## Assignment Solutions for all Questions on Financial Management

Assignment Detail:-

• Number of Words: 4000

### Question 1

(a) Calculate the following ratios for Rio Tinto plc for the year ended 31st December 2019

1. Return On Capital Employed
2. Inventory Turnover (stock days)
3. Debtor ratio (debtors’ days)
4. Creditor ratio (creditor days)
5. Current ratio
6. Quick ratio
7. Debt/equity ratio
8. Interest cover
9. Return on Equity
10. Price Earnings Ratio (P/E Ratio)

Share price at close of business on 31st December 2019 = 4,503 pence

£/\$ exchange rate @ 31st December 2019 = \$1.326

(b) Using the 2019 ratios you calculated in question 1 and the 2020 ratios calculated in the class, write a brief report (500 words in total) which compares the performance of Rio Tinto plc across both years.

### Question 2

Bonsall Plc are a manufacturing company who produce components for high performance motorcycles. The product research team have been working on a new lightweight handlebar which they are now proposing to launch. The production and sales teams have supplied the following data to you- Bonsall’s Finance Manager.

 Year Sales £’s Fixed costs £’s Variable costs £’s Scrap proceeds £’s Yr1 250,000 120,000 125,000 Yr2 305,000 125,000 152,500 Yr3 375,000 130,000 187,500 Yr4 475,000 135,000 237,500 Yr5 400,000 140,000 200,000 Yr6 0 0 0 5000

A new machine will be required to produce the handlebar at a cost of £150,000 payable immediately.

After 5 years the sales team forecast that the product will become obsolete and hence the handlebar will be withdrawn from sale. At this point the original machine will be sold for an expected scrap value of £5,000

Bonsall use a discount rate of 10% to appraise new investments. For an investment to be authorized it must meet or exceed the following targets:

1. NPV- positive at 10% discount rate 2. IRR- 15%
2. Undiscounted Payback- 3yrs or less

### Required

Using the information above for the new project calculate:

• The undiscounted payback
• The Net Present Value and
• The Internal Rate of Return

### Question 3

Discuss the benefits and drawbacks of raising funding using the following 3 sources of finance

• Ordinary shares
• Preference shares
• Redeemable bonds

### Question 4

1. Discuss the merits and limitations of ratio
2. Explain your understanding of the risk/return relationship and why it is so important in Financial Management.
3. What should be the primary objective of a commercial firm? How does this work in reality and what other objectives might be important for the company?

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