Subject Code : NZDB6213
Assignment Task:

This booklet contains the following: 

Task 1: Analyse and apply financial information to make decisions (practical questions)
Task 2: Analyse and apply financial information (Theory questions)

Task 1: Analyse and apply financial information to make decisions. (This part has to be submitted under the assignment one-task link) 
Read each scenario and answer the questions that follow. 

Scenario1: Clayton Associates

Rayon Associates is an investment bank who are currently evaluating three options for their client, the BG Group. The options are called Project Diamond, Project Coral and Project Copper. 

Rayon Associates have hired you to help them make the correct recommendations to their client. They have provided you with the information given below and have asked you to answer a set of questions. 

Q 1. The cost of capital, initial outlay and the cash inflows of each project are shown in the table below. 

Calculate the values below and fill in the table: 

a. NPV of each project, and provide a brief explanation of its viability. Your answer should include the acceptance criteria for NPV and explain how time value money is related to this investment decision.

b. IRR for each project, and provide a brief explanation for your decision.

the cash inflows of each project

TASK 2: Analyse and Apply financial information (Theory questions) 
 
Scenario 1: ElectroChip Limited:

ElectroChip Limited is a producer and supplier of machine parts to local and Australian customers. Five years ago, it appeared that the company was in danger of closing down. Profits were down, and shareholder confidence was very low.
 
In an effort to reduce costs and increase profits, the Chief Financial Officer and the Chief Operating Officer put in a number of efficiency and cost-saving measures. These measures include:
 
• Ensuring wasteful processes in the company are overhauled and efficient methods of working are introduced. 
• Borrowing from the Green Bank to invest in new machinery. The Green Bank was selected because the Managing Director of ElectroChip is a member of the bank’s Board. 
• Not upgrading their pollution control systems to match the requirements of the new machinery. This has resulted in an increase in emissions. 
• Not upgrading their safety systems and providing safety training to workers to match the requirements of the new machinery. 
• Not paying cash dividends to shareholders for the past six years. 
• Stopping the company’s support to the local charity. 
• Laying off older workers who were on a higher pay scale in favour of recruits straight out of college for lower pay. 
• Implementing a profit-sharing plan where managers are given a percentage of the company’s profits. 

As a result of these measures, the company’s profits in the past three years have been consistently rising. However, although profits are up, the company’s stock price has declined by $5.50 per share over the past 15 months. The perception in the market is that ElectroChip does not care for its shareholders.
 
Answer the following questions based on Scenario 1. 
Q 1. Briefly explain three different roles of financial manager in financial management. Your answer should include a relevant example from the given scenario.
 
Q 2. 
a. List three stakeholders that have been affected by ElectroChip’s efficiency and cost-saving measures. Explain the reasons based on the given scenario. 

b. For each stakeholder listed in Q2a, describe what steps ElectroChip might take to ensure stakeholders requirements are met. The steps described must be professional, ethical, and socially and culturally appropriate. 

Q 3. In Scenario 1, identify the principal and the agent in the agency relationship. Explain the reason for the decline in the share price while the profits are up. 
 
Scenario 2: Tegal Limited:
 
Use the ratio analysis that you have done in Task 1 to answer this question.
 
Q4. Analyse the trends and explain the impact of the changes in the ratios in the following areas. Your trend and ratio analysis must focus on the impacts of Tegal Limited’s return and risk elements.
 
i. Liquidity and solvency
ii. Profitability
iii. Efficiency of operations 


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  • Posted on : February 22nd, 2019

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