ACCRA BUSINESS SCHOOL MBA: STRATEGIC FINANCE ISSUES Assignment Question Course Code: MBA 556 Submission date: Thursday 9th July, 2020 Submission Time: 11:59 pm CASE STUDY QUESTION [40 MARKS] PART I [20 Marks] Download a current financial statement of any financial institution (Bank) of your choice from the Ghana Stock Exchange Market (GSE). You can use any bank either listed on GSE or non-listed. Each member should choose a different financial company. [In case you do not want to use the listed company] Most banks will provide a copy of the annual report at no charge in response to a polite request or you may know someone who is a shareholder and receive a copy automatically. Many banks have websites with a section where you will find a document file containing the annual report. Assuming that the financial data taken from the Balance sheet and the Profit and Loss Account of this bank covers the current year chosen for this activity. Based on the financial data, calculate i. Profitability Ratios (ROA and ROE) ii. Liquidity Ratio (Current Ratio) iii. Working Capital management iv. Leverage ratios (at least two) The expected Return on Equity (ROE) in the Banks budget should be calculated by you and the existing 91-day Treasury bill interest rate at the date of giving out the loan is 10%. Calculate the banks interests on all deposits and borrowings or costs (DWACF). The bank decided to give a loan to Nivea-Corporation at the end of that same year. According to their loan analyst, Nivea-Corporation needs to be charged additional 2% as credit risk premium over the Banks base rate. Use the information in the table below to calculate the; i. Base Rate of the current year chosen ii. Total borrowing rate Nivea-Corporation has to pay on its borrowing from the two years. Base rate = + 1(+) + + where, PM= 1 ( ) AOE = Annualized operating expenses, TA = Total Assets OA = Other Assets, CRR = Cash reserve ratio, DWACF = domestic weighted average cost of funds, DCIV = Domestic cash in vault ratio subject to a ceiling of 2 percent PM= Profit Margin, T= T-bill rate, t= corporate tax rate. Take: Capital Adequacy ratio (C) = 10%, General Provision (GP) = 1%, Cash Reserve Ratio (CRR) = 9%, and Corporate tax (t) = 25% PART B [20 Marks] From Part A above, assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59.00 1 4.00 2 5.00 3 6.00 4 7.33 5 8.00 6 8.25 a. Calculate the Payback period b. Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume discount rate to be the base rate computed in Part A above. c. This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the projects terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investments NPV. d. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV. Requirements The required word length for this assessment (A&B) should not be more than 1500 word count. The report format is required for this assessment. Follow the preferred Microsoft word settings. Acknowledge the sources of facts appropriately. Use a minimum of six (6) references. Adopt the author-date style of referencing. Copy and paste financial report of the bank downloaded beneath the referencing. No student should attach the financial report downloaded separately from their main work. Examiner: Mr. Daniel Ofori-Sasu