Assignment Financial Management

©Al Tareeqah Management Studies - 2020 1
FINANCIAL MANAGEMENT
SBS MBA / MSc
Assignment – Qatar 2020
STUDENT ID
UNIT TITLE / CODE: ___________________________________________________
NAME (in Full): ___________________________________________________
GENERAL INSTRUCTIONS
● All assignments are to be submitted 13th February 2020 on to [e-mail]
and cc to [e-mail].
● If assignment is not submitted on date, will follow with penalty of 10% deduction of marks
for every day.
● Similarity between students work is strictly not accepted, any student found with similar work
will be graded Zero and fail for the course. However, Plagiarism is an academic offence and
will not be tolerated under SBS
● Assignment once submitted to exam board is final for marking.
● Total mark will be converted to 90 & class participation of 10 marks.
Total 100 marks
GUIDELINES FOR ASSIGNMENT
1. If assignment is Question & Answer based then.
 Introduction is needed for each question.
 Question has to be answered based on the mark allotted for each question with references
if any idea or information is taken from other source.
2. If assignment is case based then,
 Executive summary
 Table of content
 Body of assignment (questions related to case need to be answered)
 Conclusion / Recommendation if any
 References (in-text + citation) to be used.
Total Marks / 90

©Al Tareeqah Management Studies - 2020 2
PLAGIARISM
Plagiarism is a form of cheating, by representing someone else's work as your own or using
someone else's work (another student or author) without acknowledging it with a reference. This
is a serious breach of the Academic Regulations and will be dealt with accordingly. Students
found to have plagiarised can be excluded from the program.
Plagiarism occurs whenever you do any of the following things without acknowledging the
original source:
 Copy information from any source (including the study guide, books, newspapers, the internet)
 Use another person's concepts or ideas
 Summarise or paraphrase another person's work.
How do I avoid plagiarism?
To ensure you are not plagiarising, you must acknowledge with a reference whenever you:
 use another person's ideas, opinions or theory
 include any statistics, graphs or images that have been compiled or created by another person or
organization
 Paraphrase another's written or spoken word.
What are the penalties?
The penalties for plagiarism are:
 Deduction of marks,
 A mark of zero for the assignment or the unit, or
 Exclusion from the program.
Plagiarism is dealt with on a case-by-case basis and the penalties will reflect the seriousness of
the breach.
Please note: claiming that you were not aware of need to reference is no excuse.

©Al Tareeqah Management Studies - 2020 3
Answer the below questions. Each question carries equal marks.
Q1. i) Explain the importance of analysing Financial Statements through Ratios.
ii) Albert Ltd sells goods on cash as well as credit. The following particulars are
extracted from their books of account.
Total Gross sales $100,000
Cash sales (included in above) $ 20,000
Sales returns $ 7,000
Accounts Receivable $ 11,000
Accounts Payable $ 10,000
Calculate : Accounts Receivable Turnover and Average Collection period ratios.
Answer to Question 1:
Part i:
The importance of analysis of the statement of financial through ratio analysis are the
following points highlighted below,
 It helps in analysing the profitability of the firms and to analyse the profitability cycle of the
company.
 It helps in comparing comparable firms.
 It provides an insight of the risk which is faced by the business and to highlight the changes
of liquidity of the company.
Part ii:
The accounts receivable turnover ratio is 6.636 times, while the average collection
period is 55 days.
Figure 1: Accounts Receivable Turnover and Collection Period
Source: By the Author

©Al Tareeqah Management Studies - 2020 4
Q2. If you plan to invest $7000 annually for 5 years and the discount rate is 10%.
Required : i) Calculate what is the future value ?
ii) Briefly explain the time value of money.
Answer to Question 2:
Part i:
The future value for the amount when invested for 5 years at a rate of 10% provides a
value of $42735.7.
Figure 2: Future Value
Source: By the Author
Part ii:
The time value of money implies that the money which is received today has more
value than the money which is received tomorrow. This is because the money which is
present or received today can be invested and it earns interest. Thus the future value of the
money is greater than the amount which is available today and is known as time value of
money.
Q3. Following information is given of ABC Ltd.
Cash Outflow $150,000
Annual Cash inflow after depreciation
First 4 years $25,000
Next 6 years $10,000
Estimated life 10 years
Salvage Value $15,000
Required : Calculate
i) Payback period
ii) Explain the Capital Budgeting process of any Organization
Answer to Question 3:
Part i:
The payback period for the project of ABC ltd is 9 years. This is highlighted in the
figure below,

©Al Tareeqah Management Studies - 2020 5
Figure 3: Payback Period
Source: By the Author
Part ii:
Capital is one of the most costly resource which an organisation has and is to be used
by the organisation after careful consideration. Thus a company evaluates projects and
expense through the capital budgeting process to analyse the future profitability of the
project. Thus the company aims to maximise returns in the future by investing the available
funds in projects which are expected to deliver the maximum value.
Q4. The Kay Company has the following Capital structure as at 31st March, 2019.
Based on Book Value Based on Market Value % Costs
Debentures 300,000 330,000 7
Preference 100,000 110,000 9
Equity 1,500,000 1,700,000 15
Debt 200,000 180,000 10
Required :
Determine the Weighted Average cost of capital using :
a) Book Value weights
b) Market Value weights
c) What are the factors affecting Cost of Capital ?
Answer to Question 4:
Part a:
The WACC of the company as per the book value weights is 13.1%.

