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ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
(Department of Business Administration)
FINANCIAL MANAGEMENT (5535)
CHECKLIST
SEMESTER: AUTUMN, 2010
This packet comprises the following material:
1. Text Book (one)
2. Course Outlines
3. Assignment No. 1, 2
4. Assignment Forms ( 2 sets )
In this packet, if you find anything missing out of the above mentioned material, please contact at the address given below:
The Deputy Registrar
Mailing Section, Block No. 28
Allama Iqbal Open University
H-8, Islamabad
Phone: 051-9057611-12
Nadia Rashid
(Course Coordinator)
ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
(Department of Business Administration)
1. PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR SOLVING THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
2. SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROM OTHER(S) AS ONE’S OWN WILL BE PENALIZED AS DEFINED IN “AIOU PLAGIARISM POLICY”.
ASSIGNMENT No. 1
Course: Financial Management (5535) Semester: Autumn 2010
Level: MBA Total Marks: 100
Note: Attempt all questions. All questions carry equal marks.
Q. 1 (a) Critically examine the agency relationship? Discuss the potential problems arising when management of the corporation and ownership separated. Give example in support of your answer. (10)
(b) Critically examine the role of financial intermediaries in the financial environment of Pakistan. (10)
Q. 2 Ahmed & Sons Co. has the following balance sheet and income statement for year 2009 (in thousands):
| BALANCE SHEET INCOME STATEMENT | ||||
| Cash | Rs: 800 | | Net sales (all credit) | Rs: 25,360 |
| Accounts receivable | 2,600 | | Cost of goods sold | 17,860 |
| Inventories | 4,200 | | Gross profit | Rs: 7,500 |
| Current assets | Rs: 7,600 | | Selling, general, and administration expenses | 4,460 |
| Net fixed assets | 6,640 | | Interest expense | 920 |
| Total assets | Rs: 14,240 | | Profit before taxes | Rs: 2,120 |
| | | | Taxes | 780 |
| Accounts payable | Rs:640 | | Profit after taxes | Rs: 1340 |
| Accruals | $520 | | | |
| Short-term loans | 2,200 | | | |
| Current liabilities | Rs: 3,360 | | | |
| Long-term debt | 4,000 | | | |
| Net worth | 6,880 | | | |
| Total liabilities and net worth | Rs: 14,240 | | | |
Notes: i. Current period’s depreciation is Rs.960;
ii. Ending inventory for year 2008 was Rs.3,600.
On the basis of above information, compute:
a) Current Ratio,
b) Acid-test Ratio,
c) Average collection period,
d) Inventory turnover Ratio,
e) Debt-to-net-worth Ratio,
f) Long-term debt to total capitalization Ratio,
g) Gross profit margin,
h) Net profit margin, and
i) Return on equity (20)
Q. 3 (a) Sales of Caramel Company were Rs.250, 000 this year, and they are expected to grow at a compound rate of 10 percent for the next six years. What will be the sales figure at the end of each next six years? (10)
(b) Ali has borrowed Rs. 10,000 loan which he will repay by making equal installments for 5 years. The interest rate on the loan is 14 percent per year. Prepare an amortization schedule for the loan. How much interest will he pay over the life of the loan? (10)
Q. 4 (a) Critically describe the relationship between the price of a bond and its YTM. (8)
(b) Arvina co. has just paid a cash dividend of Rs.2 per share. Investors require a 16 percent return from investments such as this. If the dividend is expected to grow at a steady 8 percent per year, what is the current value of the stock? What will the stock be worth in 5 years? (12)
Q. 5 Consider the following information about Stock A and Stock B:
| State of Economy | Probability of state of Economy | Rate of Return if state occurs | |
| Stock A | Stock B | ||
| Recession | 0.2 | 0.15 | 0.2 |
| Normal | 0.5 | 0.2 | 0.3 |
| Boom | 0.3 | 0.6 | 0.4 |
The market risk premium is 8 percent and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which sock is riskier? Explain. (20)
Guidelines FOR ASSIGNMENT No. 1
You should look upon the assignments as a test of knowledge, management skills, and communication skills. When you write an assignment answer, you are indicating your knowledge to the teacher:
§ Your level of understanding of the subject;
§ How clearly you think;
§ How well you can reflect on your knowledge & experience;
§ How well you can use your knowledge in solving problems, explaining situations, and describing organizations and management;
§ How professional you are, and how much care and attention you give to what you do.
To answer a question effectively, address the question directly, bring important related issues into the discussion, refer to sources, and indicate how principles from the course materials apply. The student must also be able to identify important problems and implications arising from the answer.
For citing references, writing bibliographies, and formatting the assignment, APA format should be followed.
assignment No. 2
(Units: 1–9) Total Marks: 100
This assignment is a research-oriented activity. You are required to obtain information from a business/commercial organization and prepare a report of about 1000 words on the issue allotted to you to be submitted to your teacher for evaluation.
You are required to select one of the following issues according to the last digit of your roll number. For example, if your roll number is P-3427180 then you will select issue # 0 (the last digit):-
List of Issues/Topics:
0. Role of financial management in banking sector of Pakistan. Select any two banks and critically examine the role of financial management in them.
1. Select a leasing company of Pakistan and critically examine the types of leases and their features which it offered to its customers.
