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Post Graduate Diploma in Management Financial Management
Johannesburg
Overview of Module
Chapter Topic
1 Financial Statements and Ratio Analysis
2 Time Value of Money: Present Values and Future Values
3 Investment Appraisal Methods
4 Share Valuation
5 Bonds and Bond Valuation
6 Cost of Capital
7 Dividends and Dividend Policy
8 The Management of Working Capital
Assignment Due Date 14 September 2016 Exam Date 18 November 2016
Assignment /Structure of Lecture
Question Based on the following Topics Chapter Time
Q1 Financial Statements and Ratio Analysis Chapter 1 20min
Q2 Cost of Capital Chapter 6 20min
Q3 Investment Appraisal Methods Chapter 3 30min
Q4 Dividends and Dividend Policy Chapter 7 10min
Q5 The Management of Working Capital Chapter 8 30min
Q6 Time Value of Money Chapter 2 10min
Question 1 of Assignment
Question 1 of Assignment
Chapter 1: Financial statements and analysis
Liquidity ratios
Profitability ratios
Asset management/ Solvency ratios
Market value measures
Gearing and Insolvency
Current ratio Gross margin Inventory turnover ratio Earnings per share (EPS) Debt ratio
Acid-test ratio Profit margin Stock holding ratio Day sales in inventory
Dividends per share (DPS)
Interest coverage
Cash ratio Return on total assets
Debtors collection period Price Earnings ratio (PE) Debt Equity ratio
Interval ratio Return on equity Creditors payment period Dividend cover Du Pont analysis
Fixed assets turnover ratio Dividend yield
Earnings yield
Market to book ratio
Guidelines for Q1 of Assignment
Assignment hint: Share premium is the amount received by a
company over and above the face value
of its shares.
Question 2 of Assignment
Guidelines for Q2 of Assignment
Difference between Preference shares and Debentures
BENEFITS OF DEBT FINANCING – DEBENTURES AND TERM LOANS: Benefit of Tax: ‘Debt Financing’ or ‘Issuing of Debenture’ results in interest expense for the borrower which is a tax deductible expense. A company can claim an interest as an expense against its profits whereas dividends paid to equity or preference shareholders are paid out of net profits after taxes. In short, debt financing such as debentures, term loans etc avails tax benefit to the borrower which is not there in case of equity.
Assignment hint: Theory question
Chapter 6 (Page 101-116)
Guidelines for Q2 of Assignment
CAPM Method – cost of equity Gordon Growth– cost of equity
Difference between Gordon Growth method and Capital Pricing Model to calculate the Cost of Equity
Question 3 of Assignment
Guidelines for Q3 of Assignment
Guidelines for Q3 of Assignment
Guidelines for Q3 of Assignment
5.1 PAYBACK PERIOD: PROJECT B
Investment (R250 000)
Year 1 Cash flow 51 000
(199 000)
Year 2 Cash flow 53 000
(146 000)
Year 3 Cash flow 78 000
(68 000)
Year 4 Cash flow 135 000
Payback period is 3 years6
months2 days
Note:
R68 000 X 12 mths
R135 000
= 6.04 months
0.04 X 30/31 = 2 days
5.2 ARR: PROJECT B
= Average annual profit X 100
Average investment
= R25 400 X 100
R125 000
= 20.32%
Guidelines for Q3 of Assignment 5.3 NPV: PROJECT B
Year Cash inflow Discount
Factor
Present
value
1
2
3
4
5
51 000
53 000
78 000
135 000
60 000
0.8929
0.7972
0.7118
0.6355
0.5674
45 538
42 252
55 520
85 793
34 044
Total PV 263 147
Investment (250 000)
NPV (positive) 13 147
NPV: PROJECT C
Annual cash inflow 75 000
Discount factor X 3.6048
Total PV 270 360
Investment (250 000
)
NPV (positive) 20 360
5.4 Project C. It
has a higher
NPV.
Guidelines for Q3 of Assignment
5.5 IRR: PROJECT C
Year Cash
inflow
15% 16% 15% 16%
1-5 75 000 3.3522 3.2743 251 415 245 573
Investment (250
000)
(250
000)
NPV 1 415 (4 427)
IRR = 15%+ R1 415
R1 415 + R4 427
= 15% + R1 415
R5 842
= 15.24%
(6marks)
Question 4 of Assignment
Question 5 of Assignment
Question 5 of Assignment
Guidelines for Q5 of Assignment
Guidelines for Q5 of Assignment
Guidelines for Q5 of Assignment
Guidelines for Q5 of Assignment
Guidelines for Q5 of Assignment
Question 6 of Assignment
Guidelines for 6 of Assignment
Guidelines for 6 of Assignment
General Guidelines
Start early and be proactive
Spend a few hours each day on this module Practice as many examples as possible Check your solutions and learn from your mistakes Tackle one question/section at a time Prepare for exams as you work through your assignment questions.
