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1. What is the ultimate goal of a firm? Is profit maximisation an acceptable goal?

2.Ba-Gode sales Nsima with Mbuzi at the Lusaka number one most famous eating place “Matebeto” were most people go to enjoy Nsima with a wide range of all native Zambian relish. Like most small business Ba-Gode, does not have a management accounting especially planning and budgeting. Competition is very fierce and you Palibe Kanthu you are a regular customer for eating nsima with mbuzi and you have been engaged Ba-Gode on a number of issues that he may consider in order to gain completive advantage. You have spoken to him on the concept of cost volume profit analysis and variance analysis not forgetting the need for his entity to keep production overheads low.

Ba-Gode has told you that his average selling price per plate of nsima is ZMW50 and 45% of the selling price is makes up direct costs. Every plate of nsima is comes with a 300mls glass of well fermented Zambian munkoyo which customers get for free as part African desert. This munkoyo is outsourced from Bana dyululu and she sells ZMW5 per every 300mls glass she suppliers Ba-Gode sold. He also pays a rental ZMW2,430.00 per month for the cooking utensils. The monthly rental cost for the place is ZMW 4,500 but he also pays to the Lusaka City Council a levy of ZMW1,200 per annum. He also pays Nyuma Ngoma a very beautiful cashier lady an annual salary of ZMW42,000.00. Ba-Gode has a monthly average daily demand of 45 plates sold. He opens at 09:00 am and closes at 17:00 pm (8 hours)

For the purpose of this question, today is 1st September 2020 and consider an average business month of 30 days for all the 12 months.

Required

1. How many plates he needs to sale for him to recover all the period and unavoidable costs and advise Ba-Gode the date and estimated time on which he will neither make a loss nor a profit.    (2 marks)
2. Advise Ba-Gode the monthly margin of safety both in form of number of plates and interpret both results.                                                                                                   (2 marks)
3. Calculate the current month contribution ratio per plate and monthly profit.

(4 marks)

4. Ba-Gode is planning to increase the monthly absolute contribution per plate by 10% in the next financial year, monthly fixed costs will go up by 8%. He also plans to begin monitor at the fixed costs closely and you have advised him that he may either Activity Based Costing (ABC) or Absorption Costing.
   1. Advise Ba-Gode what he must do to the cost elements in order to archive the 10% increase in the contribution per plate.

(5 marks)

2. How may plates of Nsima (Ugali) should he sell in order for him to archive 20% increase in the annual profit for the next financial year under the new cost structure. (4 marks)
3. Using facts in the case in question advise Ba-Gode which production overheads method will be more suitable for his business

(6 marks'

3.Explain the three financial decisions made by the financial manager. How are they interrelated?

4.How do you think of this paragraph?

We know that bonds are basically when companies or governments agencies need money to complete their projects, they will issue bonds to investors. The investor may recover the funds and receive the interest at the interest rate set at that time on the bond repayment date. In this world, in order to consider the needs of investors, companies or governments may develop different types of bonds in the market. So, it causes that the type of bonds is various, and they are including corporation bonds, government bonds, zero-coupon bonds, Coupon bonds, long and short-term bonds, and so on. Although it exists so many various types of bonds, their purposes are similar. In addition, we also know that bonds with high-interest rates are risker than bonds with lower interest rates. Therefore, due to the diversity of bonds, investors can consider their own needs to purchase appropriate bonds. For a simple example, the level of the United States government bond is “AAA”, so it means that these bonds are risk-free. In contrast to corporate bonds, investors need not worry about the risk of bankruptcy. Therefore, if investors want to purchase corporate bonds, they should evaluate the firms’ receivables and credit to reduce risk. For another simple instance, if we want to purchase bonds for one year, we can choose to purchase short-term bonds and vice versa. This is the reason why we need these heterogeneous bonds because we can select the most appropriate bonds by our own needs.

5.A firm that pays a dividend

Select one:

a. Should grow more quickly than an identical firm that pays no dividend

b.
Should grow more slowly than an identical firm that pays no dividend

c. Should grow at the same rate as an identical firm that pays no dividend

d. None of the given answers

6. Project Evaluation. This is a comprehensive project evaluation problem bringing together much of what you have learned in this and previous chapters. Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $4.5 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $5 million after taxes. In five years, the land will be worth $5.3 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $19.5 million to build. The following market data on DEI’s securities are current:

Debt:

Common stock: Preferred stock: Market:

60,000 6.2 percent coupon bonds outstanding,
25 years to maturity, selling for 95 percent of par; the bonds have a $1,000 par value each and make semiannual payments.
1,250,000 shares outstanding, selling for $97 per share; the beta is 1.15.
90,000 shares of 5.8 percent preferred stock outstanding, selling for $95 per share.
7 percent expected market risk premium; 3.8 percent risk-free rate.

DEI’s tax rate is 34 percent. The project requires $825,000 in initial net working capital investment to get operational.

1. Calculate the project’s Time 0 cash flow, taking into account all side effects.

2. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI’s project.

3. The manufacturing plant has an eight-year tax life, and DEI uses straight-line depreciation. At the end of the project (i.e., the end of Year 5), the plant can be scrapped for $2.1 million. What is the aftertax salvage value of this manufacturing plant?

4. The company will incur $3,500,000 in annual fixed costs. The plan is to manufacture 13,000 RDSs per year and sell them at $10,800 per machine; the variable production costs are $9,900 per RDS. What is the annual operating cash flow, OCF, from this project?

5. Finally, DEI’s president wants you to throw all your calculations, all your assumptions, and everything else into a report for the chief financial officer; all he wants to know is what the RDS project’s internal rate of return, IRR, and net present value, NPV, are. What will you report?

7.

Liquidity ratios provide information about a firm's

Select one:

a. Long-term solvency

b. Short-term solvency

c. Short- and long-term solvency

d. They focus not on solvency, but rather on the ability to raise cash