Financial Management And Control

  1. Profitability
  2. Gearing
  3. Stock market performance
    The analysis must be supported by calculation of relevant ratios in the three areas mentioned above.
    All ratio definitions and supporting calculations should be clearly shown. Consider to compare
    against a competitor and/or industry norm.
    (3 areas x 12 marks = 36 marks)
    Part B: 900 words (30 marks)
    Critically discuss whether the value of the firm selected in Part A would benefit from an increase
    in leverage. Consider to use relevant capital structure theories to support your answer.
    Part C: 500 words (34 marks)
    Raffles Ltd. is planning to introduce a new product to expand on its existing product offering. The
    new product will require several new equipment that will cost a total of $1,350,000 and be
    depreciated by straight line over five years (assuming no salvage value).
    The company expects to sell $720,000 of the new product in the first year, $950,000 each year for
    Year 2 and Year 3, and $1,120,000 in Year 4 and Year 5. Direct cash costs including labor and
    materials will be 40% of sales. Incremental overheads costs are estimated at $84,000 a year. No
    additional working capital is required.

The company evaluates investment projects using a discount rate of 14%. The company has an
investment policy which requires the initial outlay to be recovered within 3 years.
Page 3 of 3
Required:
1) Compute the following investment appraisal measures to determine whether the project should
be accepted. Provide your workings and reasoning for your decision for each of the methods
(i) Payback Period
(ii) Net Present Value (NPV)
(iii) Internal Rate of Return (IRR)
(18 marks)
2) Critically evaluate the effectiveness and popularity of the Internal Rate of Return (IRR) method
as an investment appraisal tool.
(16 marks)
Further details:
This assignment contributes 100% to the final assessment mark for this course.
Please note that the University policy on cheating collusion and plagiarism will be applied to this
piece of work.
Marking Guide:
Marks will be awarded with respect to the following assessment criteria.
 Provision of clear and concise answer addressing the all components of the question.
 Evidence of supporting data to analyse and draw inferences and conclusions.
 Evidence of background reading and relevance of the material to the question posed.
 Depth of analysis based on relevant theoretical and empirical literature and financial data
analysis.
 Appropriate conclusion based on relevant evidence provided.
 References should be sourced from credible sources.
 Appropriate use of the Harvard referencing system.

Assignment Question:
Part A: 600 words (36 marks)
Select a company listed on the Singapore Stock Exchange (SGX) and evaluate the performance of
the company over the most recent three years. You may be able to obtain the financial statements
from the company’s website and/or from its annual report. Annual reports can also be downloaded
from the respective company’s website. Alternatively, the financial information can also be
obtained from the SGX website (www.sgx.com).
Required:
Prepare a report to evaluate the most recent three years’ performance of the company in relation
to:

  1. Profitability
  2. Gearing
  3. Stock market performance
    The analysis must be supported by calculation of relevant ratios in the three areas mentioned above.
    All ratio definitions and supporting calculations should be clearly shown. Consider to compare
    against a competitor and/or industry norm.
    (3 areas x 12 marks = 36 marks)
    Part B: 900 words (30 marks)
    Critically discuss whether the value of the firm selected in Part A would benefit from an increase
    in leverage. Consider to use relevant capital structure theories to support your answer.
    Part C: 500 words (34 marks)
    Raffles Ltd. is planning to introduce a new product to expand on its existing product offering. The
    new product will require several new equipment that will cost a total of $1,350,000 and be
    depreciated by straight line over five years (assuming no salvage value).
    The company expects to sell $720,000 of the new product in the first year, $950,000 each year for
    Year 2 and Year 3, and $1,120,000 in Year 4 and Year 5. Direct cash costs including labor and
    materials will be 40% of sales. Incremental overheads costs are estimated at $84,000 a year. No
    additional working capital is required.

The company evaluates investment projects using a discount rate of 14%. The company has an
investment policy which requires the initial outlay to be recovered within 3 years.
Page 3 of 3
Required:
1) Compute the following investment appraisal measures to determine whether the project should
be accepted. Provide your workings and reasoning for your decision for each of the methods
(i) Payback Period
(ii) Net Present Value (NPV)
(iii) Internal Rate of Return (IRR)
(18 marks)
2) Critically evaluate the effectiveness and popularity of the Internal Rate of Return (IRR) method
as an investment appraisal tool.
(16 marks)
Further details:
This assignment contributes 100% to the final assessment mark for this course.
Please note that the University policy on cheating collusion and plagiarism will be applied to this
piece of work.
Marking Guide:
Marks will be awarded with respect to the following assessment criteria.
 Provision of clear and concise answer addressing the all components of the question.
 Evidence of supporting data to analyse and draw inferences and conclusions.
 Evidence of background reading and relevance of the material to the question posed.
 Depth of analysis based on relevant theoretical and empirical literature and financial data
analysis.
 Appropriate conclusion based on relevant evidence provided.
 References should be sourced from credible sources.
 Appropriate use of the Harvard referencing system.

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