IMBA-622 Financial Management

Assignment 1 –

Financial Management – Theory and Application

Deadline

As per the VLE

Learning Objectives for Course

1. Obtain a comprehensive understanding of the financial environment and adequately

define financial terms

2. Have an ability and readiness to formulate, examine and defend business case

judgments, as well as recognize ethical dilemmas and corporate social responsibility

issues in Finance,

3. Conceptually understand the main theories of Corporate Finance and have a

commitment to their practical mathematical application

4. Compare and appraise theories that underlie current thinking in Corporate Finance

and Investment, demonstrate and evaluate how these theories can be applied in

practical situations,

5. Demonstrate effective oral communication of complex ideas and arguments, possess

developed listening skills.

Guidelines for assignment

This is an individual assignment

Ground your answer in relevant theory

Plagiarism and reproduction of someone else’s work as your own will be penalized

Make use of references, where appropriate – Use Harvard or APA referencing

method.

Late submission implies a deduction of 10 marks per day

Structural elements should include an introduction, main body, and a conclusion

Weight – 40%

Word count guidance: 2500 words

Type of assignment: Excel Assessed Work Folder

Start / Finish : as per the VLE

Learning Outcome Assessed: 1,2,3,4

FINANCIAL MANAGEMENT – ASSIGNMENT 1 MBA622 www.ucpmarjononline.co.uk

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Part 1

Assume that for a car manufacturer, Chrysler Ford. Your boss, the chief financial officer, has just handed

you the estimated cash flows for two proposed projects. Project L involves adding a new item to the

firm’s ignition line; it would take some time to build up the market for this product, so the cash inflows

would increase over time. Project S involves an add-on to an existing line, and its cash flows would

decrease over time. Both projects have 3-year lives, because Chrysler is planning to introduce entirely

new models after 3 years.

Here are the projects net cash flows (in thousands of dollars):

Expected after-tax

Net cash flows (CFt)

Year Project S Project L

0 ($100) ($100)

1 70 10

2 50 60

3 20 80

Project S

0 1 2 3

Project L

0 1 2 3

-100 70 50 20 -100 10 60 80

Depreciation, salvage values, net working capital requirements, and tax effects are all included in these

cash flows.

The CFO also made subjective risk assessments of each project, and he concluded that both projects have characteristics which are similar to the firm’s average project. Chrysler’s weighted

average cost of capital is 10%. You must no determine whether one or both of the projects should be

accepted.

Required

Evaluate the projects using the 5 key techniques: (1) payback period, (2) discounted payback period,

(3) net present value, (4) internal rate of return, and (5) modified internal rate of return.

Identify those projects that will lead to the maximization of the firm’s stock price.

Part 2

Critically appraise the appraisal techniques above. Discuss their limitations, the social and

ethical factors that should also be considered when making such decisions.

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Part 3

Multiple Choice Questions and Short Answers

Please attempt all answers. The questions for this part of the assignment are to be taken on the

separate submission link on the VLE titled, “Part 3-Assignment 1.”

Q1. Which of the following in correct? The bid quote represents the rate at which

1. the dealer will buy foreign currency from you.

2. the dealer will sell foreign currency to you.

3. you can buy the foreign currency from the dealer.

4. None of these.

Q2. Sole proprietorship is an owner’s only business.

o False

o True

Q3. Which of the following is correct? A stakeholder is

1. anyone geographically close to the firm’s headquarters.

2. anyone with a claim on the cash flows of the firm.

3. any governmental agency.

4. All of these.

Q4. Which of the following is correct? Corruption in business

1. creates inefficiencies in an economy.

2. inhibits growth in an economy.

3. slows the rate of economic growth in a country.

4. All of these.

Q5. Which senior executive, when he or she is guilty of serious misconduct, can subject the firm to

the most serious losses in financial wealth?

1. Chief Technology Officer.

2. Chief Financial Officer.

3. Chief Risk Officer.

4. Chief Executive Officer.

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Q6. Which of the following is correct? With regard to information, a central idea of fairness suggests

that

1. outsiders should not be allowed to trade since, by definition, they are at a disadvantage.

2. insiders should never be able to trade.

3. decisions should be made on an even playing field.

4. insiders should be able to trade whenever they want.

Q7. Which of the following is correct? Secondary financial markets are similar to

1. direct auction markets.

2. new-car markets.

3. used-car markets.

4. All of these.

Q8. Which of the following is correct? The ease with which a security can be sold and converted into

cash is called

1. convertibility.

