Questions and Answers of Sport Funding And Finance

What proportions of short-term versus long-term funding should be employed?
■describe and calculate the component costs of capital, and calculate the weighted average cost of capital.
■explain the issues involved in choosing an appropriate financing mix
■describe the major sources of debt and equity funds available to a firm throughout its life cycle
■compare and contrast the major features of debt and equity finance
41 Greenie Paper Products Ltd is examining alternative plans affecting its cash conversion cycle.a Which plan – Current, A, or B – results in the shortest cash conversion period?b Is the shortest
40 Pesky Pet Foods Ltd is seeking to reduce costs by shortening its cash conversion cycle. Currently, inventory is held for an average of 80 days, accounts receivable are collected 60 days after
39 Slick Leather Goods Ltd currently holds 90 days of inventory, collects accounts receivable in 30 days and pays accounts payable in 20 days.a Calculate the length in days of the current cash
38 Calculate the cash conversion cycle for the following firms.
37 Felix Pet Supplies has been offered the following credit terms from its suppliers.Felix has a reserve of marketable securities invested at an interest rate of 8% per annum and can borrow funds
36 Oscar’s Takeaways has the opportunity to purchase supplies on credit terms of net 20 days from invoice date; 0.5% cash discount for payment within 10 days. If Oscar’s bank account is currently
35 Calculate the implicit interest cost of foregoing the cash discounts from each of the following suppliers.
34 On the last day of each month a supplier sends to each customer a monthly statement of account that summarises the monthly transactions and outstanding balance to date.Determine the last date for
33 Refer to Question 32. Determine the last date for payment assuming the invoice was dated 2 April.
32 Determine the last date for payment within the (i) interestfree period (if applicable) and (ii) credit period for an invoice dated 28 April, under each of the following credit terms:a net 30 days
31 Calculate the implicit interest cost of foregoing the cash discount for each of a to c in Question 30.
30 Determine the last date for payment within the (i) interestfree period and (ii) credit period for an invoice dated 31 August under the following credit terms:a net 15 days from invoice date; 1%
29 Determine the last date for payment for an invoice dated 15 January, under each of the following credit terms:a net 15 days from invoice date b net 20 days from invoice date c net 30 days from
28 In late June of each year Cath Office Supplies prepares a forecast cash flow statement for the next six months.Actual sales for May and projected sales for the following months are:On 1 July, a
27 Wendy Widgets Ltd has gathered the following data in order to prepare a forecast cash flow statement for July, August and September.
26 The new assistant financial manager of Marmud Food Company Ltd, John Spread, has been asked to examine the financial records of the company (shown on the next page)and to report on the sufficiency
25 Smudge Paint Products Ltd expects to purchase raw materials for paint processing in the following amounts:Given past payment patterns, 15% of purchases are for cash, and the balance is paid for in
24 Cheeky Clothing Ltd expects sales of $500000 in January,$600000 in February and $800000 in each of March, April and May. Generally customers have paid in the following pattern:What are Cheeky’s
23 How will each of the following affect the investment in net working capital, profitability and risk? Answer either ‘increase’,
22 In what circumstances would it be possible to have a negative cash conversion cycle? Is this desirable?
21 What is the cash conversion cycle? Describe three strategies for managing the cash conversion cycle.
20 Describe the factors that must be considered by a customer who has a deficiency of cash and marketable securities, when he assesses whether to take or forego a discount for early payment of
19 Describe the factors that must be considered by a customer who has a substantial investment in marketable securities when she assesses whether to take or forego a discount for early payment of
18 Summarise the criteria used in a decision of whether to accept or forego a discount for the early payment of accounts.
17 Describe the components of the formula for calculating the cost of foregoing a discount for the early payment of accounts.
16 Explain why trade credit incurs no explicit interest cost, while foregoing a discount for early payment of accounts incurs an implicit interest cost.
15 In relation to trade credit, define the terms interest-free period and credit period.
14 List three spontaneous sources of finance. Why are they considered to be spontaneous?
13 Inventory management attempts to minimise the total costs of holding and ordering inventory, and stock-outs. How might this goal conflict with the attitudes of managers of production, purchasing
12 How could inventory costs increase with declining levels of stock?
11 How can the credit terms that are set for customers who purchase on credit influence the level of sales, investment in accounts receivable and bad debts?
10 What problems can arise if sales staff are authorised to grant credit to customers?
9 In what ways could credit policy have a negative effect on sales?
8 What could cause actual cash balances to be consistently lower than forecast cash balances over a six-month period?What problems could result from this situation?
7 Given that owner wealth maximisation is the most appropriate objective of financial management, why does net working capital management focus on profits rather than share value?
6 List the major costs of inventory.
5 Describe the three major components of credit policy.
4 What is a forecast cash flow statement, and how is it useful?
3 Describe three motives for holding cash balances.
2 What is the effect on risk and profitability of an increase in net working capital?
1 Define net working capital, and explain how, by balancing risk and profitability, a suitable goal for the management of net working capital can be established.
