BBA 2011

COPARATE FINANCIAL MANAGEMENT

TAN WAH TIONG

940928-14-5531
201565

CHONG KAR YUN

APRIL 2014
NO
1.0
2.0

Content
Introduction

DETAIL

PAGE
1
2

3.0

Task 1

4.0

Task 2

6.0

Task 3

5-9

7.0

Task 4

10
Page 1 of 20

8.0

Task 5

11

9.0

References

12

10.0

Coursework

13-15

2.0 Introduction

Page 1 of 20

Financial Management is the Operational Activity of a business that is

responsible for obtaining and effectively utilizing the funds necessary for efficient
operation. by Joseph Massie Business finance deals primarily with rising
administering and disbursing funds by privately owned business units operating in
non-financial fields of industry. by Prather and Wert
Financial Management is an area of financial decision making, harmonizing
individual motives and enterprise goals. By Weston and Brigham
Financial management is the area of business management devoted to a judicious
use of capital and a careful selection of sources of capital in order to enable a
business firm to move in the direction of reaching its goals. by J.F.Bradlery
Financial management is the application of the planning and control function to
the finance function. by Archer & Ambrosio
Financial management may be defined as that area or set of administrative
function in an organization which relate with arrangement of cash and credit so
that organization may have the means to carry out its objective as satisfactorily as
possible . - by Howard & Opton.
Business finance can be broadly defined as the activity concerned with planning,
raising, controlling and administering of funds and in the business. by H.G
Gathman & H.E Dougall

Page 2 of 20

3.0 Task 1
(1.1) Par Value = $ 213 million / 4260 million share
= $ 0.05 per share
(1.2) Average Price = ($ 213 million + $ 5416 million) / 4260 million share
= $ 1.32 per share
(1.3) Share = $ (4260-38774) million share
= $ 413 million share
(1.4) Average price = $ 6851 million / 413 million share
= $ 16.59 per share
(1.5) Value of net common equity = Common stock + Additional paid-in share +
Retained
earnings + Treasury share

Page 3 of 20

= $ (213 + 5416 + 10,109 + 6851)

= $ 6851

4.0 Task 2
(a) January: $ 32 million 60% = $ 19.2 million
February: $ 28 million 60 % = $ 16.8 million
March: $ 25 million 60 % = $ 15 million
April: $ 22 million 60 % = $ 13.2 million
May: $ 20 million 60 % = $ 12 million
Jun: $ 20 million 60 % = $ 12 million
(b) January: $ 32 million 60% = $ 19.2 million

Page 4 of 20

February: $ 16.8 million + ($ 32 million 20%) = $ 23.2 million

March: $ 15 million + ($28 million 20%) = 20.6 million
April: $ 13.2 million + ($ 25 million 20%) = 18.2 million
May: $ 12 million + ($ 22 million 20%) = $ 16.4 million
Jun: $ 12 million + ($ 20 million 20%) = $ 16 million

5.0 Task 3
1. Total Assets = Total Liabilities +Equity
= 115
2. Total Current Liabilities = Note Payable+ Account Payable
= 30+ 25

Page 5 of 20

= 55
3. Current Ratio = 1.4
Cash
Current Liabilities

= 1.4

Current Assets= 1.4 5.5

=77
4. Cash Ratio = 0.2
Cash
Current Liabilities

= 0.2

Cash = 0.2 55
= 11
5. Quick Ratio= 1.0
Cash+ Receivable
Current Liabilities = 1.0
11 + R
= 1.0
55
Receivable= 44
6. Cash+ Receivable+ Inventory= Total Current Assets

Page 6 of 20

11+ 44+ Inventory= 77

Inventory= 22
7. Total Asset= Total Current Asset+ Fixed Asset
115= 77+ Fixed Asset
Fixed Asset= 38
8. Long-term Debt+ Equity= Total Assets- Current Liabilities
= 115- 55
= 60
Financial Leverage= 0.4
Longterm Debt
Longterm Debt + Equity = 0.4
Longterm Debt
= 0.4
60
Long-term Debt = 24
Long-term Debt + Equity= 60
24 + Equity = 60
Equity= 36

Page 7 of 20

Opening Inventory +Closing Inventory

2

9. Average Inventory=

22+26
2

= 24

Inventory Turnover= 5.0

Cost of Goods Sold
Average Inventory = 5.0
Cost of Goods Sold= 5.0 24= 120

10. Average Receivable=

Opening Receivable+ Closing Receivable

2
44+34
2

Receivables Collection Period=

= 39

Average Receivable
Sales
365

39
Sales = 71.2
365

Sales=

39
71.2 365= 200

Page 8 of 20

11. EBIT= Sales- Cost of Goods Sold- Selling, General, and Administrative
Expenses- Depreciation
= 200- 120- 10- 20= 50
12. Time-Interest-Earn= 8
EBIT + Depreciation
=8
Interest

