QUESTION 1 [25 MARKS]
1.1 Assume that you have recently been appointed as the Chief Financial Officer of a medium-sized company with which you were not previously familiar.
- Shortly after your arrival, what would you check about the structure of the financial management office to make sure everything is familiar?
- What would be your key goal as the new CFO?
1.2 Discuss three reasons why it is important for financial managers to analyse financial statements.
QUESTION 2 [25 MARKS]
2.1 Identify, and critically discuss, the content of the four basic financial statements. Indicate how you could use the typical information that you usually find in each of the four statements in a business setting.
2.2 Describe how to use an income statement to evaluate a company’s profitability using three different ‘profit margins’. Furthermore, mention how the results of profit margin calculations can be used to inform business decisions.
QUESTION 3 [25 MARKS]
3.1 Critically discuss four financial decisions that would influence a financial manager to use the time value of money.
3.2 Your company pays you a bonus of R10,000 after tax. You decide to invest it in a 5-year fixed deposit account with a bank that offers a fixed interest rate of 10% per annum, compounded annually, over the 5-year period.
- What is the value of the money you will have when your fixed deposit matures after five years? Round off your answer to the nearest R100.
- Show the formula and your working in order to be awarded full marks.
QUESTION 4 [25 MARKS]
4.1 What is capital budgeting?
4.2 Describe four different types of projects for which it would be appropriate for a financial manager to use capital budgeting.
4.2 Your company is faced with two investment opportunities:
- Invest R10 million in Project A, which will generate after-tax cash flows of R3,250,000 per annum over 4 years at a required rate of return of 10% per annum; or
- Invest R5 million in Project B, which will generate after-tax cash flows of R1,500,000 per annum over 5 years at a required rate of return of 10% per annum.
- Calculate the Net Present Value for both Projects A and B; and
- Conclude which project, at face value, appears to be the better financial investmen
Answers of Above Questions on Financial Management
Answer 1.1: The chief financial officer position is one of the most important ones in an organisation and a chief financial officer is responsible for financial planning, management of financial risk, record keeping and financial reporting in the organisation. In the given case scenario, upon arrival in the medium size company, the important aspect about the structure of the financial management office that I would check in order to be familiar with it includes …….
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