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    Finance Assignment Help UK

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    Finance Assignment Help UK


    Finance Assignment Help UK

    You have THREE hours in which to complete this assessment, plus 15 minutes reading time.

    In addition to this Question Booklet, you should have been supplied with the following for the purposes of this assessment:

    1. An Answer Booklet; and

    2. Several sheets of rough paper.

    Permissible materials

    You may only take the following items into the examination room:

    1. A silent non-programmable calculator

    2. Standard pencil case items

    Failure to comply with these instructions may lead to your disqualification in this assessment.

    All of your work must be written in the Answer Booklet. You may use the rough paper provided to plan your answers, but anything written in pencil or made anywhere other than in the Answer Booklet will not be marked.

    There is 15 minutes reading time for this assessment: you can read through each question and write notes on the question paper. You may not open your answer booklet until the reading time has finished. The invigilator will tell you when you can start.

    Where appropriate, you should support numerical/quantitative answers with brief explanations, while discursive answers should refer to relevant formal definitions, key formulae and, if appropriate economic and financial theory.

    Pass mark

    The pass mark for this assessment is 50%. If this is not your first attempt at this assessment the maximum mark you can obtain is 50%.

    Overall contribution to your final mark This paper contributes 40% to your overall final mark in this module. Assessments with components: students must be awarded a pass in all summative components to be awarded an overall pass in the module. Assessments with elements: students will receive an average total mark for a pass or fail of the entire module.

    Question 1

    1.1 The following is an extract from the statement of financial position of Cesar Ltd as at 31/03/2018:

                                                                                £'000

    Ordinary shares of 50c each                               5,200

    Reserves                                                             4,850

    9% preference shares of £1 each                       4,500

    14% loan notes                                                    5,000

    Total long-term funds                                          19,550

    The ordinary shares are quoted at 80p. Assume the market estimate of the next ordinary dividend is 4p, growing thereafter at 12% per annum indefinitely. The preference shares (which are irredeemable) are quoted at 72p and the loan notes are quoted at nominal value. Tax on profits is 33%.

    Requirements:

    (a) Use the relevant data above to calculate the company's weighted average cost of capital (WACC), i.e. the return required by the providers of the three types of capital, using the respective market values as weighting factors.(5 marks)

    (b) Assume that the loan notes have recently been issued specifically to fund the company's expansion programme under which a number of projects are being considered. It has been suggested at a project appraisal meeting that because these projects are to be financed by the loan notes, the cut-off rate for project acceptance should be the after-tax interest rate on the loan notes rather than the WACC. Discuss this suggestion.(5 marks)

    1.2 Current financial information for Kaiser plc is as follows:

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    Notes:

    1) The current ex-div ordinary share price is £4.50 per share. An ordinary dividend of 35p per share has just been paid and dividends are expected to increase by 4% per year for the foreseeable future.

    2) The loan notes are secured on the existing non-current assets of Kaiser and are redeemable at par value in eight years' time. They have a current ex interest market price of £105 per £100 loan note.

    3) The current ex div preference share price is 76.2p.

    4) Corporation tax is at a rate of 30%.

    Requirements:

    (a) Calculate the Weighted Average Cost of Capital (WACC) of Kaiser plc. (9 marks)

    (b) Discuss whether financial management theory suggests that Kaiser plc can reduce its weighted average cost of capital (WACC) to a minimum level.(6 marks)

      Total: 25 marks

    Question 2

    2.1 Aurelius Ltd is evaluating an investment proposal to manufacture Empire, which has performed well in test marketing trials conducted recently by the company's research and development division. The following information relating to this investment proposal has now been prepared:

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    The research and development division has prepared the following demand forecast as a result of its test marketing trials. The forecast reflects expected technological change and its effect on the anticipated lifecycle of Empire.

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    It is expected that all units of Empire produced will be sold, in line with the company's policy of keeping no inventory of finished goods. No terminal value or machinery scrap value is expected at the end of four years, when production of Empire is planned to end. For investment appraisal purposes, Aurelius Ltd uses a nominal (money) discount rate of 10% per annum (p.a.). Ignore taxation.

