Assignment 01 solutions_201_2011_1_e

Assignment 01 solutions_201_2011_1_e - MNF2023/201/1/2011...

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MNF2023/201/1/2011 DEPARTMENT OF FINANCE AND RISK MANAGEMENT AND BANKING FINANCIAL MANAGEMENT (MNF2023) TUTORIAL LETTER 201 MNF2023/201/1/2011 (First semester) STREPIESKODE BAR CODE UNISA P248(A)
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2 MNF2023/201 CONTENTS Page 1 INTRODUCTION 2 LECTURERS 3 SUGGESTED SOLUTIONS TO ASSIGNMENT 01 4 OVERVIEW OF DISCUSSION CLASSES 5 IMPORTANT INFORMATION 5.1 Answer books 5.2 Examination format 5.3 Assignments 5.4 Discussion classes, tutorial classes and discussion forums on my Unisa 5.5 Calculators 6 CONCLUDING REMARKS 2 2 2 9 11 11 11 11 11 12 12 Dear Student 1 INTRODUCTION The purpose of this tutorial letter is to suggest correct answers to the questions in Assignment 01. Your prescribed book for this module is: Gitman, LJ, Principles of managerial finance. 12 th edition. 2 LECTURERS Direct your academic queries only to the two lecturers listed below. Mr AB Sibindi (Head of Module) Office 3.118 AJH van der Walt Building sibinab@unisa.ac.za Ms PL Makoni Office 3.116 AJH van der Walt Building makonpl@unisa.ac.za Please contact the departmental helpdesk on 012 429 4949/6723 for all other queries.
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3 MNF2023/201 3 SUGGESTED SOLUTIONS TO ASSIGNMENT 01 Please work through the suggested solutions and note where you went wrong. Page references to the 12 th edition of your prescribed book (Gitman : 2009 ) have been provided to assist you in understanding the assignment solutions. Question 1 The correct option is 1. This question tested your knowledge of the DuPont formula. The modified DuPont formula is given by ROE = ROA x FLM, where ROA = Net profit margin x Total asset turnover. Therefore, in order for Jade Ltd to maintain its ROA, it must increase utilisation of its assets – in other words, increase its total asset turnover (TAT). Alternatively, Jade Ltd can increase the amount of debt (the financial leverage multiplier [FLM]) to maintain its ROE. Typically, a company with a low net profit margin has a high total asset turnover, which provides a reasonably good return on investment. Prescribed book reference: chapter 2, page 75. Question 2 The correct option is 1. Steps : 1) Calculate the average age of inventory (AAI) for Jade Ltd (also known as the average number of days’ sales in inventory) = (365 ÷ 3.20) = 114.06 114 days. 2) Comparing this value with the AAI of the rival company (90 days), gives you option 1 as the correct answer. Prescribed book reference: chapter 2, page 60. Question 3 The correct option is 2.
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4 MNF2023/201 Debt ratio = assets Total s liabilitie Total Steps : 1) Calculate the amount of total assets for Jade Ltd. This requires that you rearrange the formula, that Total asset turnover = Sales ÷ Total assets (page 62) so that you end up with Total assets = Sales ÷ Total assets turnover = 5 000 000 ÷ 0,85 = 5 882 352 2) The debt ratio becomes = R3 500 000 R5 882 352 = 59,5% 3) You can therefore conclude that a higher debt ratio for Jade Ltd than the industry average means increased risk of bankruptcy for Jade Ltd. Prescribed book reference: chapter 2, page 62.
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Assignment 01 solutions_201_2011_1_e - MNF2023/201/1/2011...

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