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problem 1: The primary financial purpose of corporation is generally taken to be the maximization of shareholder wealth.


a) Ways in which the shareholder of a company can encourage its managers to act in a manner which is consistent with the purpose of maximization of shareholder wealth.

b) What other objectives might be significant to a public limited company and whether such objectives are consistent with the primary objective of shareholder wealth maximization.

c) What is the aim or benefit of published financial statements for companies?

d) Why the management of working capital is significant for a business?

problem 2: The 5Z Company is selling pens to the local market. It is planning to maximize the sales and profit by analyzing few conditions by using the break-even analysis formula. Below is the data given for you to make the decision:

Fixed cost per annum            $70,000
Unit selling Price                   $20
Unit Variable cost                 $10
Existing Sales                      8,000 units
Relevant range of output       4,000 to 12,000 units

a) Find out the output level at which 5Z Company Break even (that is makes neither a gain nor a loss)?

b) How many units should be sold to obtain $30,000 profit?

c) What is the profit which will result from a 10% reduction in variable costs and a $10,000 decrease in fixed costs, supposing that current sales can be maintained?

d) What is the selling price which would have to be charged to show a gain of $40,000 on sales of 8,000 units?

e) What additional sales volume is needed to meet $8,000 extra fixed charge from a proposed plant expansion?

problem 3: Xcell engineering is planning to construct a futsal stadium that has 5 courts to be rented out at any point of time. Its initial cost of investment is RM$280,000. It is expected to produce sales of RM$20,000 per court for year one and a 10% raise for every year from year 2 to year 5. The operating cost for year one for per court is RM$7,000 and it as well expected to increase by 10% each year from year 2 to 5. At year 5 it can cease operation by selling the business to Mr. Free for RM$280,000. The cost of capital is 10%. Will you suggest this project to be financed by your company? Use NPV technique to show your computations.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M9898

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