May businesses issue loan notes, which carry the right for holders to convert them into
ordinary shares in the same business at a later date? Why might a business choose to
issue convertible loan notes rather than make an issue of e
Basic Terminology: Independent
versus Mutually Exclusive Projects
The acceptance of an investment does not preclude the
acceptance of other investments.
Do not compete with the firms resou
A Framework for Financial
Maximization of Profit
Maximization of the return on capital employed
Long term stability
Maximization of shareholders wealth
Goal of the Firm: Max
FINANCIAL STATEMENTS AND
4 Key Financial Statements
Income statement summarizes operating performance for a
period. It compares
the revenues (wealth generated by the business through trading),
the expenses (wealth used up in
Practical Aspects of Investment Appraisal
Carrying out an NPV appraisal involves
1. Identify all the relevant cash flows and their timing.
2. Total the cash flows for each point in time.
3. Discount each total, according to the appropri
Solution to Tutorial 8
1. Many businesses issue loan notes, which carry the right for holders to convert them
into ordinary shares in the same business at a later date. Why might a business
choose to issue convertible loan notes rather than make an issue
1) What is meant by an efficient market?
An efficient market is defined as one in which the prices of securities fully reflect all
known information quickly and accurately.
2) Describe the three forms of market efficiency?
The three (cumulative) forms of
Lecture 9: The Secondary
Capital Market (the stock
exchange) & its Efficiency
Why Capital Markets Exist?
Capital markets facilitate the
transfer of capital (i.e. financial)
assets from one owner to another.
They provide liquidity.
Liquidity refers to how
Financial Management 1
1. Counterpoint plc, a wholesaler, has the following accounting ratios for last year and
On the basis of these ratios, comment on the performance of the business this year
as compared with last year.
BA205- Financial Management 1
1. List down the steps in the financial decision making process?
2. What are the ultimate goals of a firm that are of concern to a financial manager?
3. Why profit maximization is considered incomplete as
BA 205 FINANCIAL MANAGEMENT 1
1. What are the five basic finance functions? Explain in
2. Explain the three forms of legal organizations? What
are the costs and benefits of each of the three major
1. Define Capital Gearing?
2. Why is debt finance usually cheaper than equity finance in the same
3. According to MM, what happens to the cost of equity as gearing increases
4. According to MM, and taki
1. Counterpoint plc, a wholesaler, has the following accounting ratios for last year and this
On the basis of these ratios, comment on the performance of the business this year as
compared with last year.
2. The following are th
1. What does Economic value added represent and how it can be measured?
2. How can it be argued that hard capital rationing does not exist in real life?
3. Dodd Ltd is assessing a business investment opportunity, Project X, the estima
1. If the interest rate is zero, the future value interest
factor equals _.
2. The future value of $100 received today and
deposited at 6 percent for four years is
B) $ 79.