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financial management
Questions and Answers of
Financial Management
The dean of a school of nursing (SON) and the associate deans of undergraduate and graduate programs have experienced increasing frustration with a lack of clinical placements for the students. The
When a crisis has a significant financial impact, how can you adapt your business/staffing model to reduce costs, both in the short and medium term?
Are there well-coordinated and standardized communication systems and protocols to follow to ensure clear and transparent communication with all stakeholders? If not, what will you need to do to
At what loss of volume should you take action to enable the sustainability of the organization and its long-term mission? What steps can you take to align expenses with anticipated volumes without
How can technology expand capacity to provide services, improve efficiencies, and improve staff and patient satisfaction? What is your role in identifying and enabling this technology?
What role does innovation play in disaster/emergency response planning? What is the role of the DNP-prepared nurse in disaster mitigation and response?
Identify three things that the DNP-prepared nurse can do to prepare and lead during times of uncertainty, shortages, and change.
Your collective bargaining agreement is due to expire in 60 days. Given the tenor of the negotiations, you anticipate the union will be issuing a strike notice in the next 10days. What steps will you
In groups of three, with each person acting in one of the C-suite leadership roles, identify and share with the class your hospital’s core values, core purpose, and what the future of the
Focus on a quality campaign of aggressive early ambulation. How might you differently consider and articulate the value of this initiative?a. Consider the value proposition of adding one unlicensed
Review the data presented in Exhibit 19.2. Based on this information, consider the following questions and provide an action plan that is aligned to the hospital’s core purpose, vision, and
In your original C-suite grouping, explore examples of how technology might assist in the area of human capital management during a crisis such as a pandemic. How might you introduce these concepts
What steps might managers of a business take to reduce:(a) the degree of financial gearing, and(b) the degree of operating gearing where each is considered to be too high? Try to think of at least
Can you think of any bases that could be used to compare a ratio you have calculated from the financial statements of a business for a particular period? (There are three main possibilities.)
Why might the directors of a business engage in creative accounting? Try to think of at least three reasons.
Some businesses fail to take account of inflation in investment decisions. Does it matter given that, in recent years, the level of inflation has been low? What would be the effect of dealing with
Provide two examples of businesses that are likely to be:(a) Seriously affected by an economic recession(b) Slightly affected by an economic recession.
What kind of attributes should the owners and managers of a business possess to attract private equity finance?
Consider each of the following:Derwent plc and Plym plc have shares with beta values of 0.5 and 1.2 respectively. The expected rate of return for Derwent plc investors is 9 per cent and the expected
Consider the following businesses:(i) Alpha plc, a house builder, has reported a surge in profits. Following two years of low economic growth, the economy has recently started to improve and
The managers of Gripton plc are currently deciding between a dividend payment and a share buyback as a means of distributing funds to shareholders.Required:Which of the two do you think is more
How is the gearing ratio of a business affected by:(a) A scrip dividend(b) A cash dividend?
What costs might a business incur as a result of holding too low a level of inventories? Try to jot down at least three types of cost.
Petrov plc sells 10,000 tonnes of sand each year and demand is constant over time. The purchase cost of each tonne is £15 and the cost of placing and handling an order is estimated to be £32. The
Try to think of at least two ways in which a merger that reduces competition might adversely affect the consumer.
Which industries are likely to have high operating gearing? Try to think of at least three.
How might the managers of a business increase short-term profits at the expense of long-term profits? Try to think of at least two ways.
Can you think of three examples of what managers might do in pursuit of higher returns that would be regarded by most people as unethical?
Which groups might be regarded as stakeholders in a business? Try to think of at least five groups.
What might financial institutions wish to discuss with the directors of a business? Try to think of at least two financial and two non-financial aspects of the business.
Can you think of at least three other examples of operating costs that are likely to be variable for a manufacturing business?
‘One effect of the recent globalisation of business is that it is now easier for owners and managers to escape their ethical obligations than in previous eras.’ Can you think of any reasons in
Can you think of any way in which:(a) A lender, and(b) A supplier could take steps to avoid the risk of loss, even though the business with which they are dealing is in financial difficulties and may
What are the main drawbacks of adopting the stakeholder approach as the basis for setting the objectives of a business?
