Finance and Accounts - Adjustments, Weighted Cost of Capital, FCF Valuation Model, Intrinsic Value, Residual Income

Sample

Contents
Contents...........................................................................................................................................2
QUESTION 1...................................................................................................................................3
QUESTION 2...................................................................................................................................5
QUESTION 3...................................................................................................................................7
QUESTION 4...................................................................................................................................7
QUESTION 5...................................................................................................................................8
REFERENCES..............................................................................................................................10

QUESTION 1
1a) Following adjustments are required to be made as per first part:
Adjusted Current Ratio = Current Assets / Current Liabilities
= 79099 / 20000
= 3.95 times
Cash was £10000 as on 1st December 2021. Following adjustments are required to be made
as per first part:
10000 – 401 – 500 = £9099
hence, new current assets value is 80000 – 10000 + 9099 = £79099
1b) Following adjustments are required to be made as per second part:
Cash purchase of £1000. Trade Payables to be increased by £4000. Cash sales of £4000(40% of
10000).
Trade Receivables to be increased by £6000.
Cash will be 10000-401-1000+4000=£12599. New Trade Receivables are 20000+6000=26000
New Trade Payables=15000+4000=£19000.
Inventory=50000+5000-5000=£50000
Adjusted Current Ratio= Current Assets / Current Liabilities
= (50000 + 26000 + 12599) / (19000 + 5000)
= 88599 / 24000
= 3.69 times
1c) Following adjustments are required to be made as per third part:
Accrued interest of £100. Cash to be decrease by £3000. Short term investment (Corporate
Bonds) of £3000.
Quick Ratio= (Current assets - Inventory) / Current Liabilities
= (80000 – 401 – 3000 + 100 + 3000 - 50000) / 20000
= £29699 / 20000
= 1.48 times
1d) Following adjustments are required to be made as per fourth part:
3