    Requirements:

    (a) Calculate the following values for the investment proposal:

    (i) Net present value (NPV)                  (5 marks)

    (ii) Internal Rate of Return (IRR)          (3 marks)

    (iii) Discounted payback period            (3 marks)

    (b) Discuss briefly your findings in each section of (a) and advise whether the investment proposal is financially acceptable.

    (4 marks)

    2.2 Maximus plc plans to buy a new machine. The cost of the machine, payable immediately, is £800,000 and the machine has an expected life of five years. Additional investment in working capital of £90,000 will be required at the start of the first year of operation.

    At the end of five years, the machine will be sold for scrap, with the scrap value expected to be 5% of the initial purchase cost of the machine. The machine will not be replaced. Production and sales from the new machine are expected to be 100,000 units per year. Each unit can be sold for £16 per unit and will incur variable costs of £11 per unit.

    Incremental fixed costs arising from the operation of the machine will be £160,000 per year. Warden Co has an after-tax cost of capital of 11% which it uses as a discount rate in investment appraisal. The company pays profit tax one year in arrears at an annual rate of 30% per year. Tax allowable depreciation and inflation should be ignored.

    Requirements:

    (a) Calculate the net present value of investing in the new machine and advise whether the investment is financially acceptable.

    (6 marks)

    (b) Calculate the internal rate of return (IRR) of investing in the new machine and advise whether the investment is financially acceptable.                                                                                                                                                                                  

    (4 marks)

    Total: 25 marks

    Question 3

    3.1 Plato plc is a listed company which is seen as a potential target for acquisition by financial analysts. The value of the company has therefore been a matter of public debate in recent weeks and the following financial information is available:

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    The shares of Plato have a market value of £4.00 per share. The business sector of Plato has an average price/earnings ratio of 17 times. The expected net realisable values of the non-current assets and the inventory are £86.0m and £4.2m, respectively. In the event of liquidation, only 80% of the trade receivables are expected to be collectible. Plato estimates that the after-tax (and interest) cash flows at the end of the first year will be £12.5m and these will grow at an annual rate of 5%. Plato also expects to raise £5m in two years’ time by selling off some assets that are surplus to its needs. Plato’s current shareholders’ cost of equity is 15%.

    Requirements:

    (a) Calculate the value of Plato using the following methods:

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    3.2 Recent financial information relating to Aristotle plc, a stock market listed company, is as follows:

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    Financial analysts have forecast that the dividends of Aristotle will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of Aristotle thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes. Aristotle has a cost of equity of 10% per year.

    Requirements:

    (a) Calculate the value of Plato using the following methods:

    (i) Net Assets Value (NAV)                                                                                               (2 marks)

    (ii) Dividend Valuation Method (DVM)                                                                            (3 marks)

    (iii) Earnings yield method                                                                                              (2 marks)

    (b) Discuss the weaknesses of the DVM as a way of valuing the shares of a company.                    (3 marks)

    Total: 25 marks

    Question 4

    4.1 Alexander Ltd makes three products (A, B, C). All three products require the use of two types of machines: cutting machine and assembling machine. Estimates for next year include the following:

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    Total fixed costs for next year are expected to be £42,000. The business has cutting machine capacity of 5,000 hours a year and assembling machine capacity of 8,000 hours a year.

    Requirements:

    a) State, with supporting workings, which products in which quantities the business should plan to make next year on the basis of the above information.(10 marks)

    b) Explain the benefits of allocating fixed costs. (5 marks)

    c) Outline and briefly discuss the assumptions that are made in typical PV (price-volume) or break-even analysis, and assess whether they limit its usefulness.(5 marks)

    d) In the event of a scarce resource that is restricting sales, explain how the business can maximise its profits. You should explain the logic of the approach that you have identified for maximising profits. You can make reference to the company in the question to illustrate your points.(5 marks)

    Total: 25 marks

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