FIN2101 BUSINESS FINANCE

FIN2101 BUSINESS FINANCE (JULY 2022 TERM)

CONTINUOUS ASSESSMENT 1
INDIVIDUAL ASSIGNMENT: 50 marks (weightage 30%)

Instructions:

1. Type out your assignment in Word document and submit it through Canvas by the
deadline. Penalties shall be imposed for late submission.
2. In your cover page, include your full name and ID number.
3. Answer ALL questions.
4. Show ALL workings.

Question 1 (20 marks)

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

DMS Pte Ltd DMS Pte Ltd

Balance Sheet Income Statement
As at 31 Dec 2021 For the Year Ended 31 Dec 2021

$(‘000) $(‘000)
Cash 50 Sales 1,000
Accounts Receivables 150 Less : Cost of Goods Sold 500
Inventories 100 Gross Profit 500
Total Current Assets 300 Less : Operating Expenses 200
Net Fixed Assets 500 Operating Profits 300
Total Assets 800 Less : Interest Expenses 30
Profit before Taxes 270
Accounts Payable 100 Less : Taxes (20%) 54
Long-Term Debt 200 Profit After Taxes 216
Total Liabilities 300
Note : Assume Annual Purchases to be
Common Stockholders’ Equity 500 70% of COGS.
Total Liabilities & Stockholders’
Equity 800

1
 FIN2101 BUSINESS FINANCE

a) Given the industry average figures in the table below, compute the corresponding
ratios (to 2 decimal places) of DMS Pte Ltd for 2021.

Ratios Industry Average DMS Pte Ltd

2021 2021
Average Age of Inventory 90.00 days
Average Collection Period 60.00 days
Average Payment Period 105.00 days
Debt Ratio 0.50x
Times Interest Earned 7.00x
(5 marks)

b) Using the information and your answer in part (a), perform a cross-sectional analysis
for DMS Pte Ltd in the following areas and explain if it has done better or worse than
its peers in the industry:

i) Activity Ratios.
ii) Cash Conversion Cycle.
iii) Financial Leverage.
(9 marks)

c) DMS Pte Ltd is currently evaluating four investment projects, namely Alpha, Beta,
Gamma and Delta.

i) The company’s weighted average cost of capital is 7.2%. Calculate the missing
information for each project.
Project Economic Net Operating Total Total
Value Profit After Tax Liabilities Equity
Added (NOPAT)
(EVA)
Alpha ? $54,000 $450,000 $300,000
Beta $800 ? $500,000 $700,000
Gamma $11,760 ? $120,000 $50,000
Delta ? $90,300 $800,000 $650,000
(2 marks)

ii) Evaluate each project independently and explain if the firm should accept or
reject them.
(4 marks)

2
 FIN2101 BUSINESS FINANCE

Question 2 (20 marks)

a) TTU Corporation forecasted its total funding requirements for the coming year as
shown in the table below :

Month Total funding requirements

(S$)

January 45,000
February 20,000
March 35,000
April 40,000
May 30,000
June 25,000
July 60,000
August 20,000
September 30,000
October 35,000
November 25,000
December 30,000

TTU Corporation was informed by its bank that short-term loans cost 4.5%p.a. and
long-term loans cost 7.0%p.a.. Calculate the total financing cost (to 2 decimal places)
if it adopts the following strategies:

i) An aggressive funding strategy.

(3 marks)

ii) A conservative funding strategy.

(2 marks)

b) Explain what marketable securities are. Discuss the reasons for firms to hold such assets
in their balance sheet?
(3 marks)

c) When we sell goods to customers, we may grant credit to them allowing a delay in
paying cash to us. Explain how we can use the 5 Cs of credit to evaluate the credit
terms granted to customers.
(5 marks)

3
 FIN2101 BUSINESS FINANCE

d) After granting credit to customers, it is important for a firm to have a monitoring

system to check on those customers who are overdue in their payments. The table
below shows the aging schedule of Travel Again Pte Ltd’s accounts receivable.

i) Calculate the percentage of balance outstanding (to 2 decimal places) for each age
group.

Age Group Accounts Receivable Percentage

Balance Outstanding

Less than 30 days $82,000

31 days to 60 days $5,000
61 days to 90 days $2,000
Over 90 days $1,000
TOTAL S$90,000 100.00%
(2 marks)

ii) If the credit period given to these customers is 30 days, evaluate whether the
company has been performing well in managing its accounts receivable.
(3 marks)

iii) Discuss another technique that may be used to monitor the quality of Travel Again
Pte Ltd’s accounts receivable.
(2 marks)

Question 3 (10 marks)

a) Discuss the three key activities of the finance manager.

(6 marks)

b) Discuss the differences between the role of the accountant and that of the finance
manager.
(4 marks)

-- END --