Question Tag: Financial management

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FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques

Calculate the value of the convertible loan stock, expected growth rate in equity price, and provide recommendations on whether to hold or sell the security.

Question

Honey Comb Plc has issued 10% convertible loan stock, which is due for redemption in 10 years’ time (i.e., December 31, 2025). The option to convert is open only for another two years. If conversion does not take place by December 31, 2017, the option will lapse. The issue was sold to the public at a price of N920 for N1000 of convertible loan stock. The conversion rate at January 1, 2016 was 250 equity shares for N1000 of stock. Non-convertible loan stock in a similar risk class is presently yielding 12%. The market price of Honey Comb Plc equity shares has been increasing steadily over time, reflecting the performance of the company. The shares currently pay a dividend of N0.30 per share. The current price of the convertible security is N960, and each share is currently valued at N3.00. A holder of the convertible loan stock is considering whether to sell his holdings or continue to hold the stock. Ignore taxation while answering the questions.

Required:
a. What is the value of the security as simple unconvertible loan stock? (5 Marks)

b. What is the expected minimum annual rate of growth in the equity share price that is required to justify the holder of convertible loan stock holding on to the security before the option expires? (12 Marks)

c. What recommendation would you make to the holder of the security and why? (3 Marks)

Answer

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Tags: Convertible Loan Stock, Equity Shares, Financial management, Investment Decision, Valuation
Level: Level 3

Topic: Investment Appraisal Techniques
Series: NOV 2016

FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques

Calculate NPV of an investment, discuss inflation's impact, and recommend an optimal project under capital constraints.

Question

Opeyemi operates in an economy that has almost zero inflation. Management ignores inflation when evaluating investment projects because it is very low and considered insignificant. Opeyemi is evaluating a number of similar, alternative investments. The company uses an after-tax cost of capital of 6% and has already completed the evaluation of two investments.

The third investment is a new product that would be produced on a just-in-time basis and is expected to have a life of three years. This investment requires an immediate cash outflow of N200,000, which does not qualify for tax depreciation. The expected residual value at the end of the project’s life is N50,000.

A draft financial statement showing the values that are specific to this investment for the three years is as follows:

Year	1	2	3
Sales	230,000	350,000	270,000
Production Costs:
Materials	54,000	102,000	66,000
Labour	60,000	80,000	70,000
Other*	80,000	90,000	80,000
Profit	36,000	78,000	54,000
Closing Receivables	20,000	30,000	25,000
Closing Payables	6,000	9,000	8,000

*Other production costs shown above include depreciation calculated using the straight-line method.

The company is liable to pay corporate tax at a rate of 30% of its profits. One half of this is payable in the same year as the profit is earned, and the remainder is payable in the following year.

Required:

a. Calculate the net present value of the above investment proposal. (14 Marks)

b. Explain how the above investment project would be appraised if there were to be a change in the rate of inflation, so that it became too significant to be ignored. (3 Marks)

c. The evaluation of the other two investments is shown below:

Investment	Initial Investment	Net Present Value
W	300,000	75,000
Y	100,000	27,000

The company only has N400,000 of funds available. All of the investment proposals are non-divisible. None of the investments may be repeated.

Required:

Recommend, with supporting calculations, which of the three investment proposals should be accepted. (3 Marks)

Answer

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Tags: Financial management, Inflation impact, Investment Selection, NPV Calculation
Level: Level 3

Topic: Investment Appraisal Techniques

FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Question

Bettaluck plc is experiencing a substantial net cash inflow, which has been temporarily invested in a short-term equity portfolio. This portfolio consists of investments in four Nigerian listed companies. The funds are intended to meet tax obligations, dividend payments, and future capital expenditures in several months.

Portfolio Details:

Required:

a. Based on the data provided, calculate the risk (i.e., Beta) of Bettaluck’s short-term investment portfolio relative to the market. (4 Marks)

b. Recommend whether the composition of Bettaluck’s short-term investment portfolio should be adjusted. Provide reasons for your recommendation, including relevant calculations. (6 Marks)

c. Discuss the factors a financial manager should consider when investing in marketable securities. (5 Marks)

Answer

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Tags: Capital Gains, Dividend Yield, Financial management, Investment Portfolio, Market Return, Marketable Securities, Portfolio Beta, Risk Assessment, Short-Term Strategy, Treasury bills
Level: Level 3

Topic: Portfolio Management

FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management

Identifies and explains the risks industrial companies face due to fluctuations in interest rates.

