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12.5% Question 1 Amenyo Lid assembles telecommunication equipment from bought-in components and sells to wholesalers and retailers. It has recently subscribed to an Inter firm comparison service. The specified ratios and the average figures for Amenyo Lad.'s industry for the gear ended 31st December, 2019 are shown below: Return on Capital Employed 20.1% Gross Profit Margin 32% Net Profit (before tax) Margin Current Ratio Acid Test Ratio Inventory Holding Period 46 days Trade Receivables' Collection Period 45 days Debt Equity Ratio Dividend Yield 6% Dividend Cover 3 times 1.6:1 0.9:1 40% Amenyo's financial statements for the year to 31 December 2019 are set out below: Statement of Profit or loss for the year ended 31 December 2019. GHE Turnover 4,850 Cost of sales Gross profit 1.110 Other operating cost (688) Operating profit 422 Finance cost (50) (3.740) 372 Profit before taxation Income tax Profit after taxation (180) 192 Extracts of statement of changes in equity for the year ended 31 December 2016. GH000 Income surplus at 1 January 2019 358 Net profit after tax 192 SSO (120) Dividend paid interim Final Income surplus at 31 December 2019 370 Statement of financial position as at 31 December 2019 GH000 Non-current assets 1,080 Current Assets: Inventory 550 Trade receivables 640 1.190 Total assets 2.270 Equity: Stated capital 300 Income surplus 370 670 Non-current Liabilities 8% Debenture Current liabilities: 600 130 Bank- overdraft Trade payables Taxation 700 170 1.000 2.270 Total equity and liabilities Note: The market price of Amenyo Ltd.'s shares throughout the year average GH6,00 each. Required: a) Calculate the ratios for Amenyo Ltd equivalent to those provided by the inter-firm comparison service (12 Marks) b) As a member of the Finance Team, write a report to the board analyzing the financial performance of Amenyo Ltd based on a comparison with the industry averages (8 Marks) c) Eyram Kiki Co. is a manufacturing company listed on the Ghana Stock exchange. At a recent meeting by the board members, one of the non-executive directors of the company advised the remuneration committee to revise the current share option scheme since non-performing executive directors could be rewarded by the scheme. Another non-executive director disagreed by saying that, the executive directors will not be rewarded by the current share option scheme if the stock value decline even when they acts in the interest of the shareholders despite reducing the agency problem Required: Explain the agency problem in the Eyram Kiki Co and discuss the usefulness of share option schemes as a mechanism of mitigating agency problem (10 Marks)