Interest=

50+ 20
= 8.75
8

13. Earning Before Tax= EBIT- Interest

= 50- 8.75 = 41.25

14. Average Total Assets=

Opening Total Assets+Closing Total Assets

2
115 +105
2

= 110

Return on Total Assets= 0.18

EBIT Tax
Average Total Assets = 0.18
Tax= 50- (0.18 110) = 30.2

Page 9 of 20

15. Average Equity=

Opening Equity +Closing Equity

2
36 +30
= 33
2

Return on Equity= 0.41

Earnings Available for Common Stock
= 0.41
Average Equity
Earnings Available for Common Stock= 0.41 33= 13.53

Page 10 of 20

6.0 Task 4

Page 11 of 20

Page 12 of 20

7.0 Task 5
(a) No, because the Phillips company just want to reduce the risk of the interest.
(b) The initial terms of the swap will be such that the net present value of the
transaction is zero. Phillips borrow $ 20 million for 5 years at a fixed rate of 9%
and simultaneously lend $ 20 million at a floating rate 2 percentage point above
three-month Treasury bills, which now yield.
(c) Under the terms of the swap agreement, Philips is obligated to pay $ 0.45
million per quarter ($ 20 million at 2.25% per quarter) and in turn, Receivers $
0.40 million per quarter ($ 20 million at 2% per quarter). That is, Phillips has a net
swap payment of $ 0.05 million per quarter.
(d) Long-terms rates have decreased, so the present value of Phillips long-term
borrowing has increased. Thus, in order to cancel the swap, Phillips will have to
pay the dealer. The amount paid is the difference between the present values of the
two positions: The present value of the borrowed money is the present value of
SO.45 million per quarter for 16 quarters, plus $20 million at quarter 16, evaluated

Page 13 of 20

at 2% per quarter. This present value is $ 20.68 million. - The present value of the
lent money is the present value of $0.40 million per quarter for 16 quarters, plus
S20 million at quarter 16, evaluated at 2% per quarter. This present value is S 20
million, as we would expect. Because the rate floats, the present value does not
change. Thus, the amount that must be paid to cancel the swap is $0.68 million.

7.0 Reference
- www.google.com
- http://en.wikipedia.org/wiki/Financial_management

Page 14 of 20

8.0 Coursework

Page 15 of 20

TAN WAH TIONG

940928-14-5531
201565
017-6853251
CHONG KAR YUN

Page 16 of 20

Three example of Financial intermediaries

The Payment Mechanism
Think how inconvenient life would be if all payments had
to be made in cash. Fortunately, checking accounts, credit cards, and electronic
transfers allow individuals and firms to send and receive payments quickly and
safely over long distances. Banks are the obvious providers of payments services,
but they are not alone. For example, if you buy shares in a money-market mutual
fund, your money is pooled
with that of other investors and is used to buy safe, short-term securities. You can
then write checks on this mutual fund investment, just as if you had a bank deposit.
Borrowing and Lending
Almost all financial institutions are involved in channeling savings toward those
who can best use them. Thus, if Ms. Jones has more money now than she needs
and wishes to save for a rainy day. She can put the money in a bank savings
deposit. If Mr. Smith wants to buy a car now and pay for it later, he can borrow
money from the bank. Both the lender and borrower are happier than if they were
forced to spend cash as it arrived. Of course, individuals are not alone in needing
to raise cash. Companies with profitable investment opportunities may wish to

Page 17 of 20

borrow from the bank or they may raise the finance by selling new shares or
bonds. Governments also often run at a deficit, which they fund by issuing large
quantities of debt.
In principle, individuals or firms with cash surpluses could take out newspaper
advertisements or surf the net looking for those with cash shortages. But it can be
cheaper and more convenient to use a financial intermediary, such as a bank, to
link up the borrower and lender. For example, banks are equipped to check out the
would-be borrowers creditworthiness and to monitor the use of cash lent out.
Would you lend money to a stranger contacted over the Internet? You would be
safer lending the money to the bank and letting the bank decide what to do with it.
Voting procedure
In most company, stockholders elect directors by a system of majority voting. In
this case, each director is voted upon separately and stockholders can case each
share that they own. If company's articles permit cumulative voting, the director
are voted upon jointly and stockholders can. If they wish, allot all their votes to
just one Candidate.8 Cumulative voting makes it easier for a minority group
among the Stockholders to elect directors who will represent the group's interests.
That is why some Shareholder groups campaign for cumulative voting.

Page 18 of 20

On many issues a simple majority of votes cast is sufficient to carry the day, but
the company charter may specify some decisions that require a supermajority of,
say, 75
of those eligible to vote. For example, a supermajority vote is sometimes needed to
approve a merger.
The issues on which stockholders are asked to vote are rarely contested,
particularly in the case of large, publicly traded firms. Occasionally, there are
proxy contests in which the firm's existing management and directors compete
with outsiders for effective control of the corporation. But the odds are stacked
against the outsiders, for the insiders can get the firm to pay all the costs of
presenting their case and obtaining votes.

Page 19 of 20