Financial Management for Business – ACFI205



Financial management for Business

Don't use plagiarized sources. Get Your Custom Essay on
Financial Management for Business – ACFI205
Just from $13/Page
Order Essay



TIME ALLOWED:        Two Hours







Note: Financial time value tables are attached.



Financial Management for Business – ACFI205


January Examinations 2019


Section I – Answer ONE question from this section.


Question 1


Atlantic Ltd manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2017 and 2018 are as follows:

Income statements for the year ended 30 June (£000)

2017                                 2018


Revenue                           1,180                                1,200

Cost of sales                     (680)                                (750)

Gross profit                       500                                  450

Operating expenses          (200)                                (208)

Depreciation                        (66)                                  (75)

Operating profit                   234                                   167

Interest                                (-)                                    (8)

Profit before taxation           234                                 159

Taxation                             (80)                                (48)

Profit for the year                154                                 111


Statement of financial position as at 30 June (£000)


2017             2018


Non-current assets

Property, plant and equipment                         702               687

Current assets

Inventories                                                      148               236

Trade receivables                                            102               156

Cash                                                                  3                  4

253               396

Total assets                                                   955             1,083



Ordinary share capital (£1 shares, fully paid)    500               500

Retained earnings                                           256               295

756               795

Non-current liabilities                                  

Borrowings and bank loan                                   –                  50

Current liabilities

Trade payables                                                 60                76

Other payables and accruals                              18                16

Taxation                                                           40                24

Short-term borrowings (all bank overdraft)          81              122

199               238

Total equity and liabilities                             955             1,083


Dividends are paid on ordinary shares of £70,000 and £72,000 in respect of 2017 and 2018, respectively. The cost of sales amount can be used instead of credit purchase (which is not given above).





  1. Calculate the following financial ratios for both 2017 and 2018 (using year-end figures for the statement of financial position items):


  1. Return on capital employed
  2. Operating profit margin
  3. Gross profit margin
  4. Current ratio
  5. Acid test ratio
  6. Settlement period for trade receivables
  7. Settlement period for trade payables
  8. Inventories turnover period             

(16 marks)


  1. Comment on the performance of Atlantic Limited from viewpoint of a business considering supplying a substantial amount of goods to Atlantic Limited on usual trade credit terms.

(10 marks)


  1. Outline and briefly discuss the limitations of ratio analysis.

(8 marks)


[Total: 34 marks]



Question 2


  1. Describe the following and explain your answers by using examples:


  • Payback period
  • Profitability Index
  • Scenario analysis

(9 marks)



  1. Progress Chemicals plc has recently received an invitation to produce a new chemical for supply to a textile manufacturer. The invitation is to produce 16,000 kg each year for the next three years at a price of £45 per kg. The following information has been collected which will help the directors to reach a decision on whether to accept the invitation or not:


  • New plant costing £250,000 will need to be bought and paid for at the start of production. This will have a residual value of £10,000 at the end of the third year. If the plant is acquired, the business will follow its normal practice of depreciating it on a straight line basis in the annual financial accounts over the three year life of the New Plant.



  • Ten new workers will be taken on for the duration of production. Recruitment costs, payable at the start of the production period will total £28,000. The workers will be paid compensation for being made redundant at the rate of £4,000 per worker, payable at the end of the production period. During the production period the workers will be paid £225,000 in total each year.


  • Production of the new chemical will be charged with a share of the business overheads totalling £48,000 in each of the three years. It is estimated that the production of the new chemical will give rise to an increase of £18,000 in overheads in each of the three years.


  • Production will require the use of an ingredient, known as R16K, at the rate of 6,000 kg each year. The business already has a stock of 4,000 kg. This was originally bought for £16 per kg. This was bought for a previous contract that had to be abandoned. If the stock of R16K is not used in production of the new chemical there is no other use for it and it will be disposed of immediately. It will cost £2 per kg to dispose of the R16K. The cost of new R16K is £20 per kg.


