financial management
Paper instructions:
This is an odd assignment. Below there are 8 units listed and under each unit there are discussion questions. The assignment is to write about a page (about 275 words) per unit. If this can be done only answering one of the questions that’s good. If it requires two or three short answers to multiple questions that’s good too. Sources are required and must be cited for each individual unit. Please contact me with any questions.

Unit 1***

1. Use the list of possible goals of financial management listed in the book, suggest some other possible goals. Can you also identify potential problems of those goals?

2. The more general goal of financial management is to maximize the market value of owners’ equity. However, this doesn’t mean that firms can do “anything” to maximize stockholder wealth. Unethical behavior does not ultimately benefit owners.

3. Find some examples to discuss any ethical issue. For example: the issue of responsibility of the managers and stockholders of tobacco firms, the antitrust case against Microsoft and etc.

Unit 2***

1. Why are market values generally more important for the decision making process? Give an example or two of familiar instances to make the point.

2. Publicly traded firms have to file audited annual reports, but that doesn’t mean that “accounting irregularities” never slip by the auditors. Companies that deliberately manipulate financial statements may benefit in the short run, but it eventually comes back to haunt them. Name one or two companies in the real world as examples and tell us some stories.

Unit 3***

1. Financial ratios are “red flags” that a good analyst will use to determine what needs to be investigated further. For example, suppose a firm’s average collection period (days’ sales in receivables) is significantly higher than the industry norm. What questions might you ask?

2. Financial information in widely available on internet. However, not everything online is credible. In general, how do you extract financial information online? Do you have any experience obtaining false or misleading information there?

Unit 4***

1. What is your understanding of Financial Planning? Why do we need Financial Planning?

2. Why managers would wish to avoid issuing equity to meet anticipated financing needs?

3. Should managers overstate budget requests (or growth projections) if they know that central headquarters is going to cut funds across the board?

Unit 5***

1. What is the relationship between present value and future value?

2. What is the difference between simple interest and compound interest?

3. What are some situations in which you might want to know the implied interest rate?

4. When might you want to compute the number of periods?

Unit 6***

1. If you ran a bank, which rate would you rather advertise on monthly-compounded loans, the effective annual rate or the annual percentage rate? Which rate would you rather advertise on quarterly-compounded savings accounts, the effective annual rate or the annual percentage rate? Explain. As a consumer, which would you prefer to see and why?

2. Should lending laws be changed to require lenders to report the effective annual rate rather than the annual percentage rate?

Unit 7***

1. The discussion of asset pricing in the text suggests that an investor will be indifferent between two bonds which have equal yields to maturity as long as they have equivalent default risk. Can you think of any real-world factors which might make a given investor prefer one of these bonds over the other?

2. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

Unit 8***

1. A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. How is this possible? Does this violate our basic principle of stock valuation?

2. Explain whether it is easier to find the required return on a publicly traded stock or a publicly traded bond, and why?

Assessment item 3
Assessment Item 3 (Topics 4 -7)
Value: 20%
Due date: 18-Sep-2016
Return date: 14-Oct-2016
Length: No more than 2000 words
Submission method options
Alternative submission method
Task
Question 1 (25 marks)

Home Guard has recently completed a $100,000, two-year study on its new pest control device. It can go into production for an initial investment in equipment of $5 million. The equipment will be depreciated straight line over the useful life of 5 years to a value of zero. The fully depreciated equipment is expected to sell for $800,000 at the end of its useful life. The project also requires investment in land value of $300,000 which is expected to have a realisable value of $500,000 at the end of the project. Investment of $400,000 in current assets will be recovered at the termination of the project.

The marketing department has estimated that 200,000 units of its new device could be sold annually over the next five years at a price of $7 each. Fixed costs of $500,000 per annum will be incurred. The firm is an ongoing profitable business and pays taxes at a 30% rate in the year of income. All capital gains will also be taxed at a rate of 30%. The company uses a 10% discount rate on the new project. Using the NPV approach, advise the firm whether the project should be undertaken.

Question 2 (25 marks)

Mega Resources Limited’s (MRL) is considering a major gold exploration project in South Africa. Costs of financing have been declining recently causing the finance department to consider sourcing capital through debt and equity issues. The company’s bonds will mature in five years with a total face value of $100 million, paying a half yearly coupon rate of 8% per annum. The yield on the bonds is 14% per annum. The market value for the company’s preference share is $4.75 per unit while the ordinary share is currently worth $1.85 per unit. The preference share pays a dividend of $0.4 per share. The beta coefficient for the ordinary share is 1.4. No issue costs will be incurred by the company.

