Topic: Introduction to Financial Management

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  • 20 Marks

FM – DEC 2023 – L2 – Q1 – Introduction to Financial Management

Explanation of profit maximization vs. wealth maximization, disadvantages and advantages as performance measures, calculation related to rights issue.

a) Shareholders generally look forward to acceleration of the growth rate of their business. They therefore, prefer management report on wealth maximization to profit maximization.
Required:
i) In the light of this, explain the following:

  • Profit maximization. (2 marks)
  • Wealth maximization. (2 marks)

b) Explain to a shareholder THREE (3) inherent disadvantages of using profit as a performance measure and TWO (2) advantages of using wealth maximization as a performance measure. (8 marks)

c) Sobolo Ghana Ltd has taken a strategic decision to expand its scope of operations to enhance revenue growth. A new venture has been identified and requires funding to execute. Management in the light of the above has agreed to raise funding through a rights issue. The rights issue will be done at GH¢6 per share and existing shareholders will receive 2 rights for each 3 shares currently held. The company has 600,000 shares outstanding and they are currently trading at GH¢8 per share.
Required:
i) Calculate the number of new shares to be issued. (3 marks)
ii) Calculate the amount of money raised from the rights issue and the total value of the company after the rights issue. (5 marks)

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  • 10 Marks

FM – Nov 2020 – L2 – Q1a – Introduction to Financial Management

Advise on non-financial objectives and risks associated with seabed mining.

Demo Gold is a Ghanaian mining company that has been operating on-land deep pit gold mining in Africa since its incorporation. Aiming at increasing the value of shareholders, the directors have signed an agreement with the governments of Tonga and Tuvalu to begin excavating an area of seabed in the Pacific Ocean for ores of copper, gold, and other valuable metals.

The idea of mining mineral deposits in the seabed has for many decades been considered unrealistic because of engineering challenges. However, the recent boom in offshore oil and gas operations has come with it the development of a few advanced deep sea technologies which can be used in mining mineral deposits in the seabed.

Required:

i) It appears that the sole objective of the seabed mining operation is to maximize the value of shareholders. Advise the directors on FOUR (4) non-financial objectives that Demo Gold should pursue to achieve a sustainable increase in shareholder value. (4 marks)

ii) Advise the directors of Demo Gold on THREE (3) likely sources of risk relating to the seabed mining operation. For each point, suggest a way through which the risk could be avoided or minimized. (6 marks)

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  • 10 Marks

FM – May 2020 – L2 – Q1a – Introduction to Financial Management

Brief the board of directors on the objectives and factors affecting investment, financing, and dividend decisions.

K-Force Ltd, a newly established security company, has constituted its first board of directors. The directors are expected, among others, to take financial decisions in the areas of investment, financing, and dividend payment. A consultancy firm has been engaged to run an orientation program for the directors in the coming week.

You work with the consultancy firm that has been engaged to run the orientation program for the new directors. You have been asked by your boss to prepare briefing notes on the specific roles the directors are expected to play in the three fundamental decision areas and the constraints that government policies might impose on them.

Required:
Prepare a briefing note on the nature of the three fundamental decision areas. Specifically, the briefing notes should cover the objective of each class of decision; TWO (2) specific decisions the directors are expected to take in each class of financial decisions; and TWO (2) factors in the external environment they should consider when making financial decisions.

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  • 10 Marks

FINANCIAL MANAGEMENT – MAY 2021 – L2 – Q1A – Introduction to Financial Management

Discuss the agency problem in modern management, factors contributing to it, and strategies to mitigate it.

Management of a limited liability company is appointed to promote and protect shareholders’ interest in the performance of their functions. The aim is to maximise shareholder value. Management, however, could have interests that might be incompatible and in conflict with shareholders’ interest.

Required:
i) Identify this type of conflict in modern-day management. (2 marks)
ii) Explain THREE (3) different factors that contribute to this conflict in (i) above. (4 marks)
iii) As a Management professional, explain FOUR (4) strategies that can be used to manage or mitigate this conflict to protect shareholders. (4 marks)

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  • 20 Marks

FM – NOV 2016 – L2 – Q1 – Introduction to Financial Management

Explains the agency problem in public companies, practical solutions, non-financial objectives, governance conflict solutions, and internal hedging methods.

a) Explain the term Agency problem in relation to a Public Limited Liability Company? (2 marks)

b) As a Finance expert, explain THREE practical steps to manage agency problem in public limited liability companies. (3 marks)

c) Profit maximization is the core objective of shareholders in Public limited Liability Companies. Identify and explain THREE other non-financial objectives that can be pursued by a Public limited liability Company. (3 marks)

d) Shareholders are risk-takers but Directors are risk-averse. Explain THREE approaches that corporate governance has identified for addressing conflict of interest between shareholders and Directors. Reference can be made to Companies Act 1963, (Act 179) (6 marks)

e) Explain THREE internal hedging methods that a company can use in order to minimize translation risk and transaction risk. (6 marks)

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  • 10 Marks

FM – March 2023 – L2 – Q1a – Introduction to Financial Management

Explain the four major financial decisions taken by a Finance Manager, citing examples for each.

The four major decisions taken by a Finance Manager are:

i) Investment Decision
ii) Financing Decision
iii) Dividend Decision
iv) Liquidity Decision

Required:
Explain each of the above decisions citing an example of each. (10 marks)

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  • 10 Marks

FM – April 2022 – L2 – Q1a – Introduction to Financial Management

Discuss the consistency between shareholder value maximization and social responsibility, and explain why shareholder value maximization is preferred over profit maximization.

