Detailed workings and explanations required in this assignment. Much Thanks! Would appreciate if full workings could be compiled.

FIN303 Financial Management Assignment 1 - Individual Assignment/TMA01 July 2016 Presentation FIN303 Assignment 1 Individual Assignment This assignment is worth 25% of the final mark for FIN303 Financial Management. The cut-off date for this assignment is 14 October 2016, 2355hrs. In this assignment, you are expected to: Compute and interpret financial ratios Evaluate investment proposals Apply knowledge to decide appropriate financing plan and dividend policy ___________________________________________________________________________ Modern Technology Corporation is involved in manufacture and sale of computer hardware. It was started in 2010 and has shown considerable growth. The financial statements of Modern Technology for the years 2014 and 2015 are shown in Exhibits 1 and 2. Exhibit 1 Modern Technology Corporation Balance Sheets as of December 31 ($ in millions) Assets Current Assets Cash Accounts Receivables Inventory Total Fixed Assets Net Plant and Equipment Total Assets Liabilities and Owners' Equity Current Liabilities Accounts Payable Notes Payable Total Long-term debt Owner's equity Common Stock and paid-in-surplus Retained Earnings Total Total Liabilities and Equity Number of shares outstanding SIM UNIVERSITY 2014 2015 84 165 393 642 98 188 422 708 2731 3373 2880 3588 312 231 543 531 344 196 540 457 500 1799 2299 3373 33 550 2041 2591 3588 33 Assignment 1 - Page 2 of 4 FIN303 Assignment 1 Exhibit 2 Modern Technology Corporation Income Statement for the year ending December 31 ($ in millions) Sales Cost of Goods sold Depreciation EBIT Interest EBT Taxes (34%) Net income Dividends Addition to retained earnings 2014 2180 1199 260 721 160 561 191 370 122 248 2015 2311 1344 276 691 141 550 187 363 121 242 ___________________________________________________________________________ Question 1 Analyse the financial performance of Modern Technology by calculating the following ratios and by explaining the changes in ROE. Return on equity Gross profit margin Net profit margin Total asset turnover Debt/Total assets Equity multiplier Current ratio Quick ratio Receivables turnover Inventory turnover Payables turnover Fixed assets turnover Total debt ratio Debt-equity ratio Times Interest earned Return on assets 2014 16.09% 45.00% 16.97% 0.646309 31.84% 1.46716 1.18232 0.458564 13.21212 5.547074 3.842949 0.798242 31.84% 46.72% 4.50625 10.97% 2015 14.01% 41.84% 15.71% 0.644091 27.79% 1.384794 1.311111 0.52963 12.29255 5.476303 3.906977 0.802431 27.79% 38.48% 4.900709 10.12% (30 marks) SIM UNIVERSITY Assignment 1 - Page 3 of 4 FIN303 Assignment 1 Question 2 The beta of Modern Technology is 1.1. The risk-free rate is 4% and the market risk premium is 7%. Calculate the cost of equity of Modern Technology. (10 marks) Question 3 The dividends are expected to grow at a constant rate of 5% every year for a long period from 2016. Calculate the stock price of Modern technology as of January 1, 2016. (10 marks) Question 4 Long term debt consists of 10 year bonds issued on January 1, 2013. The bonds bear coupon of 8% paid every 6 months at the end of June and December every year. The current yield to maturity of these bonds is 9%. Calculate the market value of long-term debt as of January 1, 2016. (20 marks) Question 5 Modern Technology is planning to generate a new device which would require investment of $10 million. This new device will produce cash flow of $3 million at the end of every year for the next 5 years. Calculate the net present value of this investment. Use the cost of equity calculated in Question 2 as the discount rate. (15 marks) Question 6 Working capital management is vital for the operation of a company. Discuss the issues that should be considered in managing working capital. (15 marks) ---- END OF ASSIGNMENT ---- SIM UNIVERSITY Assignment 1 - Page 4 of 4