Is it always possible for shareholders to exit from a business easily? Can you think of an example where it may be difficult for a shareholder to sell shares in a business?
What sort of interests might the directors pursue that would benefit themselves, but which may conflict with the interests of shareholders? Try to think of at least two.
What consequences for stock markets may arise from a failure to ensure that directors do not benefit from inside information?
Why might this be an important sanction against a non-compliant business?
Can you think of a possible problem with corporate governance rules that are too loosely drawn?
The rise of financial institutions means that private individuals have less direct investment in listed shares than in the past. Does that mean they have less financial interest in listed shares?
Choice Designs Ltd operates a wholesale/retail carpet store. The statement of financial position of the business as at 31 May Year 8 is as follows:As a result of falling profits the directors of the
Why might it be a problem for a financial institution that holds a substantial number of shares in a poorly performing business to simply sell the shares?
Quardis Ltd is a small business that imports high-quality laser printers. The most recent statement of financial position of the business is as follows:The following forecast information is available
In what ways might projected financial statements help a business that is growing fast?
Davis Travel Ltd specialises in the provision of cheap weekend winter breaks but also organises cheap weekend summer breaks. You are given the following information:Its sales estimates for the next
‘The future is uncertain and so projected financial statements will almost certainly prove to be inaccurate. It is, therefore, a waste of time to prepare them.’ Comment.
Fowler Ltd produces ‘Vitex’, a vitamin supplement drink that is sold for £1.20 per bottle. At present the business’s bottling plant is operating at full capacity and it is not possible to
Why is the sales forecast normally critical to the preparation of projected financial statements?
The financial statements of Danube Engineering plc for the year that has just ended are as follows:As in previous years, a dividend of 25 per cent of the profit for the year was proposed and paid
Can you think why cash is so important to a business?
Fill in the outline projected income statement for Designer Dresses Ltd above for the six months to 30 June, using the information contained in Example2.1.Data from Example2.1 Designer Dresses
Distinguish between financial gearing and operating gearing. Why do businesses often avoid having high levels of both financial and operating gearing?
Eco-Energy Appliances Ltd started operations on 1 January and has produced the following forecasts for annual sales revenue:The following additional information is also available:1. Operating profit
Can you think why it would be unlikely to be double the profit for the first six months?
Can you think of three examples of fixed expenses that a business may incur?
The above suggests that the per-cent-of-sales method is best suited to a business with at least one of two possible characteristics. Try to identify at least one of these.
Why might calculating working capital as a fixed percentage of sales provide a reasonable simplifying assumption?
Calculate the margin of safety for the higher geared option and interpret its significance.
If a business is overtrading, do you think the following ratios would be higher or lower than normally expected?1. Current ratio 2. Average inventories turnover period 3. Average settlement period
Let us assume that research indicates that a particular ratio is shown to be a good predictor of failure. Can you think of a practical problem that may arise when using this ratio to predict
Bernese plc develops and manufactures drills for businesses operating in the oil and gas industry. Although it is committed to maximising the wealth of its shareholders, the business has incurred
When managers of a business are making a decision involving capital investments, what should the decision seek to achieve?
A business assesses potential investment projects on the basis of their IRRs. Why does the business need to know its cost of capital and why would it be helpful to calculate by how much a particular
Chesterfield Wanderers is a professional football club that has enjoyed some success in recent years. As a result, the club has accumulated £10 million to spend on its further development. The board
Can you identify the kinds of risks that the business may face?
The directors of Tocantins Co. are considering whether to invest in two separate projects: one is small while the other is large. They are also trying to decide between two other competing projects.
A garage has an old car that it bought several months ago for £3,000. The car needs a replacement engine before it can be sold. It is possible to buy a reconditioned engine for £300. This would
Can you think of any drawbacks to the use of a post-completion audit? Could it have an adverse effect on management behaviour?
