Financial Management Exam for BSC (Hons) Business Management Semester 1, Examination 2021/22

BSC (Hons) BUSINESS MANAGEMENT
SEMESTER 1, EXAMINATION 2021/22
FINANCIAL MANAGEMENT AND DECISION
MAKING
MODULE NO: BMP5006
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ANSWER BOOKLET
All the pages of the answer booklet should be submitted including blank ones.
Please type your answers in the spaces provided.
Insert additional pages where required.
Student Name
ID Number
Answer to the Question no. 1 (a)
Calculation of Payback Period for each project:
CUMULATIVE CASH FLOWS
Project A Project B Project C
£ £ £
Year 1 4000 5000 4000
Year 2 6000 5000 5000

Year 3 5000 4000 3000
Year 4 3600 5000
Year 5 1400
Payback Period (years and
months) 2.83 3.9 4.28
Calculation of Net Present Value for each project:
Discount
Factors
Project A Project B Project C
CF DCF CF DCF CF DCF
8% £ £ £ £ £ £
Year 1 0.95 4000 3703.6 5000 4629.5 4000 3703
Year 2 0.85 6000 5143.8 5000 4286.5 5000 4286
Year 3 0.79 5000 3969 4000 3175.2 3000 2381
Year 4 0.74 3600 2646 5000 3675
Year 5 0.68 1400 952.84
2000 2000 2000
Total DCF
Initial
investment 15000 15000 15000
Net present
value -183.6 1737.2 1999.34
Answer to the Question no. 1 (b)
Payback period - According to the pay period method project A is the earliest among the three to
break even the investment amount. Project C is the slowest of all three options.
But if the project's NPV is analysed project A delivers negative that is why it is not good option to
invest.
Project B is giving return of about 1737 in year 4 which is a competent investment option
While Project c's NPV is the highest among the all three
Answer to the Question no. 1 (c)
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From all the analysis done above, it be said that project C is the best investment option among
three to be chosen. As mainly, in the investment appraising methods NPV techniques is
considered as the best by companies. So as per the methods of NPV, Project C is should be chosen
by the company as it gives the best optimum result for the expansion of the business entity.
Answer to the Question no. 1 (d)
Pay back period
Uses - it is used by investors to calculate returns the period required to received the return on a
product
Benefit- It is easiest way to calculate the soundness of a investment.
Demerit- like in the about case study pay back period do not consider time value factor of money.
Therefore fails to deliver accurate results
NPV
Uses- Useful for determining future value return on investment.
Benefit- This method delivers better decision making information as it contains the future value
of money.
Demerit- The whole method is based on discounting rate calculation, while the basis for
determining the rate is not given.
Answer to the Question no. 2 (a)
Calculation of ratios:
(i) Gross profit ratio= Gross profit/ revenue
Year 2019,
= 192 /4 40
= 0.433
Year 2020,
= 138 / 330
= 0.41818
(ii) Operating profit ratio = Operating profit / Net sales
Year 2019,
= 70 / 440
= 0.15
Year 2020,
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= 50 / 330
= 0.1515
(iii) Expenses to sales = Expenses / sales
Year 2019
=122 / 440
= 0.277
Year 2020,
= 88 / 330
= 0.266
(iv) Return on capital employed = Operating profit/ Total asset – Total Current liabilities
Year 2019
= (70 / 450) – 72
= .185
Year 2020,
= (50 / 413) – 32
= 0.131
(v) Asset turnover= Net Sales/ Average Total assets
Year 2019
=440 / 450
=0.977
Year 2020,
=330 / (450+413)
=0.76
(vi) Non-current asset turnover = Revenue / Non-current assets
Year 2019,
440 / 405 = 1.086
Year 2020,
330 / 361 = 0.914
(vii) Current Ratio = Current Assets / Current Liability
Year 2019,
117 / 72 = 1.625
Year 2020,
84 / 32 = 2.625
(viii) Quick Ratio = (Current Assets - Inventory)/ Current Liability
Year 2019,
(117 – 45) / 72 = 1
Year 2020,
(84 – 28) / 32 = 56 / 32 = 1.75
(ix) Inventory days = (Average Inventory / Cost of Sales) * 365
Year 2019,
(48 / 248) * 365 = 70.65
Year 2020,
(59/ 192) * 365 = 112.16
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