2 Tess Fashions has received an electricity bill of $300 due for payment in 30 days’ time. The electricity supplier has offered a 2% discount if the bill is paid within 7 days.a If Tess currently
1 Splotch’n’ Stuff is a craft dealer that supplies art and craft materials to schools and other groups. The owner-manager wishes to prepare a forecast cash flow statement for the months of July
■ explain three strategies for managing the cash conversion cycle.
■calculate the cost of foregoing a discount on an account payable, and assess whether to take or forego the discount
■list the major costs of inventory
■describe the three major components of credit policy
■prepare a forecast cash flow statement
■describe three motives for holding cash balances
■define ‘net working capital’, and explain how, by balancing profitability and risk, a suitable goal for the management of net working capital can be established
■understand the relationship between the components of working capital
24 AppTrap makes gaming apps for smartphones and tablets. It is currently evaluating two alternative investments. The first proposed game, Lolly Scramble, would be based around a current top-selling
23 Liz Biz, a wealthy retired actress, is looking at investing in the ordinary shares of several companies. Her sharebroker has provided details of the expected returns of each company, and graphed
22 TLC Toy Manufacturing Ltd is considering several investment opportunities that have different levels of risk. The financial controller has set the following criteria for evaluating the
21 Shock Electrical Ltd is deciding between three investments, each with an investment cost of $100 000. The forecast annual profits from the alternative investments, given three different economic
20 Dynamic Dinghies Ltd, a major manufacturer of small boats, is considering two alternative investment opportunities, Q and R. They both have a five-year life. As a result of these opportunities,
19 In what ways might the shareholder wealth maximisation objective:a be of benefit to some stakeholders?b be inappropriate as a goal in some organisations?c be insufficient to ensure that a business
18 Two banks offer similar five-year term deposits, but Bank A pays 8% annual interest while Bank B pays 12% annual interest. What would you conclude about the relative risks of each bank? What would
17 If the wealth maximisation objective benefits both investors and the national economy, then why are regulatory constraints imposed on businesses?
16 Alec Smart, a first-year varsity social work student, and Lee Brier, a first-year business studies student, are debating the merits to society of business investment. Alec presents the following
15 In some countries, union officials are represented on the board of directors of many public companies.a Do you see any potential conflict between the objectives of the union and those of the
14 Some managers hold significant shareholdings in the companies that they manage. What are the potential benefits of this situation to the firm’s other shareholders? Are there any potential
13 Why is it necessary for financial decisions to consider information from other functional areas within an organisation?
12 What is meant by the expression ‘risk–return trade-off’?
11 What are some of the financial activities affected by regulatory constraints?
10 In what way will the expected timing, magnitude and risk of future benefits affect the value of an asset?
9 Describe the process by which the value of ordinary shares and other financial instruments is set in the marketplace.
8 Which external environment factors most directly affect the financial decisions of a business?
7 Why are most investors considered to be risk-averse?
6 What is risk?
5 Give three reasons why profit maximisation is inappropriate as a long-term objective for financial management. Explain each of the three.
4 Define wealth with respect to:a the shareholders of a firm b the owner of a sole proprietorship c the owners of a business partnership.
3 What should be the objective of financial management?
2 Describe the three principal functions of financial management.
1 What is financial management?
2 The owner-manager of Whiz-Bang Panelbeaters is considering two alternative equipment purchases, A and B. They both have a five-year life and will cost about $40 000. Different scenarios result in
1 Which of the following goals are consistent with the wealth maximisation objective?a Maximise the market price of the firm’s ordinary shares.b Maximise the market value of owners’ equity.c
■describe the relationship between risk and return.
■discuss the environmental factors of key importance in financial decision-making
■describe the financial objective of wealth maximisation
■explain why financial management is important both to businesses and to the economy as a whole
■describe the three principal functions of financial management
■understand the objective and the role of financial management, and the nature of financing and investment decisions
14 What is the purpose of a business plan?
13 You have an opportunity to acquire a business for $250 000, but will require a loan from the bank for 65% of the purchase price. The bank has agreed to lend you the money you require at an
12 When talking about a retirement fund with friends, one said he had been advised to set a target of $1 million. If you decided to aim for the same target for when you retire in 35 years, how much
11 You have a life insurance policy that will be worth $100 000 when you retire in 40 years’ time. If the funds are discounted back at 9%, what is the present value of this policy?
10 What sources of funds may be available to you in your retirement?
9 What are some of the problems associated with estimating the annual retirement income target (after tax)?
8 What is the importance of the retirement income gap?
7 What is one of the biggest unknown variables associated with buying property? Why is it a problem?
6 List the advantages associated with:a renting a house or an apartment b owning a house or an apartment.Which form of accommodation do you think is more advantageous?
5 What is the difference between an asset and a liability?
4 What strategies can be used to help manage scarce resources such as money? Describe how these strategies make it possible for people to achieve their objectives.
3 Describe the phases individuals pass through during their lifetime. Are the financial goals established during these phases static? Justify your answer.

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