Shareholder value maximisation is a core sustainable objective for shareholders than short-term profit maximisation. Also important to management is social responsibility to the community which is delivered at a great cost to the organisation.
Required:
i) Is shareholder value maximisation inconsistent with social responsibility? Explain. (4 marks)
ii) Explain why shareholders value maximisation is considered more appropriate than profit maximization. (3 marks)
iii) Explain THREE (3) non-financial objectives of an organisation. (3 marks)

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  • 10 Marks

FM – Nov 2017 – L2 – Q1a – Introduction to Financial Management

Explain four non-financial objectives of private companies and their effect on financial objectives.

Directors usually want to focus on factual matters and concrete actions. They deal with rules, regulations, and compliance standards to ensure adherence to the law. They mostly measure company’s performance in financial terms with secondary consideration of other metrics.

i) Briefly explain and identify FOUR examples of non-financial objectives of private companies. (6 marks)
ii) Discuss and identify examples of the effect of these non-financial objectives on the achievement of the financial objectives of companies. (4 marks)

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  • 20 Marks

FM – MAR 2024 – L2 – Q1 – Introduction to Financial Management | Sources of finance: equity

Discusses the concept of corporate governance, the roles of a company's board of directors, best practices in corporate governance, and methods of raising capital through share issues.

a) The shareholders of Abontim Ghana Ltd, who also serve as the directors of the company, have been informed that good corporate governance is crucial to achieving sustainable financial performance. They want to know more about the concept of corporate governance and what needs to be done to enhance the company’s corporate governance.

Required:

i) Explain the concept of corporate governance.
(2 marks)

ii) Explain TWO (2) roles the company’s board of directors is expected to play in corporate governance.
(4 marks)

iii) Explain TWO (2) corporate governance best practices.
(4 marks)

b) Shanto Ghana Ltd is considering raising capital by issuing shares using the three methods below:

i) Placement method
ii) Offer for sale method
iii) Offer for sale by tender

Required:

Explain each of the above methods citing one advantage each.
(10 marks)

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  • 20 Marks

FM – NOV 2018 – L2 – Q1 – Introduction to Financial Management

Explains objectives of non-profit organizations, financial markets, and roles of a finance manager.

a) Choosing a corporate objective of a firm is extremely important and has a determinant factor to the success or failure of a corporation in controlling the market.

Required:
Explain FOUR (4) objectives of not-for-profit organizations.
(4 marks)

b) Financial markets are the markets where individuals and organizations lend funds to other individuals and organizations.

Required:
Explain the following under financial markets:

i) Over the counter market (OTC)
ii) Dealers market
iii) Auction market
(6 marks)

c) Identify and explain FOUR (4) essential roles performed by a Finance Manager in order for a corporate body to achieve its objectives.
(10 marks)

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  • 12 Marks

FM – MAY 2019 – L2 – Q1a – Introduction to Financial Management

Suggest financial, economy, efficiency, and effectiveness measures for evaluating a library project by Adenta Municipal Assembly.

Adenta Municipal Assembly (AdMA) has established an ultra-modern library and internet facility for its inhabitants. It intends to subsidize the costs of using this facility for its inhabitants. This facility is to be evaluated by the local assembly (AdMA) to assess amongst other things, whether it is financially sound and offers value for money.

Required:
Suggest THREE (3) appropriate measures each of Financial, Economy, Efficiency, and Effectiveness that could be set for the facility based on targets. (12 marks)

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  • 11 Marks

FM – NOV 2015 – L2 – Q4a – Introduction to Financial Management

Prepare a loan repayment schedule for Dinpa Supermarket indicating the interest and principal repayment for a term loan.

a. Dinpa Supermarket is considering acquiring a loan of GH₵300,000 from Abrempong Bank Ltd. The loan is payable in five equal annual installments at an interest rate of 25%. Dinpa Ltd has consulted you to determine their annual repayment amount and the interest thereon.

Required:
i. Prepare a repayment schedule for Dinpa indicating clearly the interest payment and the principal repayment. (8 marks)

ii. State THREE (3) advantages of a term loan over an overdraft facility. (3 marks)

 

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  • 10 Marks

FM – NOV 2015 – L2 – Q3b – Introduction to financial management

Calculate the NPV for God is King Ltd's project and advise management on whether to accept or reject the project.

God is King Ltd has been printing all its magazines from Dubai due to the comparative cost advantage. The company is considering establishing its own printing department, and the R&D team has identified a printing machine which will meet the quality and cost specifications of God is King Ltd. The machine also has the capacity to print to meet the market needs of the company. The machine, which has a useful life of 5 years, will cost GHS800,000 and immediate installation cost will be GHS50,000. Fixed cost for maintaining the machine will be 170,000 per annum over the machine’s useful life and additional working capital of GHS30,000 will be introduced in year 2. The use of this machine will generate a contribution of GHS500,000 per annum for five (5) years. Corporate income tax rate, payable in arrears, is 25% and the company’s after-tax cost of capital is 20%. No capital allowance is permitted.

Required:
Calculate the NPV for the project and advise management on whether to accept or reject the project. (10 marks)

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  • 4 Marks

FM – NOV 2015 – L2 – Q1a – Introduction to Financial Management

Describe factors indicating a successful organization

a. One of the key expectations of the Finance Manager is to ensure the success of the organization. Describe FOUR (4) key factors that are indicative of a successful organization. (4 marks)

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