INDIVIDUAL ASSIGNMENT (Question)
1. Describe and critically reflect upon the key issues involved in the effective management of organizations finances.
2. Apply theoretical concepts and frameworks to a range of practical situations in order to propose solutions to business problems.
3. Identify ex post and ex ante risk and return statistical measures, such as holding-period returns, average returns, expected returns, and standard deviations.
This assignment consists of THREE (3) parts.
The purpose of this assignment is let the students have a better understanding on the primary financial goal for a corporation together with the responsibility of financial manager by looking at the concept of Agency Theory.
Besides, students will also be able to examine the key factors in the effective management of a companyÃ¢â‚¬â„¢s working capital including debtors, stocks and creditors.
Lastly, students can a basic understanding of returns and risks of various assets classes and understand that securities that offer higher returns have higher risk. Students will also be familiarizing with the financial market especially capital market.
In large corporation, ownership can be spread over a huge number of shareholders. This dispersion of ownership arguably means that management effectively controls the firm. The problem is, will management necessarily act in the best interests of the shareholders?
Explain the statement by using the following scenario.
Suppose you own share in a company. The current price per share is £25. Another company has just announced that it wants to buy your company and will pay £35 per share to acquire the entire outstanding share. Your companyÃ¢â‚¬â„¢s management immediately begins fighting off this hostile bid. Is management acting in the shareholdersÃ¢â‚¬â„¢ best interests? If no, what are the causes of the problem? Indicate the possible solutions to solve agency problem in order to beneficial the management and shareholders.
Students are required to answer the questions related to the scenario given as below.
The finance director of Alpha PLC is trying to improve the companyÃ¢â‚¬â„¢s slack working capital management. Although the trade terms of AlphaPLC require settlement within 30 days, its customers take an average of 45 days to pay their bills. In addition, out of total credit sales of £15m per year, the company suffers bad debts of £235,000 per year.
It has been suggested that the average settlement period could be reduced if a cash discount were given for early payment, and the finance director is considering offering a reduction of 1.5 per cent of the face value of the invoice for payment within 30 days. Informal discussions with customers have indicated to him that 40 per cent of customers would take advantage of the discount, but that the average time taken by the remaining customers would not be affected. It is also expected that, if the new credit terms are introduced, bad debts will fall by £60,000 per year and a small saving in credit administration costs of £15,000 per year will be made.
i) If total sales are unchanged and if working capital is financed by an overdraft at 9 per cent per year, what is the expected benefit of the proposal?
ii) Discuss whether Alpha PLC should finance its working capital needs from an overdraft.
iii) Briefly discussTWO (2) ways in which Alpha PLC could use its debtors as a source of finance.
Each student is required to choose any 2 listed companies.Use data from www.finance.yahoo.com to answer the following:
i) Examine the annual report for the 2 companies, and briefly describe the background of the 2 companies.
ii) Download the stock price for the both companies for the last 24 months. For each company, calculate the monthly rate of return for each month, the average return, the standard deviation of returns and the coefficient of variation over that period.
iii) Based on the findings to part (iii), analyse the relationship between the risk and return for the two companies that you have selected.
Students are required to attach the data and calculations in the appendix.
The assignment should NOT be more than 3000 words.Please refer to the universityÃ¢â‚¬â„¢s LMS assignment format and the material can be downloaded from the universityÃ¢â‚¬â„¢s LMS. Standard format: Times New Roman, font size of 12, double spacing, one-inch margins. The table of calculations and work-out have to be attached in the Appendices of the assignment. Hand-written assignment will not be accepted.
The deadline for assignment submission is set at Week 12, 3/12/2012 (Tuesday).
Any assignment submitted after the due date, without an approved extension, will be penalized. A penalty of 10% reduction of the allocated mark to the assignment will be levied for each day of late submission. Weekends and public holidays are included in the calculation of late submission. Assignments submitted more than seven (7) days after the due date will be awarded with zero (0) marks.
Appendices: All appendices should be listed on a separate page after the reference section.