QUESTION TWO A. Why do bankers closely analyse cash flow statements and/or sources and uses of funds statements in considering credit applications? (3 marks) B. The Shatta Moves Company has just acquired a large contract. As a result, it will soon need an additional GHS9,500 in working capital. It has been determined that there are three feasible sources of funds: Trade credit: The Shatta Moves company buys about GHS 5,000 of materials per month on terms of 3/30, net 90." Discounts currently are taken. Bank loan: The firm's bank will loan GHS10,600 at 13 percent. A 10 percent compensating balance will be required. Factoring: A factor will buy the company's receivables (GHS 15,000 per month), which have an average collection period of 30 days. The factor will advance up to 75 percent of the face value of the receivables at 12 percent on an annual basis. The factor also will charge a 2 percent fee on all receivables purchased. It has been estimated that the factor's services will save the company GHS 250 per month - consisting of both credit department expenses and bad-debts expenses. Which alternative should Shatta Moves select based on annualized percentage cost? (12 marks) [15Marks) Question 1 Suppose financial analysts believe that there are four equally likely states of the economy: depression, recession, normal, and boom. The returns on the Supertech Company are expected to follow the economy closely, while the returns on the Slowpoke Company are not. The return predictions are as follows: States of the economy Depression -20% 5% Recession 10% Normal 20% 30% -12% Boom 50% 9% i. 2. i. Required: For each company calculate: the expected returns the Variance the Standard deviation For each company calculate and explain: The covariance The correlation Assuming you are an investor with GHS100 available. If you invest GHS60 and GHS40 in Allos Inc. and Orangus Inc, respectively, what will be your portfolio returns? Calculate the Standard deviation of the portfolio. 3