Understanding of Translation Risk - Risk Free Rate of Return - Management Assessment Answer
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Q1: Explain matching principle with example. Write your answer.
Q2: Identify the debit and credit entries in the following transactions.
(a) Bought a machine on credit from A, cost $8,000.
(b) Bought goods on credit from B, cost $500.
(c) Sold goods on credit to C, value $1,200.
(d) Paid D (a credit supplier) $300.
(e) Collected $180 from E, a credit customer.
(f) Paid wages $4,000.
(g) Received rent bill of $700 from landlord G.
(h) Paid rent of $700 to landlord G.
(i) Paid insurance premium $90.
(j) Received a credit note for $450 from supplier,
(k) Sent out a credit note for $200 to customer,
Q3: Explain your understanding of translation risk and transaction risk. Write your answer in 100-150 words.
Q4: Calculate how much $ exporters would receive or how much $ importers would pay, ignoring the bank's commission, in each of the following situations, if they were to exchange currency and Australian $ at the spot rate.
a) An Australian exporter receives a payment from a Danish customer of 150,000 kroner.
b) An Australian importer buys goods from a Japanese supplier and pays 1 million yen.
Spot rates are as follows.
Bank sells (offer) Bank buys (bid)
Danish Kr/$ 9.4340 9.5380
Japan Y/$ 203.650 205.781
Q5: Define Cost of capital in your own words. Write your answer.
Q6: What is risk free rate of return? Give example. Write your answer.
Q7: Explain the concept of premium for business risk.
Q8: Explain the concept of Premium for financial risk.
Q9: Explain the relation between cost of capital and risk.
Q10: Identify any four (4) internal and external factors that affect working capital management of a company.
Q11: Explain the purpose of capital structure analysis.
Q12: Define market capitalization, net asset method of share valuation and income-based valuation bases. Write your answer
Q13: Furry has in issue 12% bonds with par value $100,000 and redemption value $110,000, with interest payable quarterly. The cost of debt on the bonds is 8% annually and 2% quarterly. The bonds are redeemable on 30 June 20X4 and it is now 31 December 20X0.
Calculate the market value of the bonds.
Q14: What differences would there be in working capital policies for a manufacturing company and a food retailer?
Write your answer.
Q15: Explain the concept of over trading and its symptoms. Write your answer in 250-300 words.
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