  • Production will also require the use of 9,000 kg each year of another ingredient, known as T23W. The business already has 9,000 kg in stock, which cost £25 per kg. Recently the buying price has dropped to £20 per kg. The business could sell its stock of T23W for £15 per kg. T23K is used in large quantities on a number of the business’s current products.


  • Assessing the investment in the plant is to be undertaken on the basis of a finance cost of 10% each year.


  • The above data were discovered by a consultant who is to be paid a total of £4,000 for the work. Treat cash flows relating to revenue, overheads, stock purchases and labour as occurring at the end of the relevant year.




Applying the net present value principles, determine whether or not the new chemical should be produced. Clearly present all your calculations and conclusion. Ignore taxes.

(15 marks)


  1. Describe the treatment of the following practical points with reference to investment appraisal:


  • Past costs
  • Common future costs
  • Opportunity costs
  • Taxation
  • Cash flows and profit flows

(10 marks)


[Total: 34 marks]





Section II – Answer TWO questions from this section.


Question 3


  1. Identify and explain three external sources of long-term finance available to a business.

(11 marks)


  1. Identify and explain three internal sources of short-term finance available to a business.

 (11 marks)


  1. Identify and explain three advantages and three disadvantages of listing a company at the Stock Exchange.

(11 marks)


[Total: 33 marks]




Question 4


Jubilee Plc and Omega Plc are similar businesses and have generated identical profits before interest and tax (PBIT) for Year 1 of £80 million. The long-term capital structure of each business is as follows:


  Jubilee Plc Omega Plc
  £m £m
£1 ordinary shares 200 340
12% preference shares 100 50
10% loan stock 100 10
  400 400




  1. Explain what is meant by ‘financial gearing’ and its impacts on the level of risk to shareholders.

(13 marks)


  1. Using the information provided in the table, calculate financial gearing ratios for Jubilee Plc and Omega Plc.

(10 marks)


  1. Using the information provided in the table, calculate the effect of financial gearing on the returns to ordinary shareholders in both companies. Assume a tax rate of 30%.

(10 marks)


[Total 33 marks]






Question 5


The following three factors are considered to play significant roles in determining the level of dividends. Describe each of these factors.


  1. Investment opportunities

(11 marks)

  1. Financing opportunities

(11 marks)

  1. Market expectations

(11 marks)


[Total: 33 marks]


Question 6


  1. Describe and compare Shareholder Value Analysis (SVA) and Economic Value Added (EVA).

(16 marks)


  1. Outline and discuss wealth-enhancing and other motives for mergers.

(17 marks)


[Total: 33 marks]


Calculate the price
Make an order in advance and get the best price
Pages (550 words)
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Home Work Stand
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Human Resources Management (HRM)
Awesome work! Writer articulates points well which makes it easy to read the essay!
Customer 452445, December 15th, 2021
Classic English Literature
Great work and delivered on time. thank you.
Customer 452445, October 30th, 2021
Business Studies
Needed a little editing. Anyway, thank you.
Customer 452445, October 31st, 2021
Human Resources Management (HRM)
Writer was cooperative and got me an A on my paper.
Customer 452445, December 20th, 2021
Social Sciences
Another Perfect paper!
Customer 452445, January 24th, 2022
Helped me beat the deadline. Am grateful.
Customer 452445, November 6th, 2021
Very professional and easy to work with. I highly recommend!
Customer 452445, December 12th, 2021
Human Resources Management (HRM)
Great work. Always deliver before the deadline.
Customer 452445, March 24th, 2022
Business Studies
Remarkable work!! Always helpful and amazing communication!!
Customer 452445, January 4th, 2022
Human Resources Management (HRM)
This has been the greatest help while I am recovering from an illness. Thank your team so much.
Customer 452445, June 6th, 2022
Classic English Literature
The writer wrote a perfect paper in short amount of time.
Customer 452445, December 14th, 2021
Business Studies
Amazing job on a tight deadline. Met all requirements and some. Will hire again if needed.
Customer 452445, March 3rd, 2022
Customer reviews in total
Current satisfaction rate
3 pages
Average paper length
Customers referred by a friend
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat

Order your essay today and save 15% with the discount code ESSAYHELP