What does the profitability index calculated in Example5.1 suggest about the relative profitability of the projects? What would be the NPV of the £12 million invested, assuming the profitability
Davos plc is considering four possible investment projects for the current year but has only a limited amount to invest. As a result, it will not be able to undertake in full all of the projects
Should objective probabilities be preferred to subjective ones? Discuss the advantages of each.
Khan Engineering Ltd has the opportunity to invest in two competing machines. Details of each machine are as follows:The business has a cost of capital of 10 per cent.State which of the two machines,
Recommend a solution for Unicorn Engineering Ltd in Example5.1 above if the investment projects were not divisible (that is, it was not possible to undertake part of a project).Assume the finance
In what way is the term ‘expected value’ a misnomer?
S. Saluja (Property Developers) Ltd intends to bid at an auction, to be held today, for a large town house that has fallen into disrepair. The auctioneer believes that the house will be sold for
Helena Chocolate Products Ltd is considering the introduction of a new chocolate bar into its range of chocolate products. The new chocolate bar will require the purchase of a new piece of equipment
Explain why the standard deviation may be useful in measuring risk. Under what circumstances might the standard deviation fail to be a reliable measure of risk?
Patel Properties Ltd has the opportunity to acquire a lease on a block of apartments that has only two years remaining before it expires. The cost of the lease would be £1,000,000. The occupancy
What is the NPV for Machine B over the six-year period? Which machine is the better buy?
Devonia (Laboratories) Ltd has recently carried out successful clinical trials on a new type of skin cream, which has been developed to reduce the effects of ageing. Research and development costs
Use the table provided in Appendix B to calculate the equivalent annual annuity for each machine referred to in Example5.2. Which machine is the better buy?Data from Example5.2Khan Engineering
Zeta Computing Services Ltd has recently produced some software for a client organisation. The software has a life of two years and will then become obsolete. The cost of developing the software was
Frank N. Stein plc has the opportunity to invest in two investment projects in Transylvania. The possible outcomes from each project will depend on whether the ruling party of the country wins or
What are the possible benefits of delaying an investment decision?
Plato Pharmaceuticals Ltd has invested £500,000 to date in developing a new type of insect repellent. The repellent is now ready for production and sale, and the marketing director estimates that
Why is inflation likely to have a differing effect on the various items making up the net cash flow of a business?
A business has the opportunity to invest £12 million immediately in new plant and equipment in order to produce a new product. The product will sell at £80 per unit and it is estimated that 200,000
Try to draw a graph that plots the utility of wealth against wealth for an individual who is indifferent to risk. Explain the shape of the graph line.
Kernow Ltd provides street-cleaning services for a small town. The work is currently labour intensive and few machines are employed. However, the business has recently been considering the purchase
Ukon Ltd is considering two competing projects. Details of each project are as follows:Project A has a 0.8 probability of producing a negative NPV of £500,000, a 0.1 probability of producing a
Draw a graph plotting the utility of wealth against wealth for an individual who is risk seeking, and explain the shape of the graph line.
Suppose the returns from Project Y had a perfect negative correlation with those of ProjectX. Draw a graph depicting the relationship between the two projects.
Should the managers of a business seek project diversification as their main objective?
Bellona Ltd is a small business that produces a single product – a thermostat that is used in a range of kitchen appliances. Information relating to the thermostat is as follows:All sales are made
Why might a business decide to repay long-term loan capital earlier than the specified repayment date?
Balliol Ltd produces a tracking device that can be attached to bicycles. The device is designed to help locate the whereabouts of stolen bicycles and is sold to wholesalers and retailers throughout
Under what circumstances might a business wish to avoid paying a dividend?
‘Convertible loan notes are really a form of delayed equity.’ Do you agree? Discuss.
Abyss plc intends to make a 1 for 4 bonus issue of ordinary shares. What will be the effect of this issue on the business’s:(i) Financial gearing, (ii) Earnings per share, (iii) Liquidity, and
Would you expect the market price of ordinary shares, or of preference shares, to be the more volatile? Why?
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