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WORKING CAPITAL MANAGEMENT

Required: 3 JUNE 2008

(a) Discuss the key factors which determine the level of investment in current assets. (6 marks)

(b) Discuss the ways in which factoring and invoice discounting can assist in the management of
accounts receivable. (6 marks)

(c) Calculate the size of the overdraft of FLG Co, the net working capital of the company and the total
cost of financing its current assets. (6 marks)

(d) FLG Co wishes to minimise its inventory costs. Annual demand for a raw material costing $12 per
unit is 60,000

Required:

(i) Calculate the total cost of inventory for the raw material when using the economic order quantity.

(ii) Determine whether accepting the discount offered by the supplier will minimise the total cost of

inventory for the raw material.

Required:3 PILOT

(a) Evaluate whether the proposed changes in credit policy will increase the profitability of Ulnad Co.
(b) Renpec Co, a subsidiary of Ulnad Co, has set a minimum cash account balance of $7,500. The
average cost to the company of making deposits or selling investments is $18 per transaction and the
standard deviation of its cash flows was $1,000 per day during the last year. The average interest rate on
investments is 5.11%.

Determine the spread, the upper limit and the return point for the cash account of Renpec Co using the
Miller-Orr model and explain the relevance of these values for the cash management of the company. (6
marks)

(c) Identify and explain the key areas of accounts receivable management. (6 marks)

(d) Discuss the key factors to be considered when formulating a working capital funding policy

Required: 3JUNE 2015

(a) Advise whether the factor’s offer is financially acceptable to Widnor Co. (7 marks)

(b) Briefly discuss how the creditworthiness of potential customers can be assessed

Required:32 DEC 2018

(a) Calculate the costs and beneits of each of Option 1 and Option 2 and comment on your indings

(b) Discuss reasons (other than costs and beneits already calculated) why Oscar Co may beneit from the
services offered by the factoring company. (6 marks)

(c) Discuss THREE factors which determine the level of a company’s investment in working capital.

Required: 4 DEC 2009


(a) Discuss the role of financial intermediaries in providing short-term finance for use by business
organisations.

(b) Prepare the following forecast financial statements for APX Co using the information provided:

(i) an income statement for the next year; and

(ii) a statement of financial position at the end of the next year. (9 marks)

(c) Analyse and discuss the working capital financing policy of APX Co. (6 marks)

(d) Analyse and discuss the forecast financial performance of APX Co in terms of working capital
management.

Required: 31 JUNE 2017

(a) (i) Calculate the cash operating cycle of Pangli Co at the start of January 20X7. (2 marks)

(ii) Calculate the overdraft expected at the end of January 20X7. (4 marks)

(iii) Calculate the current ratios at the start and end of January 20X7. (4 marks)

(b) Discuss FIVE techniques that Pangli Co could use in managing trade receivables

Required:3 JUNE 2013

(a) For the change in working capital policy, calculate the change in the operating cycle, the effect on the
current ratio and the finance cost saving. Comment on your findings. (8 marks)

(b) Discuss the key elements of a trade receivables management policy. (7 marks)

(c) Explain the different types of foreign currency risk faced by a multinational company. (6 marks)

(d) TGA Co expects to receive €500,000 from export sales at the end of three months. A forward rate of
€1·687 per $1 has been offered by the company’s bank and the spot rate is €1·675 per $1. TGA Co can
borrow short term in the euro at 9% per year.

Required:

Calculate the dollar income from a forward market hedge and a money market hedge, and indicate which

hedge would be financially preferred by TGA Co

Required : 3 JUNE 2012

(a) Using suitable working capital ratios and analysis of the financial information provided, evaluate
whether Wobnig Co can be described as overtrading (undercapitalised). (12 marks)

(b) Critically discuss the similarities and differences between working capital policies in the following
areas:

(i) Working capital investment;

(ii) Working capital financing. (9 marks)


(c) Wobnig Co is considering using the Miller-Orr model to manage its cash flows. The minimum cash
balance would be $200,000 and the spread is expected to be $75,000.

Required:

Calculate the Miller-Orr model upper limit and return point, and explain how these would be used to
manage the cash balances of Wobnig Co.

Required: 2 DEC 2012

(a) Calculate the net benefit or cost of the proposed changes in trade receivables policy and comment on
your findings. (6 marks)

(b) Calculate whether the bulk purchase discount offered by the supplier is financially acceptable and
comment on the assumptions made by your calculation. (6 marks)

(c) Identify and discuss the factors to be considered in determining the optimum level of cash to be held
by a company. (5 marks)

(d) Discuss the factors to be considered in formulating a trade receivables management policy.

Required: 4 JUNE 2011

(i) Discuss the factors that influence the formulation of working capital policy; (7 marks)

(ii) Calculate if ZPS Co will benefit financially by accepting the offer of:

(1) the early settlement discount;

(2) the bulk purchase discount.

Required:2 DEC 2011

(a) Explain the meaning of the term ‘cash operating cycle’ and discuss the relationship between the cash

operating cycle and the level of investment in working capital. Your answer should include a discussion
of relevant working capital policy and the nature of business operations. (7 marks)

(b) Calculate the cash operating cycle of Bold Co. (Ignore the factor’s offer in this part of the question).

(c) Calculate the value of the factor’s offer:

(i) on a with-recourse basis;

(ii) on a non-recourse basis. (7 marks)

(d) Comment on the financial acceptability of the factor’s offer and discuss the possible benefits to Bold
Co of factoring its trade receivables

equired:1 JUNE 2010

(a) Calculate the following values:

(i) the expected value of the period 1 closing balance;

(ii) the expected value of the period 2 closing balance;


(iii) the probability of a negative cash balance at the end of period 2;

(iv) the probability of exceeding the overdraft limit at the end of period 2.

Discuss whether the above analysis can assist the company in managing its cash fl ows. (b)
Identify and discuss the factors to be considered in formulating a trade receivables management policy for

ZSE Co. (8 marks)

(c) Discuss whether profi tability or liquidity is the primary objective of working capital
management.

Required: 3 DEC 2010

(a) Calculate the cost of the current ordering policy and the change in the costs of inventory management
that will arise if the economic order quantity is used to determine the optimum order size for Product
KN5.

(b) Briefly describe the benefits of a just-in-time (JIT) procurement policy. (5 marks)

(c) Calculate and comment on whether the proposed changes in receivables management will be
acceptable. Assuming that only 25% of customers take the early settlement discount, what is the
maximum early settlement discount that could be offered? (6 marks)

(d) Discuss the factors that should be considered in formulating working capital policy on the
management of trade receivables

Required: 4 dec 2007

(a) Identify the objectives of working capital management and discuss the conflict that may arise
between them.

(b) Calculate the cost of the current ordering policy and determine the saving that could be made by
using the economic order quantity model. (7 marks)

(c) Discuss ways in which PKA Co could improve the management of domestic accounts receivable.

(d) Evaluate whether a money market hedge, a forward market hedge or a lead payment should be used
to hedge the foreign account payable.

Required: 2 dece 2006

(a) Calculate:

(i) the EOQ for raw material Y, and

(ii) the total annual cost of purchasing, ordering and holding stocks of raw material Y. (4 marks)

The supplier has offered Point Ltd a discount of 1% on the purchase price if each order placed is for 2,000
units.

(b) Calculate the total annual saving to Point Ltd of accepting this offer. (3 marks)

(c) List FOUR examples of holding costs.


Required:32 DECEMBER 2018

(a) Calculate the costs and beneits of each of Option 1 and Option 2 and comment on your indings

(b) Discuss reasons (other than costs and beneits already calculated) why Oscar Co may beneit from
the services offered by the factoring company.

(c) Discuss THREE factors which determine the level of a company’s investment in working capital.

Required: 3 DECEMB 2015

(a) Evaluate whether ZXC Co should introduce the early settlement discount.

(b) Discuss TWO ways in which a company could reduce the risk associated with foreign accounts
receivable

Required:3 JUNE 2013

(a) For the change in working capital policy, calculate the change in the operating cycle, the effect on the
current ratio and the finance cost saving. Comment on your findings.

(b) Discuss the key elements of a trade receivables management policy

(c) Explain the different types of foreign currency risk faced by a multinational company. (6 marks)

(d) TGA Co expects to receive €500,000 from export sales at the end of three months. A forward rate of
€1·687per $1 has been offered by the company’s bank and the spot rate is €1·675 per $1. TGA Co can
borrow short term in the euro at 9% per year.

Required: 3 DECEMBER 2013

(a) Calculate the following values for Product P:

(i) The total cost of the current ordering policy; (3 marks)

(ii) The total cost of an ordering policy using the economic order quantity; (3 marks)

(iii) The net cost or saving of introducing an ordering policy using the economic order quantity. (1 mark)

(b) Calculate the net value in dollars to Plot Co of accepting the early settlement discount for Product Q.

(c) Discuss how invoice discounting and factoring can aid the management of trade receivables.

(d) Identify the objectives of working capital management and discuss the central role of
working capital management in financial manageme

Required:2 JUNE 2014

(a) Calculate the working capital cycle (cash collection cycle) of CSZ Co at the end of March 2014 and
discuss whether a working capital cycle should be positive or negative. (6 marks)

(b) Calculate the target quick ratio (acid test ratio) and the target ratio of sales to net working capital of
CSZ Co at the end of March 2015.

(c) Analyse and compare the current asset and current liability positions for March 2014 and March
2015, and discuss how the working capital financing policy of CSZ Co would have changed. (8 marks)
(d) Briefly discuss THREE internal methods which could be used by CSZ Co to manage foreign
currency transaction risk arising from its continuing business activities

IRELAND (WORKING CAPITAL)

REQUIRED: 2 AGOST 2011

Prepare a report for the management of Kate Limited that sets out the financial performance of the
company over the last year and assesses the financial position of the company as at 31 July 2011.

REQUIRED: 6 AGOST 2009

Prepare a briefing note for the management of Jimmy Limited. The note should:

a) calculate the working capital cycle for Jimmy Limited for the year ended 31st August 2009. (6 Marks)

b) comment on Jimmy Limited’s financial position as at 31st August 2009. (4 Marks)

c) determine the maximum amount that should be spent on the credit control team for the year ended 31st
August 2010 if the proposal is intended to be cost neutral. (Assume that Jimmy PLC’s sales for y/e
31/8/2010 will be as per the year ended 31/8/2009.

REQUIREMENT: 5 APRIL 2011

Prepare a briefing note for the management team of M Limited. This note should:

(a) Calculate the working capital cycle for year ended 31st March 2011. (4 Marks)

(b) Comment on M Limited’s solvency as at 31st March 2011. (7 marks)

(c) Suggest four actions that M Limited could take to improve its liquidity position for the forthcoming
year ended 31st

March 2012

REQUIRED:6 APRIL 2010

Prepare a report for the Managing Director, assessing the working capital management, liquidity and
profitability of Horse Limited for the most recent financial year.

REQUIRED: 2APRIL 2008

Prepare a briefing note for the management of Bell PLC which:

assesses Bell PLCʼs working capital management over the two years ended 31st December 2007.

reviews the performance of Bell PLC relative to industry competitors from an investorʼs perspective for
the year ended 31st December 2007. (10 Marks)

Note: Prepare whatever calculations you consider necessary

DIVIDEND DECISION/POLICY
Required:4 DEC 2012

(a) Calculate the value of GWW Co using the following methods:

(i) market capitalisation (equity market value);

(ii) net asset value (liquidation basis);

(iii) price/earnings ratio method using the business sector average price/earnings ratio;

(iv) dividend growth model using:

(1) the average historic dividend growth rate;

(2) Gordon’s growth model (the br model).

The total marks will be split equally between each part. (10 marks)

(b) Discuss the relative merits of the valuation methods in part (a) above in determining a purchase price
for GWW Co. (8 marks)

(c) Calculate the following values for GWW Co:

(i) the before-tax market value of the bonds of GWW Co;

(ii) debt/equity ratio (book value basis);

(iii) debt/equity ratio (market value basis).

Discuss the usefulness of the debt/equity ratio in assessing the financial risk of GWW Co

Required:3 JUNE 201

(a) Analyse and discuss the recent financial performance and the current financial position of YNM Co,

commenting on:

(i) achievement of the objective of maximising shareholder wealth;

(ii) the two dividend choices;

(iii) the proposal to raise $50 million of new debt finance. (13 marks)

(b) Discuss the following sources of finance that could be suitable for YNM Co, in its current position, to
meet its need for $50m to support existing business operations:

(i) equity finance;

(ii) sale and leaseback. (6 marks)

(c) Explain the nature of a scrip (share) dividend and discuss the advantages and disadvantages to a
company of using scrip dividends to reward shareholders.

Required:4 JUNE 2010


(a) Calculate the dividend yield, capital gain and total shareholder return for 2008 and 2009, and
briefl y discuss your fi ndings with respect to:

(i) the returns predicted by the capital asset pricing model (CAPM);

(ii) the other fi nancial information provided. (10 marks)

(b) Calculate and comment on the share price of QSX Co using the dividend growth model in the
following circumstances:

(i) based on the historical information provided;

(ii) if the proposed change in dividend policy is implemented. (7 marks)

(c) Discuss the relationship between investment decisions, dividend decisions and fi nancing decisions
in the context of fi nancial management, illustrating your discussion with examples where appropriate.

Required:4 DEC 2010

(a) Calculate the equity value of NN Co using the following business valuation methods:

(i) the dividend growth model;

(ii) net asset value. (5 marks)

(b) Calculate the after-tax cost of debt of NN Co. (4 marks)

(c) Calculate the weighted average after-tax cost of capital of NN Co. (6 marks)

(d) Discuss the factors to be considered in formulating the dividend policy of a stock-exchange listed
company

Required: 2 jun 2008

(a) Calculate the current ex dividend share price of THP Co and the current market capitalisation of THP
Co using the dividend growth model. (4 marks)

(b) Assuming the rights issue takes place and ignoring the proposed use of the funds raised, calculate:

(i) the rights issue price per share;

(ii) the cash raised;

(iii) the theoretical ex rights price per share; and

(iv) the market capitalisation of THP Co. (5 marks)

(c) Using the price/earnings ratio method, calculate the share price and market capitalisation of CRX Co
before the acquisition. (3 marks)

(d) Assuming a semi-strong form efficient capital market, calculate and comment on the post acquisition
market capitalisation of THP Co in the following circumstances:

(i) THP Co does not announce the expected annual after-tax savings; and

(ii) the expected after-tax savings are made public. (5 marks)


(e) Discuss the factors that THP Co should consider, in its circumstances, in choosing between equity
finance and debt finance as a source of finance from which to make a cash offer for CRX Co

Required: 1 dec 2008

(a) Calculate the theoretical ex rights price per share prior to investing in the proposed business
expansion.

(b) Calculate the expected share price following the proposed business expansion using the
price/earnings ratio method.

(c) Discuss whether the proposed business expansion is an acceptable use of the finance raised by the
rights issue, and evaluate the expected effect on the wealth of the shareholders of Dartig Co. (5 marks)

(d) Using the information provided, calculate the ex div share price predicted by the dividend growth
model and discuss briefly why this share price differs from the current market price of Dartig Co.

Required:1 dec 2007

Calculate the value of Danoca Co using the following methods:

(i) price/earnings ratio method;

(ii) dividend growth model;

and discuss the significance, to Phobis Co, of the values you have calculated, in comparison to the current

market value of Danoca Co.

(b) Phobis Co has in issue 9% bonds which are redeemable at their par value of $100 in five years’ time.

Alternatively, each bond may be converted on that date into 20 ordinary shares of the company. The
current ordinary share price of Phobis Co is $4·45 and this is expected to grow at a rate of 6·5% per year
for the foreseeable future. Phobis Co has a cost of debt of 7% per year.

Required: 2 dec 2007

Calculate the following current values for each $100 convertible bond:

(i) market value;

(ii) floor value;

(iii) conversion premium. (6 marks)

(c) Distinguish between weak form, semi-strong form and strong form stock market efficiency, and
discuss the significance to a listed company if the stock market on which its shares are traded is shown to
be semi-strong form efficient. (8 marks)

Required:4 dec 2006

(a) Analyse and contrast the dividend polices of Forthmate plc and Herander plc. Include in your analysis
estimates of dividends as a percentage of free cash flow, and any other relevant calculations.

Discuss possible reasons why the companies’ dividend policies differ. (8 marks)
(b) Discuss whether or not a company should pay dividends that are equal to the free cash flow to equity.

(c) In both of the last two years Herander plc has had more potential investments with positive NPV than
it actually undertook.

Required:

Discuss the implications of your findings in (a) above for the financial strategy of Herander plc.

Required: 4 JUNE 2013

(a) Using the dividend valuation model, calculate the value of GXG Co under option 1, and advise
whether option 1 will be acceptable to shareholders. (6 marks)

(b) Calculate the effect on earnings per share of the proposal to raise finance by a stock market listing

(option 2), and comment on the acceptability of the proposal to existing shareholders. (5 marks)

(c) Calculate the effect on earnings per share and interest cover of the proposal to raise finance by issuing
new debt (option 3), and comment on your findings. (5 marks)

(d) Discuss the factors to be considered in choosing between traded bonds, new equity issued via a
placing and venture capital as sources of finance

COST OF CAPITAL/CAPITAL STRUCTURE

Required: 2 JUNE 2013

(a) Calculate the market value weighted average cost of capital of AMH Co. (12 marks)

(b) Discuss how the capital asset pricing model can be used to calculate a project-specific cost of capital
for AMH Co, referring in your discussion to the key concepts of systematic risk, business risk and
financial risk.

(c) Discuss why the cost of equity is greater than the cost of debt.

Required:3 DEC 2012

(a) Calculate the market value after-tax weighted average cost of capital of BKB Co, explaining clearly
any assumptions you make. (12 marks)

(b) Discuss why market value weighted average cost of capital is preferred to book value weighted
average cost of capital when making investment decisions. (4 marks)

(c) Comment on the interest rate risk faced by BKB Co and discuss briefly how this risk can be managed.

(d) Discuss the attractions to a company of convertible debt compared to a bank loan of a similar
maturity as a source of finance

Required: 2 JUNE 2011

(a) Calculate the market value after-tax weighted average cost of capital of AQR Co in the following

circumstances:
(i) before the new issue of bonds takes place;

(ii) after the new issue of bonds takes place.

Comment on your findings. (12 marks)

(b) Identify and discuss briefly the factors that influence the market value of traded bonds. (5 marks)

(c) Discuss the director’s view that issuing traded bonds will decrease the weighted average cost of
capital of AQR Co and thereby increase the market value of the company

Required:2 JUNE 2010

(a) Calculate the after–tax cost of debt of the 9% bonds. (4 marks)

(b) Calculate and comment on the effect of the bond issue on the weighted average cost of capital of
YGV Co, clearly stating any assumptions that you make. (5 marks)

(c) Calculate the effect of using the bond issue to fi nance the reduction in the overdraft on:

(i) the interest coverage ratio; (ii) gearing. (4 marks)

(d) Evaluate the proposal to use the bond issue to fi nance the reduction in the overdraft and discuss
alternative sources of fi nance that could be considered by YGV Co, given its current fi nancial position.

Required:2 DEC 2010

(a) Evaluate suitable methods of raising the $200 million required by Nugfer Co, supporting your
evaluation with both analysis and critical discussion. (15 marks)

(b) Briefly explain the factors that will influence the rate of interest charged on a new issue of bonds.

(c) Identify and describe the three forms of efficiency that may be found in a capital market.

Required: 2 dec 2009

(a) Calculate the cost of debt of Bond A. (3 marks)

(b) Discuss the reasons why different bonds of the same company might have different costs of debt.

(c) Calculate the following values for DD Co:

(i) cost of equity, using the capital asset pricing model; (2 marks)

(ii) ex dividend share price, using the dividend growth model; (3 marks)

(iii) capital gearing (debt divided by debt plus equity) using market values; and (2 marks)

(iv) market value weighted average cost of capital. (2 marks)

(d) Discuss whether a change in dividend policy will affect the share price of DD Co.

Required:1 june 2008

(a) Calculate the market value weighted average cost of capital of Burse Co. State clearly any
assumptions that you make. (12 marks)
(b) Discuss the circumstances under which the weighted average cost of capital can be used in
investment appraisal. (6 marks)

(c) Discuss whether the dividend growth model or the capital asset pricing model offers the better
estimate of the cost of equity of a company

Required: 4 dec 2008

(a) Briefly explain the reasons why a company may choose to finance a new investment by an issue of
debt finance. (7 marks)

(b) Calculate the current total market value (in pesos) of the foreign bonds used to finance the building of
the new factory. (4 marks)

(c) Assume that Boluje Co has no surplus cash at the present time:

(i) Explain and illustrate how a money market hedge could protect Boluje Co against exchange rate risk
in relation to the dollar cost of the interest payment to be made in one year’s time on its foreign bonds.

(ii) Compare the relative costs of a money market hedge and a forward market hedge. (2 marks)

(d) Describe other methods, including derivatives, that Boluje Co could use to hedge against exchange
rate risk.

Required: 3 dec 2008

(a) Calculate the after-tax weighted average cost of capital of Rupab Co. (6 marks)

(b) Prepare a forecast of the annual after-tax cash flows of the investment in nominal terms, and calculate
and comment on its net present value. (8 marks)

(c) Explain how the capital asset pricing model can be used to calculate a project-specific discount rate
and discuss the limitations of using the capital asset pricing model in investment appraisal.

Required:31 JUNE 2018

(a) (i) Calculate the theoretical ex rights price per share. (2 marks)

(ii) Assuming equity inance is used, calculate the revised earnings per share after the business expansion.

(iii) Assuming debt inance is used, calculate the revised earnings per share after the business expansion.

(iv) Calculate the revised share prices under both inancing methods after the business expansion.

(v) Use calculations to evaluate whether equity inance or debt inance should be used for the planned
business expansion. (4 marks)

(b) Discuss TWO Islamic inance sources which Tin Co could consider as alternatives to a rights issue or
a loan note issu

Required:2 dec 2014

(a) Calculate the market price of the convertible loan notes of Par Co, commenting on whether
conversion is likely.
(b) Calculate the share price of Par Co using the price/earnings ratio method and discuss the problems in
using this method of valuing the shares of a company

Required:4 DECEMBER 2015

(a) Assess the impact of financing the business expansion by the loan note issue on financial position,
financial risk and shareholder wealth after one year, using appropriate measures. (10 marks)

(b) Discuss the circumstances under which the current weighted average cost of capital of a company
could be used in investment appraisal and indicate briefly how its limitations as a discount rate could be
overcome

Required: 2 JUNE 2013

(a) Calculate the market value weighted average cost of capital of AMH Co. (12 marks)

(b) Discuss how the capital asset pricing model can be used to calculate a project-specific cost of capital
for AMH Co, referring in your discussion to the key concepts of systematic risk, business risk and
financial risk.

(c) Discuss why the cost of equity is greater than the cost of debt

Required:2 DECEMBER 2013

(a) Calculate the cost of equity of Card Co using the dividend growth model. (3 marks)

(b) Discuss whether the dividend growth model or the capital asset pricing model should be used to
calculate the cost of equity.

(c) Calculate the weighted average after-tax cost of capital of Card Co using a cost of equity of 12%.

(d) Calculate a project-specific cost of equity for Card Co for the planned joint venture. (4 marks)

(e) Discuss whether changing the capital structure of a company can lead to a reduction in its cost of
capital and hence to an increase in the value of the company

Required: 3 JUNE 2014

(a) Calculate the current weighted average cost of capital of Fence Co. (7 marks)

(b) Calculate a cost of equity which could be used in appraising the new project. (4 marks)

(c) Explain the difference between systematic and unsystematic risk in relation to portfolio theory and the
capital asset pricing model. (6 marks)

(d) Discuss the differences between weak form, semi-strong form and strong form capital market
efficiency, and discuss the significance of the efficient market hypothesis (EMH) for the financial
manager

Required: 4 JUNE 2014

(a) Analyse and discuss the extent to which MFZ Co has achieved each of its stated objectives. (7 marks)
(b) Calculate the total equity market value of MFZ Co for 2014 using the dividend growth
model and briefly discuss why the dividend growth model value may differ from the current equity
market value

(c) Calculate the theoretical ex rights price per share for the proposed rights issue. (5 marks)

(d) Discuss the sources and characteristics of long-term debt finance which may be available to MFZ Co.

equired: 2 JUNE 2015

(a) Calculate the equity market value of Chad Co using the dividend growth model. (3 marks)

(b) Calculate the equity market value of Chad Co using the earnings yield method. (2 marks)

(c) Discuss the relative merits of the dividend growth model and the earnings yield method as a way of
valuing Chad Co.

Required: 4 JUNE 2015

(a) Evaluate the effect on the wealth of the shareholders of Grenarp Co of using the net rights issue funds
to redeem the loan notes. (8 marks)

(b) Discuss whether Grenarp Co might achieve its optimal capital structure following the rights issue.

Required:31 DECEMBER 2017

(a) Calculate the after-tax weighted average cost of capital of Tufa Co on a market value basis (b)
Discuss the circumstances under which it is appropriate to use the current WACC of Tufa Co in
appraising an investment project. (3 marks)

(c) Discuss THREE advantages to Tufa Co of using convertible loan notes as a source of long-term
inance.

IRELAND (COST OF CAPITAL)

REQUIRED: 5 AUGOST 2011

Prepare a brief report for the Board of C PLC which:

(a) Calculates the company’s present weighted average cost of capital. (5 Marks)

(b) Calculates the company’s revised weighted average cost of capital if the €5 million irredeemable loan
stock is used to finance the proposed investment. (4 Marks)

(c) Advises on the cost of funds to be used to appraise the proposed investment in the advanced
manufacturing technology

REQUIRED:1 AGOST 2010

(a) Determine J PLC’s Weighted Average Cost of Capital based on market values at 31st March 2010.

(b) (i) Detail three reasons why it is essential that J PLC’s Board understand the company’s Weighted
Average Cost of Capital; and
(ii) What are the implications for J PLC’s WACC arising from the funding options identified by the
Finance Director?

REQUIRED:2 AGOST 2009

i) Calculate Exe Limited’s Weighted Average Cost of Capital (WACC). (6 Marks)

ii) Advise (without calculations) on whether or not the proposed debenture issue is advisable and realistic.

REQUIRED: 2AGOST 2008

Prepare a brief report for the Board of Cork PLC which:

a) Explains the term Weighted Average Cost of Capital (WACC) and how it is calculated. (7 Marks)

b) Explains the significance of the WACC for Cork PLC as it considers the manner in which it will raise
new funds. (10 Marks)

c) Calculates the company’s present Weighted Average Cost of Capital

REQUIREMENT:2 AGOST 2007

Calculate Patrick Limitedʼs Weighted Average Cost of Capital (WACC)

REQUIREMENT: 1APRIL 2011

(a) Provide the Senior Management Team of R PLC, in the context of the potential purchase of S PLC,

estimates of the valuation of S PLC using the following methodologies:

(i) Net Assets Basis. (8 marks)

(ii) Earning Basis. (8 marks)

(b) Discuss three matters to be reviewed in detail during the forthcoming due diligence audit.

REQUIRED: 6 APRIL 2009

a) Calculate the retained profit for the year ended 31/3/2009. (3 Marks)

b) Calculate Big Limited’s Weighted Average Cost of Capital and list two reasons why it is important for
company’s to understand their WACC

REQUIRED: 1 APRIL 2008

Prepare a report for the management of TT Limited that:

a) Advises whether or not to invest in the project, if TTʼs investment criteria require:

a minimum payback period of 2 years, and

an Internal Rate of Return (IRR) of 15%

b) Identifies the reduction in contribution per shirt paid to schools, that would be required to make the
project viable at the stated required rate of return (assuming that the schools are willing to accept a
reduction in their contribution in order to acquire the shirts and that such a reduction can be
implemented).

REQUIRED:2 APRIL 2007

A Calculate Sunny PLC’s Weighted Average Cost of Capital.

B Provide an indication of the per share valuation of Sunny PLC that would be arrived at by Rainy PLC
using the following valuation bases:

Asset basis

Earnings basis

REQUIRED: 5 APRIL 2008

Prepare a briefing note for the Board of Laddoo Limited which determines an indicative price per Laddoo
Limited share using the following separate valuation bases.

Assets basis (7 Marks)

Earnings basis (8 Marks

INVESTMENT APPRAISAL

Required:32 JUNE 2017

(a) Discuss the difference between risk and uncertainty in relation to investment appraisal. (3 marks)

(b) Calculate the expected net present value of the investment project and comment on its financial
acceptability

and on the risk relating to variable cost. (9 marks)

(c) Critically discuss how risk can be considered in the investment appraisal process.

Required: 1 JUNE 2013

(a) Calculate the net present value of the planned purchase of the new machinery using a nominal
(money

terms) approach and comment on its financial acceptability. (14 marks)

(b) Discuss the difference between a nominal (money terms) approach and a real terms approach to
calculating net present value. (5 marks)

(c) Identify TWO financial objectives of a listed company such as HDW Co and discuss how each of
these financial objectives is supported by the planned investment in new machinery.

Required:1 JUNE 2012

(a) Calculate the net present value of Project 1 and comment on whether this project is financially
acceptable to Ridag Co. (12 marks)

(b) Calculate the equivalent annual costs of Machine 1 and Machine 2, and discuss which machine
should be purchased. (6 marks)
(c) Critically discuss the use of sensitivity analysis and probability analysis as ways of including risk in
theinvestment appraisal process, referring in your answer to the relative effectiveness of each method.

Required:1 DEC 2012

(a) Calculate the net present value of the proposed investment and comment on its financial acceptability.
Work to the nearest $1,000. (13 marks)

(b) Calculate the before-tax return on capital employed (accounting rate of return) of the proposed
investment on an average investment basis and discuss briefly its financial acceptability. (5 marks)

(c) Discuss the effect of a substantial rise in interest rates on the financing cost of BQK Co and its
customers, and on the capital investment appraisal decision-making process of BQK Co.

Required:1 JUNE 201

(a) Assuming that production only lasts for four years, calculate the net present value of investing in the
new product using a nominal terms approach and advise on its financial acceptability (work to the nearest

$1,000).

(b) Comment briefly on the proposal to use a four-year time horizon, and calculate and discuss a value
that could be placed on after-tax cash flows arising after the fourth year of operation, using a perpetuity
approach. Assume, for this part of the question only, that before-tax cash flows and profit tax are constant
from year five onwards, and that capital allowances and working capital can be ignored. (5 marks)

(c) Discuss THREE ways of incorporating risk into the investment appraisal process.

Required:3 DEC 2011

(a) Calculate the value of Close Co using the following methods:

(i) net asset value method;

(ii) dividend growth model;

(iii) earnings yield method. (5 marks)

(b) Discuss the weaknesses of the dividend growth model as a way of valuing a company and its shares.

(c) Calculate the weighted average after-tax cost of capital of Close Co using market values where
appropriate.

(d) Discuss the circumstances under which the weighted average cost of capital (WACC) can be used as
a discount rate in investment appraisal. Briefly indicate alternative approaches that could be adopted
when using the WACC is not appropriate

Required:2 dec 2007 b5

(a) Calculate the net present value (NPV) of the Snowballer proposal and recommend whether it should
be undertaken by the directors of ITL. (4 marks)

(b) Using sensitivity analysis, estimate by what percentage each of the under-mentioned items, taken
separately, would need to change before the recommendation in (a) above is varied:
(i) Initial outlay;

(ii) Annual contribution. (4 marks)

(c) Using sensitivity analysis, estimate by what percentage the life cycle of the Snowballer would need to
change before the recommendation in (a) above is varied. (4 marks)

(d) Comment on THREE factors other than NPV that the directors of ITL should consider when deciding
whether to manufacture the Snowballer

Required: 1 DEC 2011

(a) Calculate the net present value of investing in the new machine and advise whether the investment is

financially acceptable. (7 marks)

(b) Calculate the internal rate of return of investing in the new machine and advise whether the
investment is financially acceptable. (4 marks)

(c) (i) Explain briefly the meaning of the term ‘sensitivity analysis’ in the context of investment
appraisal;

(ii) Calculate the sensitivity of the investment in the new machine to a change in selling price and to a

change in discount rate, and comment on your findings. (6 marks)

(d) Discuss the nature and causes of the problem of capital rationing in the context of investment
appraisal, and explain how this problem can be overcome in reaching the optimal investment decision for
a company.

Required: 3 JUNE 2010

(a) Identify and comment on any errors in the investment appraisal prepared by the trainee
accountant.

(b) Prepare a revised calculation of the net present value of the proposed investment project and
comment on the project’s acceptability. (12 marks)

(c) Discuss the problems faced when undertaking investment appraisal in the following areas and
comment on how these problems can be overcome:

(i) assets with replacement cycles of different lengths;

(ii) an investment project has several internal rates of return;

(iii) the business risk of an investment project is signifi cantly different from the business risk of
current operations.

Required:1 DECE 2010

(a) Calculate the net present value of Project A and advise on its acceptability if the project were to be
appraised using this method. (12 marks)
(b) Critically discuss the directors’ views on investment appraisal. (7 marks)

(c) Calculate a project-specific cost of equity for Project B and explain the stages of your calculation.

Required: 1 dec 2009

(a) Based on financing cash flows only, calculate and determine whether ASOP Co should lease or buy
the new technology. (11 marks)

(b) Using a nominal terms approach, calculate the net present value of buying the new technology and
advise whether ASOP Co should undertake the proposed investment. (6 marks)

(c) Discuss and illustrate how ASOP Co can use equivalent annual cost or equivalent annual benefit to
choose between new technologies with different expected lives. (3 marks)

(d) Discuss how an optimal investment schedule can be formulated when capital is rationed and
investment projects are either:

(i) divisible; or

(ii) non-divisible

Required: 4 june 2008

(a) Calculate the net present value of the proposed investment in product P. (12 marks)

(b) Calculate the internal rate of return of the proposed investment in product P. (3 marks)

(c) Advise on the acceptability of the proposed investment in product P and discuss the limitations of the

evaluations you have carried out. (5 marks)

(d) Discuss how the net present value method of investment appraisal contributes towards the objective
of maximising the wealth of shareholders.

Required: 3 dec 2007

(a) Analyse and discuss Proposal A. (5 marks)

(b) Evaluate and discuss Proposal B. (7 marks)

(c) Calculate the theoretical ex rights price per share and the amount of finance that would be raised
under Proposal C. Evaluate and discuss the proposal to use these funds to reduce gearing and financial
risk.

(d) Discuss the attractions of operating leasing as a source of finance.

Required: 2 dec 2007

(a) Calculate the net present value of buying the new machine and advise on the acceptability of the
proposed purchase (work to the nearest $1,000). (13 marks)

(b) Calculate the internal rate of return of buying the new machine and advise on the acceptability of the

proposed purchase (work to the nearest $1,000). (4 marks)


(c) Explain the difference between risk and uncertainty in the context of investment appraisal, and
describe how sensitivity analysis and probability analysis can be used to incorporate risk into the
investment appraisal process.

Required:3 dec 2003

(a) Calculate the expected NPV and APV of the proposed investment. (10 marks)

(b) Discuss briefly the validity of the views of the two managers. Use your calculations in (a) to illustrate
and support the discussion.

Required:31 DECEMBR 2018

(a) (i) Assuming that the new machine is operated for a three-year period, evaluate whether Melanie Co
should use leasing or borrowing as a source of inance. (6 marks)

(ii) Using a discount rate of 10%, calculate the equivalent annual cost of purchasing and operating the
machine for both three years and four years, and recommend which replacement interval should be

adopted. (6 marks)

(b) Critically discuss FOUR reasons why NPV is regarded as superior to IRR as an investment appraisal
technique

Required:32 JUNE 2018

(a) Using a joint probability table:

(i) Calculate the mean (expected) NPV of the proposed investment; (8 marks)

(ii) Calculate the probability of the investment having a negative NPV; (1 mark)

(iii) Calculate the NPV of the most likely outcome; (1 mark)

(iv) Comment on the inancial acceptability of the proposed investment. (2 marks)

(b) Discuss TWO of the following methods of adjusting for risk and uncertainty in investment appraisal:

(i) Simulation;

(ii) Adjusted payback;

(iii) Risk-adjusted discount rates.

Required:1 December 2014

(a) Calculate the cash balance at the end of each month in the three-month period. (5 marks)

(b) Calculate the forecast current ratio at the end of the three-month period. (2 marks)

(c) Assuming that Flit Co expects to have a short-term cash surplus during the three-month
period, discuss whether this should be invested in shares listed on a large stock market.

quired: 4december 2014


(a) Prepare a revised draft evaluation of the investment proposal and comment on its financial
acceptability.

(b) Explain any TWO revisions you have made to the draft evaluation in part (a) above

Required: 5 DECEMBERR 2015

(a) Using a nominal terms net present value approach, evaluate whether purchasing the new
machine is financially acceptable. (10 marks)

(b) Discuss the reasons why investment finance may be limited, even when a company has attractive
investment opportunities available to it.

Required:1 JUNE 2013

(a) Calculate the net present value of the planned purchase of the new machinery using a nominal
(money terms) approach and comment on its financial acceptability. (14 marks)

(b) Discuss the difference between a nominal (money terms) approach and a real terms approach to
calculating net present value. (5 marks)

(c) Identify TWO financial objectives of a listed company such as HDW Co and discuss how each of
these financial objectives is supported by the planned investment in new machinery

Required: 1 DECEMBER 2013

(a) Calculate the net present value of the investment project in nominal terms and comment on
its financial acceptability. (12 marks)

(b) Calculate the net present value of the investment project in real terms and comment on its
financial acceptability. (7 marks)

(c) Explain ways in which the directors of Darn Co can be encouraged to achieve the objective of
maximization of shareholder wealth.

Required: 4 DECEMBER 2013

(a) Evaluate whether Spot Co should use leasing or borrowing as a source of finance, explaining the
evaluation method which you use. (10 marks)

(b) Discuss the attractions of leasing as a source of both short-term and long-term finance. (5 marks)

(c) In Islamic finance, explain briefly the concept of riba (interest) and how returns are made by Islamic
financial instruments. (5 marks)

(d) Discuss briefly the reasons why interest rates may differ between loans of different maturity.

equired: 1 JUNE 2014

(a) Calculate the nominal after-tax net present value of Project E and comment on the financial
acceptability of this project. (14 marks)

(b) Calculate the maximum net present value which can be obtained from investing the fund of
$10 million, assuming here that the nominal after-tax NPV of Project E is zero. (5 marks)
(c) Discuss the reasons why the Board of OAP Co may have decided to limit investment funds for the
next yea

Required:5 JUNE 2015

(a) Calculate the expected net present value of the investment project and comment on its
financial acceptability. (9 marks)

(b) Critically discuss if sensitivity analysis will assist Hraxin Co in assessing the risk of the investment
project.

Required: 32 DECEMB 2017

(a) (i) Calculate the net present value of the planned investment project. (9 marks)

(ii) Calculate the discounted payback period of the planned investment project. (2 marks)

(b) Discuss the inancial acceptability of the investment project. (3 marks)

(c) Critically discuss the views of the directors on Pelta Co’s investment appraisa

IRELAND (INVESTMNT APPRAISAL)

REQUIRED: 2 AGOST 2011

Prepare a report for the management of Y PLC that:

(a) Determines on financial grounds, using net Present Value as the sole investment criterion, whether to
accept the Finnish company’s proposal. (Note: Ignore Taxation) (15 Marks)

(b) Discusses five non-financial factors that should be considered by Y PLC when making the decision
whether or not to accept the Finnish company’s proposa

REQUIRED:2 AUGODT 2010

Prepare a financial appendix for Michael’s business case which:

(a) Recommends whether or not to open the restaurant if the proposal must deliver a discounted payback
(at a cost of capital of 10%) over a three year time horizon; (15 Marks)

(b) Explains five non-financial factors to be considered in the decision whether or not to open the
proposed restaurant.

REQUIRED:1 AGOST 2009

Prepare a report for your client that:

a) recommends whether or not to purchase the franchise agreement solely based on a financial
assessment.

b) considers four qualitative factors to consider prior to making a final decision whether or not to
purchase the franchise.
REQUIRED:AGOST 2008

Prepare a briefing note for Jamie PLC’s Financial Controller which addresses the following issues:

Evaluates the profitability implications of the two related proposals (if taken together); and (9 Marks)

briefly explains debt factoring setting out the benefits and risks associated therewith

REQUIRED: 1 AGOST 2008

Prepare a briefing note for your client which advises on the following:

a) Proposes an optimum capital renewal programme for Ardfield PLC. (10 Marks)

b) If a rival banker approached your client and offered unlimited investment funds at a cost of borrowing
of7% should Ardfield PLC accept this proposal?

REQUIRED: B

Advise Sunnycove Limited’s management on whether they should lease or buy the machine.

REQUIREMENT:6 AGOST 2007

a) Propose the optimum investment strategy for Troy PLC for this year. (11 Marks)

b) Propose the optimum investment strategy for Troy PLC if it is not possible to enter shared ownership

arrangements.

REQUIREMENT 1 AGOST 2007

Prepare a report for the Board of Hampton Limited which:

recommends whether or not to purchase the licence based on a financial assessment. (15 Marks)

considers five non-financial factors when making the decision whether or not to buy the licence and

develop the showroom.

REQUIREMENT: 2 APRIL 2011

(a) Advise R PLC, based on strictly net present value criteria, whether or not it should embark on the
production of the proposed movie. (17 Marks)

(b) Discuss four qualitative factors that should be considered when deciding whether or not to produce the
movie.

REQUIRED:1 APRIL 2010

Prepare a briefing note for John Mc Daid that:

a) Determines the maximum amount payable for the Cork Hostel if it must achieve a discounted payback
after three years (ignore taxation). (15 Marks)

b) Consider five qualitative factors that John should consider before deciding whether or not to purchase
the County Cork Hostel.
REQUIRED: 2 APRIL 2009

As Finance Manager for F PLC:

a) Calculate the price that could be paid for this proposed technology investment (ignore taxation). b)
Discuss four strategic factors F PLC should consider in making it’s final decision whether or not to invest
in the proposed technology

REQUIRED 1 APRIL 2007

Part A

Prepare a report for the Board of Sandyford Ltd. which:

Assesses the Net Present Value (NPV) of the Greek proposal, using a discount rate of 7%.

Considers four non-financial factors to be considered when making the decision whether or not to

enter the Greek market.

Part B

Prepare a briefing note for Sandyford Ltd.’s management explaining the foreign currency translation risk
it would face in relation to the proposed entry to the Swedish market.

POTFOLIO THEORY

IRELAND PORTFOLIO

REQUIRED: 2 AGOST 2009

Prepare a briefing note for your client on the following issues relating to his proposed investment:

i) Which you must calculate the expected return from each share and the proposed portfolio. (3 Marks)

ii) Having used the CAPM formula, advises as to whether the portfolio is efficient or inefficient

REQUIREMENT: 2 AGOST 2007

Assist Patrick Limitedʼs management by preparing a briefing note which explains the following terms:
Portfolio Theory Systematic Risk and Unsystematic Risk (3 Marks)

Co-efficient of Correlation (as it relates to the two stock/investment portfolio)

FINANCIAL PLANING AND FORECASTING

RATIO ANALYSES/earning per share

Required:4 JUNE 1

(a) Using the dividend valuation model, calculate the value of GXG Co under option 1, and advise
whether option 1 will be acceptable to shareholders. (6 marks)
(b) Calculate the effect on earnings per share of the proposal to raise finance by a stock market listing

(option 2), and comment on the acceptability of the proposal to existing shareholders. (5 marks)

(c) Calculate the effect on earnings per share and interest cover of the proposal to raise finance by issuing
new debt (option 3), and comment on your findings. (5 marks)

(d) Discuss the factors to be considered in choosing between traded bonds, new equity issued via a
placing and venture capital as sources of finance

Required:4 JUNE 2012

(a) Estimate the value of Corhig Co using the price/earnings ratio method and discuss the usefulness of
the variables that you have used. (4 marks)

(b) Calculate the current cost of equity of Corhig Co and, using this value, calculate the value of the
company using the dividend valuation model. (6 marks)

(c) Calculate the current weighted average after-tax cost of capital of Corhig Co and the weighted
average after-tax cost of capital following the new debt issue, and comment on the difference between
the two values.

(d) Discuss how the shareholders of Corhig Co can assess the extent to which they face the following
risks, explaining in each case the nature of the risk being assessed:

(i) Business risk;

(ii) Financial risk;

(iii) Systematic risk.

Required:3 DEC 2011

(a) Calculate the theoretical ex rights price per share of Bar Co following the rights issue. (3 marks)

(b) Calculate and discuss whether using the cash raised by the rights issue to buy back bonds is likely to
be financially acceptable to the shareholders of Bar Co, commenting in your answer on the belief that the

current price/earnings ratio will remain constant. (7 marks)

(c) Calculate and discuss the effect of using the cash raised by the rights issue to buy back bonds on the

financial risk of Bar Co, as measured by its interest coverage ratio and its book value debt to equity ratio.

(d) Compare and contrast the financial objectives of a stock exchange listed company such as Bar Co
and the financial objectives of a not-for-profit organisation such as a large charity.

Required:4 de 2009

(a) Discuss the role of financial intermediaries in providing short-term finance for use by business
organisations.

(b) Prepare the following forecast financial statements for APX Co using the information provided:

(i) an income statement for the next year; and


(ii) a statement of financial position at the end of the next year. (9 marks)

(c) Analyse and discuss the working capital financing policy of APX Co. (6 marks)

(d) Analyse and discuss the forecast financial performance of APX Co in terms of working capital
management

Required: 3 dec 2009

(a) Calculate the theoretical ex rights price per share after the rights issue. (4 marks)

(b) Evaluate the effect of the European investment on:

(i) the earnings per share of NG Co; and

(ii) the wealth of the shareholders of NG Co.

Assume that the current spot rate and earnings from existing operations are both constant. (9 marks)

(c) Explain the difference between transaction risk and translation risk, illustrating your answer using the

information provided. (4 marks)

(d) The six-month forward rate is 1·2876 €/$ and the twelve-month forward rate is 1·2752 €/$. NG Co
can earn 2·8% per year on short-term euro deposits and can borrow short-term in dollars at 5·3% per year.

Identify and briefly discuss exchange rate hedging methods that could be used by NG Co. Provide

calculations that illustrate TWO of the hedging methods that you have identified.

Required: 1 dec 2006

(a) Estimate the value of Besserlot Ltd using:

(i) Asset based valuation

(ii) PE ratios

(iii) Dividend based valuation

(iv) The present value of expected future cash flows

Discuss the potential accuracy of each of the methods used and recommend, with reasons, a value, or
range of values that Stanzial might bid for Besserlot.

State clearly any assumptions that you make.

Approximately 16 marks are available for calculations and 11 marks for discussion. (27 marks)

(b) Discuss how the shareholder mix of Besserlot and type of payment used might influence the success
or failure of the bid. (8 marks)

(c) Assuming that the bid was successful, discuss other factors that might influence the medium term
financial success of the acquisition

Required:1 december 2015


(a) Calculate the debt/equity ratio of Gemlo Co based on market values and comment on your findings.

(b) Gemlo Co agrees with a bank that its business expansion will be financed by a new issue of 8% loan
notes. The company then announces to the stock market both this financing decision and the expected
increase in profit before interest and tax arising from the business expansion.

Required:

Assuming the stock market is semi-strong form efficient, analyse and discuss the effect of the financing
and profitability announcement on the financial risk and share price of Gemlo Co.

Note: Up to 2 marks for relevant calculations

IRELAND (UNKNOWN)

REQUIRED:5 APRIL 2009

Prepare a briefing for your friend that:

a) Explains Altman’s Z – Score model for predicting corporate failure. (6 Marks)

b) Calculates B PLC’s Z Score (by reference to 28/2/2009) and interprets same.