Question

a. What risks might an industrial company face as a result of interest movements? (8 Marks)

Answer

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Tags: Financial management, industrial companies, Interest Rate Risk, Risk Assessment
Level: Level 3

Topic: Interest Rate Risk Management

FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy

Discusses the ethical responsibilities companies face in developing an ethical framework and how ethical considerations impact main functional areas.

Question

a. What are the main responsibilities faced by companies when developing an ethical framework, and in what ways can these responsibilities be addressed? (10 Marks)

b. Discuss how ethical considerations impact on each of the main functional areas of a firm. (10 Marks)

Answer

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Tags: Corporate Governance, ethical framework, Ethics, Financial management, functional impact, Responsibilities
Level: Level 3

Topic: Corporate Governance and Financial Strategy

PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms

Comparison of domestic vs. external public debts and proposing debt restructuring for Nigeria.

Question

Nigeria has contracted a number of debts obligations from both domestic and external sources.

a. What comparisons can you make between domestic and external public debts?
(9 Marks)

b. Formulate a debt restructuring method as a strategy for debts management in Nigeria.
(6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Debt Restructuring, Domestic Debt, External Debt, Financial management, Public Debt, Treasury Management
Level: Level 2

Topic: Public Sector Reforms

PSAF – Nov 2016 – L2 – Q6a – Public Sector Financial Statements

This question distinguishes between Cost Benefit Analysis (CBA) and Cost Effectiveness Analysis (CEA).

Question

Distinguish carefully between Cost Benefit Analysis (CBA) and Cost Effectiveness Analysis (CEA).

Answer

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Tags: Cost Effectiveness Analysis, Cost-benefit analysis, Financial management
Level: Level 2

Topic: Public Sector Financial Statements
Series: NOV 2016

PSAF – Nov 2016 – L2 – Q4a – Government Expenditure

This question identifies various sources of loss of public funds in the public sector, focusing on misappropriation and fraud.

Question

Loss or shortage of public funds is depletion in government funds at a given time.

Enumerate SIX sources through which loss of funds may arise in the public sector.

Answer

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Tags: Financial management, Fraud, Losses in Public Sector, Misappropriation, Public Funds
Level: Level 2

Topic: Government Expenditure
Series: NOV 2016

PSAF – Nov 2016 – L2 – Q2c – Accounting for Government Assets and Liabilities

This question defines and describes the key characteristics of a Government Business Enterprise (GBE).

Question

Identify any TWO characteristics of a Governmental Business Enterprise.

Answer

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Tags: Financial management, Government Business Enterprises, Public Sector
Level: Level 2

Topic: Accounting for Government Assets and Liabilities
Series: NOV 2016

PSAF – Nov 2021 – L2 – Q4c – Treasury Management in the Public Sector

Discuss the benefits of implementing a Treasury Single Account (TSA).

Question

Discuss the benefits of Treasury Single Accounts (TSA).

Answer

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Tags: Benefits, Financial management, Treasury Single Account
Level: Level 2

Topic: Treasury Management in the Public Sector
Series: NOV 2021

FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques

Calculate the value of the convertible loan stock, expected growth rate in equity price, and provide recommendations on whether to hold or sell the security.

Question

Required:
a. What is the value of the security as simple unconvertible loan stock? (5 Marks)

c. What recommendation would you make to the holder of the security and why? (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Convertible Loan Stock, Equity Shares, Financial management, Investment Decision, Valuation
Level: Level 3

Topic: Investment Appraisal Techniques
Series: NOV 2016

FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques

Calculate NPV of an investment, discuss inflation's impact, and recommend an optimal project under capital constraints.

Question

A draft financial statement showing the values that are specific to this investment for the three years is as follows:

Year	1	2	3
Sales	230,000	350,000	270,000
Production Costs:
Materials	54,000	102,000	66,000
Labour	60,000	80,000	70,000
Other*	80,000	90,000	80,000
Profit	36,000	78,000	54,000
Closing Receivables	20,000	30,000	25,000
Closing Payables	6,000	9,000	8,000

*Other production costs shown above include depreciation calculated using the straight-line method.