2. book value.

3. marketability.

4. None of these.

Q9. Which of the following indices is not a broad market average index?

1. CAC-40

2. DAX

3. FTSE 100

4. Amex Oil Index

Q10. Use the following table to calculate the expected return for the asset.

Return Probability

0.10 0.25

0.20 0.50

0.25 0.25

What is the asset’s expected return?

1. 20.00%

2. 18.75%

3. 17.50%

4. 15.00%

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Q11. Use the following table to calculate the expected return for the asset.

Return Probability

0.05 0.10

0.10 0.15

0.15 0.50

0.25 0.25

What is the asset’s expected return?

1. 12.50%

2. 15.75%

3. 13.75%

4. 16.75%

Q12. The return distribution for an asset is as shown in the following table. What are the missing

values if the expected return is 10%.

Return Probability

0.10 0.25

X 0.50

X 0.25

1. 0.20

2. 0.15

3. 0.10

4. None of these

Q13. Explain the difference between systematic and non-systematic risk.

Q14. Which of the following is correct? In computing the NPV of a capital budgeting project, one

should NOT

1. estimate the cost of the project.

2. ignore the salvage value.

3. make a decision based on the project’s NPV.

4. discount the future cash flows over the project’s expected life.

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Q15. Which of the following is correct? The net present value

1. uses the discounted cash flow valuation technique.

2. will provide a direct measure of how much the firm value will change because of the capital

project.

3. is consistent with shareholder wealth maximisation goal.

4. All of these.

Q16. Which of the following is correct? Disadvantages of the payback method include the following.

1. It ignores the time value of money.

2. It is inconsistent with the goal of maximising shareholder wealth.

3. It ignores cash flows beyond the payback period.

4. All of these.

Q17. Which one of the following statements about IRR is NOT true?

1. The IRR is the discount rate that makes the NPV greater than zero.

2. The IRR is a discounted cash flow method.

3. The IRR is an expected rate of return.

4. None of these.

Q18. Which of the following is correct? When estimating the cost of debt capital for the firm we are

primarily interested in

1. the cost of short-term debt.

2. the cost of long-term debt.

3. the coupon rate of the debt.

4. None of these.

Q19 Which of the following is correct? The recommended model to estimate the cost of ordinary

shares for a firm is

1. a one-stage constant growth model.

2. a multi-stage growth model.

3. the CAPM.

4. None of these.

Q20. Which of the following is correct? Disadvantages of going public include all EXCEPT

1. The transparency that results from this compliance can be costly for some firms.

2. The costs of complying with ongoing listing and disclosure requirements.

3. The high cost of the IPO itself.

4. Managers’ tendency to focus on long-term profits.

MBA-622 Financial Management

Assignment 2

The Greek Exit Plan

Deadline

As per the VLE

Learning Objectives for Course

1. Obtain a comprehensive understanding of the financial environment and adequately define financial terms

2. Have an ability and readiness to formulate, examine and defend business case judgments, as well as recognize ethical dilemmas and corporate social responsibility issues in Finance,

3. Conceptually understand the main theories of Corporate Finance and have a commitment to their practical mathematical application

4. Compare and appraise theories that underlie current thinking in Corporate Finance and Investment, demonstrate and evaluate how these theories can be applied in practical situations,

5. Demonstrate effective oral communication of complex ideas and arguments, possess developed listening skills.

Guidelines for assignment

 This is an individual assignment

 Ground your answer in relevant theory

 Plagiarism and reproduction of someone else’s work as your own will be penalized

 Make use of references, where appropriate – Use Harvard or APA referencing method.

 Late submission implies a deduction of 10 marks per day

 Structural elements should include an introduction, main body, and a conclusion

 Weight – 45%

 Word count guidance: 2500 words

 Type of assignment: Business Report / Essay

 Start / Finish : Week 6

 Learning Outcome Assessed: 1,2,3,4,5

FINANCIAL MANAGEMENT – ASSIGNMENT 2 MBA622

www.ucpmarjononline.co.uk

2

Questions

Each day there is speculation in the news about what could happen to Greece and its economy. Your assignment is to research the Greek crisis and draw your own conclusions on what the outcome will be for survival. Will they exit the Euro? Or rebuild their economy? This is a broad and open assignment that should be supported with theory learnt.

Please write a report on your findings and prepare a short 5 minute summary to present to your tutor by skype of video recording. Please email this to your tutor by the end of the course

Thank you

Apostleekeng