Question 1

You are the new CFO of Risk Surfing Ltd, which has current assets of $ 7 920, net fixed assets of $17 700, current liabilities of $4 580 and long term debts of $5 890. Required:

  1. Calculate owners’ equity and build a balance sheet for the company?
  2. How much is net working capital of the company?
  3. Calculate the return on assets of the company given that Return on Equity is 30%?
  4. What is the PE of the company if total number of ordinary shares outstanding is 2000 and market price of each share is $12?

 

Question 2

You are a young personal financial adviser. Molly, one of your clients approached you for consultation about her plan to save aside $450,000 for her child’s higher education in United States 15 years from now. Molly has a saving of $120,000 and is considering different alternative options:

Investment 1: Investing that $120,000 in a saving account for 15 years. There are two banks for her choice. Bank A pays a rate of return of 8.5% annually, compounding semi-annually. Bank B pays a rate of return of 8.45 annually, compounding quarterly.

Investment 2: Putting exactly an equal amount of money into ANZ Investment Fund at the end of each month for 15 years to get 330 000 she still shorts of now. The fund is offering a rate of return 7% per year, compounding monthly.

Required:

a) Identify which Bank should Molly choose in Investment 1 by computing the effective annual interest rate (EAR)?

b) Calculate the amount of money Molly would accumulate in Investment 1 after 15 years if she chooses Bank B?

c) How much is the annual interest rate, assuming compounding annually Molly should aims at if she chooses to invest her $120 000 in a saving account to get the 450,000 fund ready in just 10 years from now?

d) Calculate the monthly payment Molly needs to contribute into ANZ Investment Fund to get $330,000 after 15 years in Investment 2?

e) In investment 2, if Molly changes to contribute $1200/month to that super fund at the beginning of each month, how much money she would have in ANZ Investment fund after 15 years?

f) Molly is offered an investment that will pay $12 000 each year forever. What is present value of this investment if the rate of return 14% applies?

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