a) The financial manager should identify surplus assets and dispose of them'. Why?

(b) Marcon Limited is considering purchasing a new truck which is expected to save labour on an existing project. The estimated date for the two machines available on the market are as follows:

Machine AMachine B

GHS 000GHS 000

Initial cost (year 0)115,000115,000

Residual value of machines 20,000 30,000

(year 5)

Annual labour cost savings:

Year 1 40,000 30,000

2 40,000 30,000

3 45,000 30,000

4 20,000 70,000

5 20,000 20,000

Which machine will be selected under the following criteria :

(i) NPV assuming a cost of finance of 10 percent p.a?

(ii) Internal rate of return?

-Steps work out another NPV using a finance cost higher than 10% for both machines which will result in a negative NPV

- This will result in a negative NPV for both machines A and B

- for Machine A pick its NPV @10% and NPV 25% and substitute it into the IRR formula . This will give you a rate

- Repeat step three for Machine B. Compare both rates decision: choose the IRR with the highest rate.

(iii) Payback period(4 marks)

(iv) Financial Management tools usually hinges on ones ability to understand or read into recent environmental dynamism and complexities. Sate three (3) of these recent developments or trends.

(v) Calculate the future value of the following yearly cash flows at the end of the fifth year assuming a 10% return per annum

Year

Cash flow

0

1,000

1

600

2

400

3

200

4

500

QUESTION TWO

(a) State three (3) factors Financial Managers take into consideration when setting the timing to raise funds.

(b) List four(4) main functions of Financial managers

(c) Franklin Roosevelt borrowed GH 30,000 from Persus Bank at an interest rate of 15% and agreed to pay equal installments over five years.

You are required to

i) Determine the size of the payments

ii) Set up an amortization schedule for the loan

iii) What is the total interest to be paid after five years

d) Bill deposited $ 4,000 at a bank, which gives interest rate of 10%. How much will he have in three years if interest rate is paid ?

i) Semi- annually

ii) Quarterly

iii) James Benson borrowed GH15,000 from a bank for four years. If interest rate charged by the bank is 20%, how much will be paid by James at the end of the period if it is compounded continuously?

Vi) What is the effective interest rate if you deposit $100 at a bank today and earn interest at the rate of 10% compounded quarterly?(4 marks)