INTERNATIONAL FINANCIAL MANAGEMENT

Q1. FINANCIAL ANALYSIS

a. Fill in the 20X3 column in the table that follows.

BUENAFLOR CORP.                                                                                  INDUSTRY          

RATIO                                          20X1                20X2                 20X3           NORMS

1. Current ratio                              250%               200%                                    225%

2. Acid-test ratio                            100%                90%                                      110%

3. Receivable turnover                    5.0×                 4.5×                                      6.0×

4. Inventory turnover                      4.0×                 3.0×                                      4.0×

5. Long-term debt/total

 Capitalization                                 35%                  40%                                      33%

6. Gross profit margin                      39%                  41%                                      40%

7. Net profit margin                         17%                   15%                                      15%

8. Return on equity                         15%                    20%                                      20%

9. Return on investment                  15%                    12%                                       12%

10. Total asset turnover                  0.9×                     0.8×                                      1.0×

11. Interest coverage ratio              5.5×                     4.5×                                      5.0×

b. Evaluate the company using information from the table. Cite specific ratio levels and trends as evidence.

a. If you are a supplier of BUENAFLOR Corporation, in what ratio/s will you be interested? Will you still grant credit to BUENAFLOR Corporation? Why?

b. If you want to invest in BUENAFLOR Corporation, in what ratio/s will you be interested? Will you invest in BUENAFLOR Corporation? Why?

c. If you are part of BUENAFLOR Corporation management, in what ratio/s will you be interested? Are the company's assets efficiently utilized?

Q2. CASH BUDGET. Prepare a cash budget for the Shoesyal Manufacturing Company, indicating receipts and disbursements for May, June, and July. The firm wishes to maintain at all times a minimum cash balance of P20,000. Determine whether or not borrowing will be necessary during the period, and if it is, when and for how much. As of April 30, the firm had a balance of P20,000 in cash.

Accounts receivable: 50 percent of total sales are for cash. The remaining 50 percent will be collected equally during the following two months (the firm incurs a negligible bad-debt loss).

Cost of goods manufactured: 70 percent of sales: 90 percent of this cost is paid the following month and the remaining 10 percent one more month later.

Selling, general, and administrative expenses: $10,000 per month plus 10 percent of sales.

All of these expenses are paid during the month of incurrence.

• Interest payments: A semiannual interest payment on P150,000 of bonds outstanding percent annual interest) is paid during July. An annual P50,000 sinking-fund payment is also made at that time.
• Dividends: A P10,000 dividend payment will be declared and made in July.
• Capital expenditures: P40,000 will be invested in plant and equipment in June.
• Taxes: Income tax payments of P1,000 will be made in July.

Q3. Capital Budgeting Techniques: Mutually Exclusive Projects

Hook Industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown in the following table. The firm's cost of capital is 15%.

                                                                       Press A             Press B             Press C

Initial investment (CF0)                                 $85,000          $60,000            $130,000

Year (t)                                                                                                Cash inflows

1                                                                      $18,000            $12,000            $50,000

2                                                                      18,000              14,000              30,000

3                                                                      18,000              16,000              20,000

4                                                                      18,000              18,000              20,000

5                                                                      18,000              20,000              20,000

6                                                                      18,000              25,000              30,000

7                                                                      18,000              -                     40,000

8                                                                      18,000              -                     50,000

1. a. Calculate the payback period of each press.

b. Calculate the net present value (NPV) of each press.

c. Using NPV, evaluate the acceptability of each press.

d. Rank the presses from best to worst using NPV.

e. Calculate the profitability index (PI) for each press.

f. Rank the presses from best to worst using PI.

2. Using Payback period, which alternative is preferred? Why?

3. Using NPV, which alternative is preferred? Why?

4. Using PI, which alternative is preferred? Why?

5. Assume that the following IRR: for Press A- 12%, for Press B - 14%, and for Press C- 16%. Using the IRR, which alternative should be implemented? Why?