The company is liable to pay corporate tax at a rate of 30% of its profits. One half of this is payable in the same year as the profit is earned, and the remainder is payable in the following year.

Required:

a. Calculate the net present value of the above investment proposal. (14 Marks)

b. Explain how the above investment project would be appraised if there were to be a change in the rate of inflation, so that it became too significant to be ignored. (3 Marks)

c. The evaluation of the other two investments is shown below:

Investment	Initial Investment	Net Present Value
W	300,000	75,000
Y	100,000	27,000

The company only has N400,000 of funds available. All of the investment proposals are non-divisible. None of the investments may be repeated.

Required:

Recommend, with supporting calculations, which of the three investment proposals should be accepted. (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial management, Inflation impact, Investment Selection, NPV Calculation
Level: Level 3

Topic: Investment Appraisal Techniques

FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Question

Portfolio Details:

Required:

a. Based on the data provided, calculate the risk (i.e., Beta) of Bettaluck’s short-term investment portfolio relative to the market. (4 Marks)

b. Recommend whether the composition of Bettaluck’s short-term investment portfolio should be adjusted. Provide reasons for your recommendation, including relevant calculations. (6 Marks)

c. Discuss the factors a financial manager should consider when investing in marketable securities. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Gains, Dividend Yield, Financial management, Investment Portfolio, Market Return, Marketable Securities, Portfolio Beta, Risk Assessment, Short-Term Strategy, Treasury bills
Level: Level 3

Topic: Portfolio Management

FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management

Identifies and explains the risks industrial companies face due to fluctuations in interest rates.

Question

a. What risks might an industrial company face as a result of interest movements? (8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial management, industrial companies, Interest Rate Risk, Risk Assessment
Level: Level 3

Topic: Interest Rate Risk Management

FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy

Discusses the ethical responsibilities companies face in developing an ethical framework and how ethical considerations impact main functional areas.

Question

a. What are the main responsibilities faced by companies when developing an ethical framework, and in what ways can these responsibilities be addressed? (10 Marks)

b. Discuss how ethical considerations impact on each of the main functional areas of a firm. (10 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Governance, ethical framework, Ethics, Financial management, functional impact, Responsibilities
Level: Level 3

Topic: Corporate Governance and Financial Strategy

PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms

Comparison of domestic vs. external public debts and proposing debt restructuring for Nigeria.

Question

Nigeria has contracted a number of debts obligations from both domestic and external sources.

a. What comparisons can you make between domestic and external public debts?
(9 Marks)

b. Formulate a debt restructuring method as a strategy for debts management in Nigeria.
(6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Debt Restructuring, Domestic Debt, External Debt, Financial management, Public Debt, Treasury Management
Level: Level 2

Topic: Public Sector Reforms

PSAF – Nov 2016 – L2 – Q6a – Public Sector Financial Statements

This question distinguishes between Cost Benefit Analysis (CBA) and Cost Effectiveness Analysis (CEA).

Question

Distinguish carefully between Cost Benefit Analysis (CBA) and Cost Effectiveness Analysis (CEA).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Effectiveness Analysis, Cost-benefit analysis, Financial management
Level: Level 2

Topic: Public Sector Financial Statements
Series: NOV 2016

PSAF – Nov 2016 – L2 – Q4a – Government Expenditure

This question identifies various sources of loss of public funds in the public sector, focusing on misappropriation and fraud.

Question

Loss or shortage of public funds is depletion in government funds at a given time.

Enumerate SIX sources through which loss of funds may arise in the public sector.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial management, Fraud, Losses in Public Sector, Misappropriation, Public Funds
Level: Level 2

Topic: Government Expenditure
Series: NOV 2016

PSAF – Nov 2016 – L2 – Q2c – Accounting for Government Assets and Liabilities

This question defines and describes the key characteristics of a Government Business Enterprise (GBE).

Question

Identify any TWO characteristics of a Governmental Business Enterprise.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial management, Government Business Enterprises, Public Sector
Level: Level 2

Topic: Accounting for Government Assets and Liabilities
Series: NOV 2016

PSAF – Nov 2021 – L2 – Q4c – Treasury Management in the Public Sector

Discuss the benefits of implementing a Treasury Single Account (TSA).

