Financial Decision Making Analysis

The assignment content discusses various financial concepts, including capitalization of average profits, value of stock, and present value of money. It also touches upon marketing strategies and product innovation to boost sales. Additionally, the concept of goodwill is explored, highlighting seven factors that impact its value: location, time factor, nature of business, capital invested, trend of profit, efficiency in management, and consumer perception.

Q1.
1. a
2. a
3. b
4. c
5. d
6. a
7. d
8. a
9. c
10. d
11. c
12. d
13. b
14. b
15. d
16. d
17. b
18. a
19. c
20. c
21. a
22. c
23. c
24. a

25. d
Capitalized value of average profits= 25,000* 100/15
=166667
=200,000- 166667
=33333.3*2
=66667
26. a
Value of stock= D1/(k-g)
= 0.40/(0.20-0.06)
= 2.86
27. c
M=P (1+i) ^n
M= 1500(1+0.08) ^ 5
=1500*1.4693
=2204
28. a
M=P (1+i) ^n
1500 = p (1+0.12) ^6
P = 1000/(1.12)^5
1000/1.9738
=507
29. c
30. d

Q5.
C. Based on the available data it is recommended to adopt various marketing strategies which
help to promote the product in the eyes of the consumers which directly impacts on the sales
volume of the company. Secondly, the company must be innovative product D which helps to
attract new consumers and retain existing consumers. Thirdly the cost volume analysis should be
done which help to take short-term decisions regarding the achievement of breakeven point.
Q6.
In an accounting terms, goodwill is defined as an intangible asset which arises at the time of
purchasing a business by the buyer. It is the amount which is the difference between purchase
consideration and the total value of assets and liabilities. Following are the seven factors which
impacts on the value of goodwill:
1. Location
It is one of the most important factors which is considered by the purchaser at the time of
purchasing because the location of a business attracts a large number of consumers which
directly impacts on the sales volume of the company.
2. Time factor
It is another factor which impacts on the value of the company because old business earns
more value than the new firm.
3. Nature of business
The nature of a business involves nature of goods, the involvement of risk, monopolistic
nature of business, an advantage of patents and trademark and availability of raw material. So
the nature of business also considered at the time of purchasing.
4. Capital invested
The proportion of profit generated and capital invested must be higher which is preferred by
the purchaser whereas the huge amount of investment with lower profit is not preferred by
the buyers.
5. Trend of profit
It impacts on the goodwill of the company because of fluctuations in profitability. The higher
trend of profit leads to the high value of goodwill and vice versa.
6. Efficiency in Management
The planning, organizing, directing, control and other aspects of management impact on the
profitability which influences the goodwill of a company.
7. Consumers perception
The brand image in the eyes of the consumers impacts on the valuation of goodwill.