Explain the BENEFITS of setting and implementing an agreed budget.

Explain the BENEFITS of setting and implementing an agreed budget.

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)

b) Answer any FIVE questions

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

 

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£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

TASKS

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


Price: £ 40

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