Question

Discuss the benefits of Treasury Single Accounts (TSA).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Benefits, Financial management, Treasury Single Account
Level: Level 2

Topic: Treasury Management in the Public Sector
Series: NOV 2021

Question Tag: Financial management

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FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques

Calculate the value of the convertible loan stock, expected growth rate in equity price, and provide recommendations on whether to hold or sell the security.

You're reporting an error for "FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques"

FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques

Calculate NPV of an investment, discuss inflation's impact, and recommend an optimal project under capital constraints.

Recommend, with supporting calculations, which of the three investment proposals should be accepted. (3 Marks)

You're reporting an error for "FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques"

FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Required:

You're reporting an error for "FM – Nov 2021 – L3 – Q6 – Portfolio Management"

FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management

Identifies and explains the risks industrial companies face due to fluctuations in interest rates.

You're reporting an error for "FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management"

FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy

Discusses the ethical responsibilities companies face in developing an ethical framework and how ethical considerations impact main functional areas.

You're reporting an error for "FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy"

PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms

Comparison of domestic vs. external public debts and proposing debt restructuring for Nigeria.

You're reporting an error for "PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms"

PSAF – Nov 2016 – L2 – Q6a – Public Sector Financial Statements

This question distinguishes between Cost Benefit Analysis (CBA) and Cost Effectiveness Analysis (CEA).

You're reporting an error for "PSAF – Nov 2016 – L2 – Q6a – Public Sector Financial Statements"

PSAF – Nov 2016 – L2 – Q4a – Government Expenditure

This question identifies various sources of loss of public funds in the public sector, focusing on misappropriation and fraud.

You're reporting an error for "PSAF – Nov 2016 – L2 – Q4a – Government Expenditure"

PSAF – Nov 2016 – L2 – Q2c – Accounting for Government Assets and Liabilities

This question defines and describes the key characteristics of a Government Business Enterprise (GBE).

You're reporting an error for "PSAF – Nov 2016 – L2 – Q2c – Accounting for Government Assets and Liabilities"

PSAF – Nov 2021 – L2 – Q4c – Treasury Management in the Public Sector

Discuss the benefits of implementing a Treasury Single Account (TSA).

You're reporting an error for "PSAF – Nov 2021 – L2 – Q4c – Treasury Management in the Public Sector"

FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques

Calculate the value of the convertible loan stock, expected growth rate in equity price, and provide recommendations on whether to hold or sell the security.

You're reporting an error for "FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques"

FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques

Calculate NPV of an investment, discuss inflation's impact, and recommend an optimal project under capital constraints.

Recommend, with supporting calculations, which of the three investment proposals should be accepted. (3 Marks)

You're reporting an error for "FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques"

FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Required:

You're reporting an error for "FM – Nov 2021 – L3 – Q6 – Portfolio Management"

FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management

Identifies and explains the risks industrial companies face due to fluctuations in interest rates.

You're reporting an error for "FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management"

FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy

Discusses the ethical responsibilities companies face in developing an ethical framework and how ethical considerations impact main functional areas.

You're reporting an error for "FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy"

PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms

Comparison of domestic vs. external public debts and proposing debt restructuring for Nigeria.

You're reporting an error for "PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms"

PSAF – Nov 2016 – L2 – Q6a – Public Sector Financial Statements

This question distinguishes between Cost Benefit Analysis (CBA) and Cost Effectiveness Analysis (CEA).

You're reporting an error for "PSAF – Nov 2016 – L2 – Q6a – Public Sector Financial Statements"

PSAF – Nov 2016 – L2 – Q4a – Government Expenditure

This question identifies various sources of loss of public funds in the public sector, focusing on misappropriation and fraud.

You're reporting an error for "PSAF – Nov 2016 – L2 – Q4a – Government Expenditure"

PSAF – Nov 2016 – L2 – Q2c – Accounting for Government Assets and Liabilities

This question defines and describes the key characteristics of a Government Business Enterprise (GBE).

You're reporting an error for "PSAF – Nov 2016 – L2 – Q2c – Accounting for Government Assets and Liabilities"

PSAF – Nov 2021 – L2 – Q4c – Treasury Management in the Public Sector

Discuss the benefits of implementing a Treasury Single Account (TSA).

You're reporting an error for "PSAF – Nov 2021 – L2 – Q4c – Treasury Management in the Public Sector"

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