Q4. TIME VALUE OF MONEY

Tealicious Shop is considering two different savings plans. The first plan would have her deposit P30,000 every six months, and she would receive interest at a 7 percent annual rate, compounded semiannually. Under the second plan she would deposit P80,000 every year with a rate of interest of 7.5 percent, compounded annually. The initial deposit with Plan 1 would be made six months from now and, with Plan 2, one year hence.

a. What is the future (terminal) value of the first plan at the end of 10 years?

b. What is the future (terminal) value of the second plan at the end of 10 years?

c. Which plan should Tealicious use, assuming that her only concern is with the value of her savings at the end of 10 years?

d. Would your answer change if the rate of interest on the second plan were 7 percent?

Q5. ACCOUNTS RECEIVABLE MANAGEMENT

What are the probable effects on sales and profits of each of the following credit policies? Explain.

a. A high percentage of bad-debt loss but normal receivable turnover and credit rejection rate.

b. A high percentage of past-due accounts and a low credit rejection rate.

c. A low percentage of past-due accounts but high credit rejection and receivable turnover rates.

d. A low percentage of past-due accounts and a low credit rejection rate but a high receivable turnover rate.

Q6.  CASH CONVERSION CYCLE-

Buena-Flor Industries turns over its inventory six times each year; it has an average collection period of 45 days and an average payment period of 30 days. The firm's annual sales are P30 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and assume a 360-day year.

a. Calculate the firm's cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle.

b. Find the firm's cash conversion cycle and resource investment requirement if it makes the following changes simultaneously.

(1) Shortens the average age of inventory by 5 days.

(2) Speeds the collection of accounts receivable by an average of 10 days.

(3) Extends the average payment period by 10 days.

c. If the firm pays 13% for its resource investment, by how much, if anything, could it increase its annual profit as a result of the changes in part b?

d. If the annual cost of achieving the profit in part c is P350,000, what action would you recommend to the firm? Why?

Q7. RISK AND RETURN-

You have been asked for your advice in selecting a portfolio of assets and have been given the following data:

                                                      Expected return                                  

Year                 Asset A             Asset B             Asset C

2013                 12%                  16%                  12%

2014                 14                     14                     14

2015                 16                     12                     16

You have been told that you can create two portfolios-one consisting of assets A and B and the other consisting of assets A and C-by investing equal proportions(50%) in each of the two component assets.

a. What is the expected return for each asset over the 3-year period?

b. What is the standard deviation for each asset's return?

c. What is the expected return for each of the two portfolios?

d. How would you characterize the correlations of returns of the two assets makingup each of the two portfolios identified in part c?

e. What is the standard deviation for each portfolio?

f. Which portfolio do you recommend? Why?

Q8. COST OF CAPITAL

EENER Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data. The firm is in the 40% tax bracket.

Debt

The firm can raise debt by selling $1,000-par-value, 8% coupon interest rate, 20-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $30 per bond would have to be given. The firm also must pay flotation costs of $30 per bond.

Preferred stock

The firm can sell 8% preferred stock at its $95-per-share par value. The cost of issuing and selling the preferred stock is expected to be $5 per share. Preferred stock can be sold under these terms.

Common stock

The firm's common stock is currently selling for $90 per share. The firm expects to pay cash dividends of $7 per share next year. The firm's dividends have been growing at an annual rate of 6%, and this growth is expected to continue into the future. The stock must be underpriced by $7 per share, and flotation costs are expected to amount to $5 per share. The firm can sell new common stock under these terms.

Retained earnings

When measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available$100,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing.

a. Calculate the after-tax cost of debt.

b. Calculate the cost of preferred stock.

c. Calculate the cost of common stock.

d. Calculate the firm's weighted average cost of capital using the capital structureweights shown in the following table. (Round answer to the nearest 0.1%.)

Source of capital                       Weight

Long-term debt                           30%

Preferred stock                           20

Common stock equity                  50

Total                                          100%

Q9. WORKING CAPITAL

What are the costs of maintaining too large a level of working capital? Too small a level of working capital? Explain.

Q10. APPLICATION.

a. Choose a company. (workplace of a group member)

b. Briefly describe the company.

c. How is financial management practiced in the organization? (When, Who, How).

Attachment:- FINANCIAL MANAGEMENT ASSIGNMENT.rar