to a company:

 £000 £000 £000 Year ended 28/29 February 2014 2015 2016 Sales (all on credit) 120 140 155 Cost of sales 70 80 90 Expenses 35 40 45 Provision for tax 10 12 13 ==== ==== ==== £1 ordinary shares in issue 100,000 100,000 100,000 Share price £1.30 £1.40 £1.50 Closing debtors £15,000 £15,500 £15,900

a)     For EACH of the three years calculate the following ratios:

i. The gross profit percentage

ii. The net profit after tax percentage

iii. The expenses to sales percentage

iv. The debtor collection period in days

v. The EPS

 vi. The PE ratio [2 each] b) Analyse the trends revealed by the above ratios. [8]

Continued overleaf

3. JUQ Ltd is considering investing in a project which has the following cash flows:

 £000 Initial investment 2,700 Cash flows: Year 1 700 Year 2 1,000 Year 3 1,100 Year 4 800 Year 5 500 The cost of capital is 9% Extracts from NPV (DCF) tables: Rate of discount: 8% 9% 10% Year 0 1.000 1.000 1.000 Year 1 .926 .917 .909 Year 2 .857 .842 .826 Year 3 .794 .772 .751 Year 4 .735 .708 .683 Year 5 .681 .650 .621 Year 6 .630 .596 .564

 TASKS a) Calculate the payback period (in years and months). [2] b) Calculate the ARR (accounting rate of return). [2] c) Calculate the NPV (net present value). [4] d) Explain briefly if you think that the project is viable. [4] e) Explain the sources of long-term finance available to a large company. [8]

4. a) Prepare a cash flow statement from the following data:

£000

Purchase of new equipment

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