HI5002 - Questions for Final Assessment (Tutorial Question Assignment) Posted on: Friday, 2 October XXXXXXXXXX:18:21 PM AEST Dear HI5002 Students All the questions for Tutorial Question Assignment...

Unit Code: HI5002
Unit Name: Finance for Business
Answer to Question 1
(a) The three most important question of corporate finance are:-
· Capital budgeting: It is a process by which organization determines whether a particular project is feasible and should the organization invest in the same or not. It has effect on the cash flow statement and the fixed assets and the cash and bank balance part of the balance sheet.
· Capital Structure: For every organization, there are two forms of finance that are debt and equity by which a company raises funds for its operations. The debt includes loans, debentures etc and the equity part includes equity share capital, preference share capital etc.
· Working Capital Management: This is the process of maintenance of sufficient liquidity available with the company in the form of current assets as reduced by current liabilities. Working capital management has its effects of the current assets and the current liabilities of the balance sheet.
(b) Balance Sheet of Risk Surfing Ltd:-
    Liabilities
    Amount ($)
    Long Term Debt
    5890
    Current Liabilities
    4580
    Shareholders fund
    15150
    Total Liabilities
    25,620
    Assets
    Amount ($)
    Fixed Assets
    17700
    Current Assets
    7920
    Total Assets
    25,620
(c) Calculation of Net Working Capital
Net Working Capital = Current Assets - Current Liabilities
= $7,920 - $4,580
= $3,340
(d) Calculation of Return on Asset
Return on Asset = Net Income / Total Asset * 100
Calculate Return on Asset we have to find Net Income. For this we have given Return on Equity = 30%
Return on Equity = Net income / Shareholder’s Equity * 100
30 = Net Income /15150 * 100
Net Income = $4,545
Return on Asset = 4,545 / 25,620 * 100
= 17.74%
(e) Calculation of Price to Earnings Ratio:-
PE Ratio = Market Price per share / Earning per share
Earnings per share = 4545/2000
= 2.2725
PE Ratio = 12 / 2.2725
=5.28
Answer to Question 2
(a) Bank to choose for Investment 1
Bank A
Annual Rate - 8.5%
Compounding - Semi-annually
EAR (I) Formula
I = (1 + r / m) ^ m − 1
= (1 + 0.0852) ^ 2 − 1
I = (1 + 0.0852) ^ 2 −1
I = 0.086806
I = I × 100 = 8.68%
Bank B
Annual Rate - 8.45%
Compounding - Quarterly
I = (1 + 0.0845 / 4) ^ 4 − 1
I = (1 + 0.0845 / 4) ^ 4 − 1
I = 0.087216
I = I × 100 = 8.72%
She should invest in Bank B which pays a higher interest rate.
(b) Amount accumulated in Bank B
Where: A = P (1 + r / n) n t
A = 120,000 (1 + 8.45% / 4) ^ 4 * 15
A = $ 420,645.06
A = P + I where
P (principal) = $ 120,000.00
I (interest) = $ 300,645.06
(c) Annual Interest Rate
FV =PV (1 + i) n
450000 = 120,000 (1 + i) 10
i = 14.3%
(d) Using the under-mentioned formula to calculate the monthly payment (A)
Future Value of annuity = A* ((1 + rate) ^ n - 1) / rate
330,000 = A * ((1 + 7% / 12) ^ (15 * 12) - 1) / (7% / 12)
330,000 = A * 316.9622967
A= 1041.133294
Monthly payment = $1,041.13
(e) Use the following formula to calculate the amount accumulated
Future Value of annuity due = (1 + Rate) * A * ((1 + rate) ^ number of periods) - 1) / rate
= (1 + 7% / 12) * 1,200 * ((1 + 7% / 12) ^ (15 * 12) - 1) / (7% / 12)
= 1.005833333 * 1,200 * 316.9622967
= $382,573.49
(f) The formula to be used here...