PART 1 (36%)
The following are extracts of the Income Statement and Balance Sheet of Loyd plc.
2020 (£000) | 2021 (£000) | |
Non-current Asset | ||
Vehicle | 20.00 | 18.00 |
Furniture | 8.00 | 5.00 |
28.00 | 23.00 | |
Current Assets | ||
Inventory | 4.90 | 13.70 |
Receivable | 8.80 | 11.60 |
Balance at Bank | 13.90 | 11.50 |
Cash In hand | 2.60 | 4.20 |
Total current asset | 30.20 | 41.00 |
Current Liabilities | 16.70 | 30.80 |
41.50 | 33.20 | |
Shareholders’ equity | 20.00 | 20.00 |
Retained Profit | 16.00 | 12.50 |
General reserve | 5.50 | 0.70 |
41.50 | 33.20 | |
Sales | 30.00 | 40.00 |
Cost of Sales | 8.00 | 9.00 |
Net Profit | 16.00 | 18.50 |
Investors Ratios: | ||
Dividend Per Share | 12 Pence | 18 Pence |
Number of Shares Issued | 20,000 units | 20,000 units |
Average share price | £2.50 | £3.30 |
The following ratios indicates the benchmark performance of the industry average for the year 2021:
Ratios | Measures |
Gross Profit Margin | 65 percent |
Net Profit Margin | 55 percent |
Receivable Collection Period | 68 days |
Earning Per Share | 50 pence |
Dividend Yield | 3.2 percent |
PE ratio | 6.5 times |
You are required to calculate the following ratios for both years:
- Gross Profit Margin ( 2 Marks)
- Net Profit Margin ( 2 Marks)
- Current Ratio ( 2 Marks)
- Quick Ratio ( 2 Marks)
- Receivables Collection Period ( 2 Marks)
- Earnings Per Share ( 2 Marks )
- Price Earning Ratio ( 2 Marks )
- Dividend Yield ( 2 Marks )
(Total : 16 Marks)
- Prepare a report to the management on the following category of the ratios:
(i) Profitability
(ii) Efficiency
(iii) Liquidity
(iv) Investor’s Ratio
(Total : 20 Marks)
PART 2 ( 34% )
The net operational cash flows of investment schemes of Futsal and Restaurant as follows:
Year | Futsal (£000) | Restaurant (£000) |
0 | (82) | (82) |
1 | 20 | 30 |
2 | 30 | 30 |
3 | 40 | 40 |
4 | 40 | 50 |
5 | 50 | 30 |
Given that the residual value for futsal and Restaurant are £18,000 and £ 22,000 respectively while the required rate of return is 12%.
- You are required to calculate, for both schemes, the:
- Accounting Rate of Return ( 3 Marks )
- Payback period ( 2 Marks )
- Net Present Value ( 6 Marks )
- Internal Rate of Return ( 5 Marks )
(Total : 16 Marks )
- Critically evaluate all forms of investments appraisal techniques and conclude which particular technique is superior among all. (Total : 13 Marks )
- Based on the investment appraisal techniques and its superiority, provide clear recommendation for a choice of either Futsal or Restaurant investment scheme assuming a company is not able to undertake both investment schemes at the same time or mixed of Futsal and Restaurant. (Total 5 marks)
PART 3 ( 30%)
Mr Patrick Fernandez, the Finance Director of Ray plc, is planning to raise funds to fund an acquisition project. He has decided to use the following sources.
- Issue bonds amounting to £5million with an annual coupon rate of 6.5%.
- Issue 500,000 units of preferred shares for £00 each with a fixed dividend rate of 8%
- Issue 100000 units of ordinary shares for £00 each. Mr. Patrick expect to pay an annual dividend of 10% to all its ordinary shareholders.
Given that the tax rate of the company is 26%.
You are required to:
- Calculate the total funds Mr. Patrick wants to raise to fund the acquisition. (2Marks)
- Calculate the net cost of debt of the bonds issued. (2 Marks)
- Calculate the WACC for the total funds raised for the acquisition. (4 marks)
- Explain and critically evaluate main sources of finance that could be utilized by a company during the times of COVID-19. (22 marks)