ACC512 - Management Accounting For Costs & Control

Assessment item 2

Solution 1
(a) 10,000 = 800 * [{(1+0.05)n*2-1}/0.05 ]
(1.05) n = 1.625
n = 4.98315 years
(b) PV = C * [{1-(1+i)-n} / I] * (1+i)
180,000 = C * [{1-(1+i)-15} / 0.1] * (1.1)
C = 21513.89
(c) Future value = 4000 * [{(1 +0.05)10 – 1} / 0.05]
= $ 50311.57
(d) Present Value = 2000 * [{1 – (1.06)-10}/0.06}]* 1.06
= $ 156033.8
It is favourable to sell at $ 150,000 value is $ 156033.8
Solution 2
(a) While working out on the overall approach of the financial management it is observed by the
financial analyst that the business organsiation should plan its operations and activities in such a
manner that it will enhance the total value as well as the earnings of the business firm. Financial
management objectives are primarily segmented into two major streams. These are bulleted as
follows –
Profit maximisation approach – Focusing over enhancing the profitability of the business
enterprise.
Wealth maximisation approach – This approach workout towards enhancing the net worth of
the business investors while keeping the funds invested with the organsiation.

The key emphasis of the theory of the financial management focuses on the concept or stream of
wealth maximisation approach rather than keeping the profit maximisation as objective. Aspects
like enhancing the overall revenue of the enterprise, building capabilities etc are the major focus
area in the particular approach. The particular concept helps to build a better value of the
business firm. Rather than the profitability, the flow or movement of cash is highly recognised in
this approach. In the long run this concept creates an improvement in the brand value of the
enterprise and it recognises the concept of time value of money.
(b) As a part of traditional theory the risk aversion mean not taking of any risky instrument as a
part of portfolio investment. It was totally dependent on the timeline factor. For instance the
timing factors for which investments are needed to be made are taken into consideration. For
instance long term investment proposal contains certain systematic risk factor which is needed to
be analysed. The investor should incorporate certain insurance coverage to hedge the overall risk
and then diversify the investment in some risky portfolios to manage the risk in the balance
category. Incorporating the modern portfolio theory into account risk aversion means the fact
that how much additional risk capacity that can be taken by the investor for each unit gain in
investment or vice versa. As per the analyst, in the present scenario the investor while putting its
funds in non riskier market funds and being a risk averse is in fact taking the risk of wiping of
the funds and attaining returns at a lower rate.
Solution 3
i- vi)
Name RIO
Return
s
Price
Index AORD
Date
Clos
e Close
Return
s
02/01/20
16 26.1
-
0.0767
6
Avera
ge
-
0.03
4947.899
902
-
0.0395
8 Beta 0.17
03/01/20
16
28.2
7
-
0.1601
3
Varian
ce 0.01
5151.799
805
-
0.0308
9
04/01/20
16
33.6
6
0.2004
28
Std
dev 0.10 5316
-
0.0241
9