©Al Tareeqah Management Studies - 2020 6
Figure 4: WACC as per Book Value
Source: By the Author
Part b:
The WACC of the company as per the market value weights is 14.57%.
Figure 5: WACC as per Market Value
Source: By the Author
Part c:
The factors which affect the cost of capital of a company are highlighted in the points
below,
 The economic condition in the economy.
 The capital structure of the company.
 The tax rates which are prevailing in the country.
Q5. XYZ Construction is considering two projects to develop. The expected cash inflows
are as follows :
Project M Project N
Year 1 10,000 25,000
Year 2 15,000 25,000
Year 3 20,000 25,000
Year 4 25,000 25,000
Year 5 30,000 25,000
Each Project requires an investment of $100,000. A rate of 10% has been selected for
the
NPV Analysis.
Required :
a) Calculate the NPV and the Profitability Index and suggest which project should be

©Al Tareeqah Management Studies - 2020 7
recommended based on each method.
b) Explain what are the key decisions a Finance Manager has to take in an
Organization with suitable examples.
Answer to Question 5:
Part a:
Both the project should be rejected as they are providing negative NPV and also the
profitability index is less than 1. Thus these project do not create value for the company.
Figure 6: NPV and Profitability Index
Source: By the Author
Part b:
The key decision which needs to be taken by the finance manager of any organisation
are the following,
 Investment Decision: The funds which are available with the company needs to be invested in
projects which create value for the company.
 Decision to raise funds: The manager needs to decide how much funds need to be raised and
in what process.
 Decision to pay dividend: The manager needs to decide how much amount of dividend needs
to be paid from the available cash flows.
Q6. Write a short note on the following Financial Management Axioms :
a) Risk – return trade off

©Al Tareeqah Management Studies - 2020 8
b) Cash is King.
c) Incremental Cash flows count
d) The agency problem
e) Ethical decisions are everywhere in Finance
f) Efficient Capital markets.
Answer to Question 6:
Part a:
The risk return trade-off implies that investors expect a higher level of potential return
when the risk is high for a particular investment. Thus an investment having lower risk is
expected to provide lower returns.
Part b:
The cash is king is a term where investors respect and prefer huge sums of cash in
hand. Thus, when the price in the markets is high the investors prefer to hold cash and
purchase securities when there is a fall in the price.
Part c:
Incremental cash flow count represents that a project which provides cash flow which
is greater than the cost of the project. Thus when the incremental cash flow is positive it
provides a positive return for the company, while a negative cash flow highlights a loss
making project.
Part d:
The conflict of interest which arises between the company management and its
stakeholders is termed as an agency problem. The management are delegated to act in the
best interest of the stakeholders and the failure to do so leads to the agency problem.
Part e:
Ethical Decision means that a person needs to do the correct thing which is beneficial
for all. Thus in finance where money is involved and decision tend to affect majority of the
stakeholders, all decision which are made should be ethical creating less damage to the
shareholders.
Part f:
Capital Markets are said to be efficient when all the information relating to the stocks
and companies are reflected by the stock price. If the capital markets are not efficient it might
lead to arbitrage opportunity for investors which can be exploited. Thus capital markets need
to be efficient to reduce manipulation of the markets.
Q7. i) Robbins Corporation is a retail dealer for electronic equipment. The taxable income is
$601,500. Calculate the tax liability.
The corporate tax rates are as follows :
Income from 0 to $50,000 = 15%
$50,000 to $75,000 = 25%
$75,000 to $1,000,000 = 33%
Over $1,000,000 = 40%
Additional Surcharge :
5% on income between $100,000 to $350,000
2% on income over $350,000

©Al Tareeqah Management Studies - 2020 9
ii) Explain the importance of Taxation in an economy and how it contributes to the
overall
well being of the society at large.
Answer to Question 7:
Part i:
The tax paid by the corporation is $205025.00
Figure 7: Tax Payable
Source: By the Author
Part ii:
The taxes which are charged act as a source of revenue for the government which is
used by the government to fund their projects. Thus the money which is collected as tax is
paid back in the form of developmental projects which are undertaken by the government,
This helps the business to flourish and raising the standard of living for individuals.