FINANCIAL FORMULAE The capital asset pricing model Er, = Rf + Bi(Rr, - Rf ) The asset beta formula Ba = Ve Ve + Vd(1-T).B. + Va(1-T) Ve + Vd(1-T) Correlation coefficient P(x.y) - Cov(x.y) Covariance Cover.y) = p(x-x) (v-7) Beta of a security BA = COVRA , RM) = ( 1 6, ) 10m 62 ( RM ) Do(1+g) The Gordon model Po = Tre - 8] Gordon's growth approximation g = bre Terminal value TV = FCF (1+8) ' (k - g) Purchasing power parity and interest rate parity S1 = S. Iti. Iti S1 = So The Fisher formula (1 + m) = (1 + r) (1 + i) Economic order quantity (EOQ) 2COD V CH Weighted Average Cost of Capital (WACC) = V. V. +V. ] k + Modigliani and Miller Proposition 2 (with tax) k. = k +(1-T) (k -k.),a Two-asset portfolio S = \\was + wis; + 2wwgrabsas Future value of annuity, FVA = A (1+r)" -1Question 1. Mr. Ocoko, a Ugandan based in South Africa is desirous of establishing a company dealing in plastics in Uganda or to take over an already established company dealing in plastics. Mr. Ocoko has identified Nganizi Plastics Limited (NPL), which has operated in the plastics sector for over 10 years, as a possible target. He is however not sure about NPL's performance and has approached you as a financial analyst to assist him evaluate the financial position and performance of NPL for the year ended 31 December 2020. You have been provided with the following financial statements extracts of NPL for the years ended 31 December 2020 and 2019. NPL's Statement of financial position as at 31 December; 2020 2019 Assets Shs '000' Shs '000' Non-current assets Property, plant and equipment 815,000 840,000 Intangible assets 201,000 208,000 Current assets Cash and cash equivalents 290,000 275,000 Inventory 1,400,000 1,090,000 Receivables 650,000 750,000 Prepaid expenses 50,000 35,000 Total assets 3,406,000 3, 198,000 Equity & liabilities Equity Ordinary shares of Shs 20,000 each 1,080,000 1,080,000 Share premium 332,000 332,000 10% preference shares 150,000 150,000 Retained earnings 986,000 534,000 Liabilities Non-current liabilities 12% redeemable debt 420,000 420,000 Current liabilities Payables 438,000 682,000 Total equity & liabilities 3,406,000 3, 198,000NPL's extracts of statement of profit or loss for the year ended 31 December; 2020 2019 Shs '000' Shs '000' Net Sales 4,020.000 3,950.000 Cost of goods sold 2,180.000 1,950.000 Rent 150.000 120.000 Salary 8 wages 300.000 280.000 Other administrative expenses 510.000 480.000 Profit before interest and tax 880.000 1,120.000 Interest 20.000 18,000 Profit before tax 880.000 1.102.000 Tax 258.000 330.600 Profit after tax 802.000 771.400 Additional Information: 1. Ordinary shares are currently trading at Shs 32,000 each and NFL expects to pay a dividend of Shs 2.500 per share outstanding as at 31 December 2020. NFL also expects a growth in dividends of 9% annually. 2. The 12% redeemable debt is currently quoted at Shs 150 ex-div per stock and is redeemable after 10 years at a 10% premium. 3. 10% preference shares have a par value of Shs 1.200 and are quoted at Shs 1.800 per share. 4. Assume 385 days in a year. Mr. 0coko has approached you, a financial analyst, for guidance. Required: (a) Assess the financial performance and position of NFL using the following ratios: (i) Return on capital employed. (2 marks) (ii) Acid test. (2 marks) (iii) Payables turnover. (2 marks) (iv) Inventory turnover period. (2 marks) (y) Return on assets. (2 marks)