Explain what the time value of money is

Assignment Help Operation Management
Reference no: EM132280798

Assignment Questions

Question 1: Understanding Financial Statements

Business A and business B are both retailers, but seem to take a different approach to this trade according to the information available, which consists of a table of ratios:

Ratio

Business A

Business B

Return on capital employed

20%

17%

Return on owners' equity

30%

18%

Average settlement period for accounts receivable

63 days

21 days

Average settlement period for accounts payable

50 days

45 days

Gross profit percentage

40%

15%

Profit percentage

10%

10%

Inventory turnover period

52 days

25 days

Required:

1)  Discuss what this information indicates about the differences in each business's approach.

2)  If one of them prides itself on personal service and the other on competitive prices, which do you think is which, and why?

3)  Based on the given information, which business tends to require more external financing and what types of external financing you would recommend.

Question 2: Understanding Financial Statements

 You are presented with the following financial report extracts for Rocky Ltd:

 

2015

2014

2013

2012

 

$

$

$

$

Income statement

 

 

 

 

Sales

370,000

310,000

270,000

 

Cost of sales

174,000

140,000

116,000

 

Interest

17,000

9,000

4,000

 

Taxation 30%

 

 

 

 

Other expenses

60,000

56,000

54,000

 

Statement of financial position

 

 

 

 

Current assets

 

 

 

 

Inventory

18,000

15,000

17,000

18,000

Accounts receivable

62,000

41,000

31,000

29,000

Total current assets

110,000

72,000

62,000

 

Non-current assets

 

 

 

 

Property, plant and equipment

140,000

120,000

110,000

 

Total non-current assets

210,000

190,000

150,000

 

Total assets

320,000

262,000

212,000

180,000

Current liabilities

 

 

 

 

Accounts payable

30,000

17,000

12,000

11,000

Total current liabilities

70,000

52,000

42,000

 

Total non-current liabilities

110,000

80,000

30,000

 

Total liabilities

180,000

132,000

72,000

 

Total shareholders' funds

140,000

130,000

140,000

 

Note: that there are also other current assets, non-current assets, and current liabilities that are not specifically listed in the extracts shown above.

Required:

1)  Prepare a ratio analysis from the available information to cover profitability, liquidity, efficiency and capital structure.

2)  Based on the above ratio analysis, prepare a report indicating potential strengths and weakness in the management of this business.

3)  Identify additional information you would require to improve your analysis of this company over the period specified.

Question 3: Understanding Cash Flow Statement

The cash flow statements for retailing giant Discount Bonanza Ltd spanning the period 2012-2015 are as follows:

12 Months Ending

31/12/2015

($ millions)

31/12/2014

($ millions)

31/12/2013

($ millions)

31/12/2012

($ millions)

Net profit

13,000

12,000

11,000

10,000

Depreciation expense

6,500

6,300

5,000

4,000

Changes in working capital

1,200

2,300

2,400

1,000

Cash from operating activities

20,700

20,600

18,400

15,000

 

 

 

 

 

Capital expenditure

(16,000)

(14,500)

(14,000)

(12,300)

Cash from investing activities

(16,000)

(14,500)

(14,000)

(12,300)

 

 

 

 

 

Interest and financing costs

(350)

(250)

(350)

100

Total cash dividend paid

(3,600)

(2,800)

(2,500)

(2,200)

Issuance (retirement) of shares

(8,000)

(1,500)

(3,600)

(4,500)

Issuance (retirement) of debt

1,500

(100)

4,000

4,100

Cash from financing activities

(10,450)

(4,650)

(2,450)

(2,500)

 

 

 

 

 

Net change in cash

(5,750)

1,450

1,950

200

 Required:

1) Describe Discount Bonanza's sources of financing in the financial markets over the last four years.

2) Prepare a brief narrative that describes the major activities of Discount Bonanza's management team over the last four years.

3) Explain the three perspectives from which financial statements can be viewed.

Question 4: Time Value of Money 

A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last about 25 years. They believe that they can earn 8% interest on retirement savings.

Required:

1)  If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year.

2)  Would the answer to part 1) change if the couple also realize that in 20 years, they will need to spend $60,000 on their child's college education?

3)  Explain what the time value of money is and why it is so important in the field of finance.

Question 5: Time Value of Money 

Babu is planning to save for his son's university education. His son is currently 11 years old and will begin university in 7 years. Babu has an index fund investment of $17,500 earning 9.5 per cent annually. Total expenses currently at the University of Sydney where his son says he plans to go, currently costs $25,000 per year but are expected to grow at roughly 4 per cent every year.

Babu plans to invest a certain amount in an investment fund that will earn 11 per cent annually to make up the difference between the education expenses and his current savings. In total, Babu will make seven equal investments with the first starting today and with the last being made a year before his son begins university. Assume the discount rate is 6 per cent.

Required:

1) What will be the present value of the 4 years of education expenses at the time that Babu's son starts university?

2) What will be the value of the index fund when his son just starts university?

3) What is the amount that Babu will have to have saved when his son turns 18 if Babu plans to cover all of his son's university expenses?

4) How much will Babu have to invest every year in order for him to have enough funds to cover all his son's expenses?

Question 6: Risk and return 

Assume you have invested in two shares Woolworth (WOW) and Village Roadshow (VRL). Woolworth is a leading retail company in Australia and Village Roadshow is an Australian film producer and distributer. Consider the following information associated with the two shares:

Probability of return

WOW

Rate of return

VRL

Rate of return

0.30

0.02

- 0.20

0.40

0.32

0.12

0.30

0.18

0.40

The market risk premium is 12%, and the risk-free rate is 4%.

Required:

1)  Calculate and explain which share has the most systematic risk?

2)  Calculate and explain which share has the most total risk?

3)  Discuss which share is actually the 'riskier' share based on the concept of diversification.

4)  Discuss the importance of CAPM and SML in determining the trade-off between risk and return.

Reference no: EM132280798

Control charts is straightforward in manufacturing processes

The application of control charts is straightforward in manufacturing processes where you have tangible goods with physical characteristics you can easily measure on a numeric

Explain why the acquisition subsequently failed

Find an example of a diversified company that made an acquisition that apparently failed to create any value. Identify and critically evaluate the rationale that top managemen

Zal supplies its components to automotive assembley plants

ZAL supplies its components to automotive assembley plants. The automotive assembly plants want assurance that each FE73 can provide fuel efficiency of between 70 and 75 mil

Use specific criteria to compare the profiles of companies

use specific criteria to compare the profiles of companies supplying both red and white. Decide which supplier is best for your company. Be sure to justify your conclusion.

Example of managerial decision that supply chain models

Should corporations have social responsibility? Argue both "yes" and "no". how does "shareholder " and "stakeholder" theory fit into the discussion? Final thoughts and comment

Hospitals be replaced by modern technology

As it is predicted that more medical clinical training for medical students and residents will occur outside of hospitals by 2025, do you feel that a hybrid education, includi

Illustrate what do the initial control charts tell you

Illustrate what do the initial control charts tell you. Do any out-of-control conditions exist. Illustrate what is the process capability. Illustrate what do the process capab

What are cost characteristics of each delivery option

Spartan Plastics provides components to assembly plants in the automobile industry. Currently, they ship directly from their plant in St. Louis, Missouri, to plants in Lansing

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd