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日期：2021-01-17 10:03

Full-Time Diploma

BUSINESS FINANCE (FIN2101)

CONTINUOUS ASSESSMENT 1

TERM OF JANUARY 2021 – MARCH 2021

Individual Assignment (30%)

Total marks: 50 marks

Instructions:

1. Type out your assignment in Word document and submit it through the D2L by the

deadline.

2. In your cover page, include your full name and ID number.

3. Answer ALL questions.

4. Show ALL workings.

5. Please be reminded that plagiarism and collusion are serious offences, and all cases will

be referred to the administration. Grades will be withheld until investigations are

completed if the submission is suspected of plagiarism or collusion.

Question 1

Explain what business ethics is. Discuss whether having an ethics programme in the firm may

benefit the organisation and its shareholders.

(6 marks)

Question 2

a) K&M Co. is considering an investment. The project is expected to be financed by

$2,000,000 of bank loans and $3,000,000 of common equity. It is known that the firm’s

weighted average cost of capital (WACC) is 9.8% and the investment is expected to

generate a net operating profit after tax (NOPAT) of $480,000. The company’s tax rate

is 30%.

(i) What is the project’s Economic Value Added (EVA)?

(2 marks)

(ii) Should the firm accept or reject the investment? Explain your reason(s).

(2 marks)

2

Question 3

The balance sheet and income statement for DRM Pte Ltd are shown below:

a) You are given selected financial ratios of DRM Pte Ltd for 2018 and 2019 in the table

below. Compute the corresponding ratios for 2020. Round your answers to two decimal

places.

(5 marks)

b) Using the information provided in the table and your answers in part (a), perform a timeseries

analysis for DRM Pte Ltd in the following areas:

i) Liquidity.

ii) Profitability.

(6 marks)

DRM Pte Ltd

Balance Sheet

As at 31 Dec 2020

$(‘000)

Cash 50

Accounts Receivable 300

Inventories 300

Total Current Assets 650

Net Fixed Assets 750

Total Assets 1,400

Accounts Payable 300

Long-Term Debt 1,000

Total Liabilities 1,300

Common Stockholders’ Equity 100

Total Liabilities & Stockholders’

Equity 1,400

DRM Pte Ltd

Income Statement

For the Year Ended 31 Dec 2020

$(‘000)

Sales 1,000

Less : Cost of Goods Sold 300

Gross Profit 700

Less : Operating Expenses 400

Operating Profits 300

Less : Interest Expenses 180

Profit before Taxes 120

Less : Taxes (20%) 24

Profit After Taxes 96

Ratios DRM Pte Ltd

2018

DRM Pte Ltd

2019

DRM Pte Ltd

2020

Current Ratio 1.42 1.62

Quick Ratio 0.52 0.64

Gross Profit Margin 0.70 0.70

Operating Profit Margin 0.19 0.24

Net Profit Margin 0.13 0.12

3

c) Discuss how Debt Ratio and Times Interest Earned ratio may be used by the management

to better manage the firm.

(4 marks)

Question 4

QRS Corporation forecasted its total funding requirements for the coming year as shown in

the table below :

Month Total funding requirements

(S$)

January 40,000

February 60,000

March 110,000

April 40,000

May 80,000

June 70,000

July 140,000

August 40,000

September 60,000

October 70,000

November 50,000

December 60,000

QRS Corporation was informed by its bank that short-term loans cost 6.8%p.a. and long-term

loans cost 8.2%p.a.. Calculate the total cost (to 2 decimal places) of each of the following

strategy:

a) An aggressive funding strategy.

(3 marks)

b) A conservative funding strategy.

(3 marks)

4

Question 5

As a new finance manager of S&T Pte Ltd, you are responsible in managing the firm’s

financial affairs. Your review of the business cycle reveals that S&T Pte Ltd’s inventory

typically remains with the firm for 20 days before it is sold and requires 30 days for the monies

to be collected from the customers. On average, the firm takes 40 days to pay its suppliers.

a) Compute the cash conversion cycle (CCC) of S&T Pte Ltd. Comment on your answer.

(3 marks)

b) Should S&T Pte Ltd lengthen or shorten its CCC? Why?

(3 marks)

c) Suggest TWO ways in which S&T Pte Ltd can improve its CCC.

(3 marks)

Question 6

Company ABC manufactures stoneware. Supplier LMN provides raw materials to Company

ABC under the credit terms of 3/15 net 60.

a) Determine the cost of giving up the cash discount from Supplier LMN. Your answer

should be in percentage and rounded to two 2 decimal places.

(3 marks)

b) Bank XYZ offers short-term financing to Company ABC at a premium of 4% above

PRIME. If the current PRIME rate is 8%p.a., what is the cost of bank borrowing for

Company ABC? Your answer should be in percentage and rounded to two 2 decimal

places.

(3 marks)

c) Given your answers in (a) and (b), should Company ABC take up the cash discount from

Supplier LMN? If the invoice amount is $120,000, determine when and how much should

Company ABC pay.

(4 marks)

-- END OF ASSIGNMENT --