The market risk premium is estimated to be 10% per annum and the risk-free rate is 4% per annum. The company is subject to a 30% corporate tax rate and intends to issue 200,000 preference shares and 5,000,000 ordinary shares. MRL’s current balance sheet shows the following information for bonds and shares:

$ (Million)
Preference shares
3
Ordinary shares
15
Bonds
100

a. Outline the necessary steps required to estimate the company’s weighted average cost of capital.(2 marks)

b. Calculate the after-tax cost of each of the company’s current financing sources.(7.5 marks)

c. Using the information provided, calculate the market values for the financing sources for MRL.(7.5 marks)

d. Using the information from b.) and c.) calculate MRL’s after-tax weighted average cost of capital.(5 marks)

e. The company’s finance department has confirmed that the proposed project will generate an IRR of 15% per year. Discuss whether or not the project should be undertaken. (3 marks)

Question 3 (20 marks, 10 marks each)

Write a short essay of 600-700 words for each of the following questions. You must support your discussion with appropriate references.

a. Discuss two reasons for a company offering credit terms to its customers.

b. “Cash is a very small percentage of total assets and therefore cash management is not an important part of financial management”. Critically discuss this statement

Rationale
This task will assess your ability to meet the following learning outcomes:

identify, analyse and solve financial problems confronting business enterprises, particularly problems relating to corporate investment, asset management and financing decisions;
employ analytical techniques, using contemporary electronic aids appropriate to financial decision making;
analyse the impact of economic, legal and tax changes on the financial position of the firm;
demonstrate critical evaluation and communication skills relating to the scope and all four learning outcomes of this subject

Marking criteria

Criteria
HD (85% – 100%)
DI (75% – 84%)
CR (65% – 74%)
PS ( 50% – 64%)
FL ( 0% – 49%)
Q1.Calculate the NPV of the project and provide a critical analysis of the proposed project.
Applies correct principles and calculations, substantiated with workings or diagrams in order to correctly calculate the NPV. There are no errors in calculations. Provides a precise critical analysis of the company’s proposed future.
Applies correct principles and calculations, substantiated with workings or diagrams in order to correctly calculate the NPV. Workings may contain s few minor errors. Provides a detailed critical analysis of the company’s proposed future.
Applies correct principles and calculations, substantiated with
workings or diagrams in order to correctly calculate the NPV. Workings contain some minor errors. Provides a critical analysis of the company’s proposed future. May contain limited detail and reference to examples from the case.
Applies understanding of relevant principles, correctly calculates the NPV. Workings contain some major errors. Attempts to provide a critical analysis of the company’s proposed future.
No understanding of relevant principles, incorrectly calculates the NPV. Workings contain major errors. Failed to provide a critical analysis of the company’s proposed future.
Q2. Complete calculation as required. Discuss your recommendations for the potential project and support with relevant calculations.
Applies correct principles and calculations, substantiated with workings or diagrams in order to arrive at the right answer. There are no errors in calculations.
Applies correct principles and calculations, substantiated with workings or diagrams in order to arrive at the right answer, shows workings but contains few minor errors.
Applies correct principles and calculations, substantiated with workings or diagrams in order to arrive at the right answer, shows workings but contains some minor errors.
Applies understanding of relevant principles, shows workings but contains some major errors.
No understanding of relevant principles, no workings and contains major errors.
Q3. Discuss the factors relevant to the company and illustrate with an appropriate example where possible.

Principles are applied in the appropriate manner to arrive at the correct answer. The use of relevant principles and example shows creativity and imagination.
Discussion reflects detailed understanding of relevant principles. Uses an example to illustrate the discussion.
Discussion reflects good understanding of relevant principles. Makes use of an example to attempt to illustrate but relevance is unclear or inaccurate.
Discussion reflects basic understanding of relevant principles. Limited or no use of relevant example.
Discussion reflects no understanding of relevant principles. No use of relevant example.
Academic Writing Skills
The discussion/ report/other meets academic standards of syntax, vocabulary, spelling and punctuation and reflects an awareness of audience needs
Accurate use of syntax, spelling and punctuation; correctly refers to an extensive variety of sources to support arguments, including prescribed texts and a broad range of additional readings; reference list of an extensive range of resources used, correctly formatted using APA style.
Accurate use of syntax, spelling and punctuation; succinct and effective use of vocabulary; correctly refers to a broad range of sources to support arguments, including prescribed text and a variety of further readings; reference lists a broad range of relevant resources used, correctly formatted using APA style.
Accurate use of syntax, vocabulary, spelling and punctuation; correctly refers to more than the minimum requirement of sources to support arguments, including prescribed texts and recommended readings; reference list formatted in APA style, with few or no errors.
Mostly accurate syntax, spelling and punctuation; correctly refers to minimum number of sources to support arguments, including prescribed texts; reference list used, formatted in APA style, with minor errors.
Inaccurate syntax, spelling and punctuation; incorrectly refers to minimum number of sources, including prescribed texts; reference list used, not formatted in APA style, with errors.

Presentation
Refer to the sections under Presentation and Submission for further details.

Requirements
This task requires the use of APA referencing. Please refer to the following website for further details: http://student.csu.edu.au/study/referencing-at-csu