2. Taxes can greatly affect the future value of an investment. Critically examine the statement and the tax environment in public organization of Pakistan.
3. Select a manufacturing organization of Pakistan. Critically examine its financial statements. Then calculate its balance sheet and income statement ratios. Also give calculations and analytical comments with each ratio.
4. Forecasted financial statements of a private organization of Pakistan. Give a comprehensive theoretical background of the topic and then critically analyze the methods of preparing forecasted financial statements of the organization. Also give interpretation of those statements.
5. Short term vs long term financing. Give a comprehensive theoretical background of the topic and then analyze its practical application in an organization selected by you.
6. Select a financial institution and critically analyze its current working capital issues. Also give theoretical background of the study.
7. Critically examine the credit and collection policies in banking sector of Pakistan. Select any two banks and then compare those policies between them.
8. Select a corporation of Pakistan. Critically examine its project evaluation and selection methods. Also give theoretical background of the topic.
9. Critically evaluate the capital budgeting process and techniques of an industrial firm of Pakistan. Also give theoretical background of the study.
The report should follow the following format:
1. Title page
2. Acknowledgements
3. An abstract (one page summary of the paper)
4. Table of contents
5. Introduction to the issue (brief history & significance of issue assigned)
6. Practical study of the organization (with respect to the issue)
7. Data collection methods
8. SWOT analysis (strengths, weaknesses, opportunities & threats) relevant to the issue assigned
9. Conclusion (one page brief covering important aspects of your report)
10. Recommendations (specific recommendations relevant to issue assigned)
11. References (as per APA format)
12. Annexes (if any)
GUIDELINES FOR ASSIGNMENT No. 2:
§ 1.5 line spacing
§ Use headers and subheads throughout all sections
§ Organization of ideas
§ Writing skills (spelling, grammar, punctuation)
§ Professionalism (readability and general appearance)
§ Do more than repeat the text
§ Express a point of view and defend it.
WorkshoPS:
The workshop presentations provide you an opportunity to express your communication skills, knowledge & understanding of concepts learned during practical study assigned in assignment No. 2.
You should use transparencies and any other material for effective presentation. The transparencies are not the presentation, but only a tool; the presentation is the combination of the transparencies and your speech. Workshop presentation transparencies should only be in typed format.
The transparencies should follow the following format:
1) Title page
2) An abstract (one page summary of the paper)
3) Introduction to the issue (brief history & significance of issue assigned)
4) Practical study of the organization (with respect to the issue)
5) Data collection methods
6) SWOT analysis (strengths, weaknesses, opportunities & threats) relevant to the issue assigned
7) Conclusion (one page brief covering important aspects of your report)
8) Recommendations (specific recommendations relevant to issue assigned)
GUIDELINES FOR WORKSHOP PRESENTATION:
§ Make eye contact and react to the audience. Don't read from the transparencies or from report, and don't look too much at the transparencies (occasional glances are acceptable to help in recalling the topic to cover).
§ A 15-minute presentation can be practiced several times in advance, so do that until you are confident enough. Some people also use a mirror when rehearsing as a substitute for an audience.
WEIGHTAGE OF THEORY & PRACTICAL ASPECTS IN ASSIGNMENT No. 2 AND WORKSHOP PRESENTATIONS:
Assignment No. 2 & workshop presentations are evaluated on the basis of theory & its applicability. The weightage of each aspect would be:
Theory: 60%
Applicability (practical study of the organization): 40%
FINANCIAL MANAGEMENT (5535)
Course Outline
Unit 1: Introduction to Financial Management
1.1 The Role of Financial Management
1.1.1 Defining Financial Management
1.1.2 Goal of the Firm
1.1.3 Organization of the Financial Management Functions
1.2 The Business, Tax and Financial Environments
1.2.1 The Business Environment
1.2.2 The Tax Environment
1.2.3 The Financial Environment
Unit 2: Tools of Financial analysis and Planning
2.1 Financial Statement Analysis
2.1.1 Financial statements
2.1.2 Balance sheet ratios
2.1.3 Income statement and income Statement/Balance Sheet Ratios
2.1.4 Trend analysis
2.1.5 Common-size and index analysis
2.2 Cash-Flow Analysis and Financial Planning
2.2.1 Accounting statement of Cash Flows
2.2.2 Cash-flow forecasting
2.2.3 Range of Cash-flow estimates
2.2.4 Forecasting Financial Statements
Unit 3: Valuation
3.1 The Time Value of Money
3.1.1 The interest rate
3.1.2 Simple and Compound interest
3.1.3 Compounding more than once a year
3.1.4 Amortizing a loan
3.2 The Valuation of long-term Securities
3.2.1 Distinctions among valuation concepts
3.2.2 Bond Valuation
3.2.3 Preferred stock valuation
3.2.4 Common stock valuation
3.2.5 Rates of Return (or Yields)
Unit 4: Risk and Return
4.1 Defining risk and return
4.2 Using probability distributions to measure risk
4.3 Attitudes toward risk
4.4 Risk and return in a portfolio context
4.5 Diversification
4.6 The capital asset pricing model
Unit 5: Cost of Capital
5.1 Required Returns and the Cost of Capital
5.1.1 Overall cost of capital of the Firm
5.1.2 The CAPM: Project-Specific and Group-Specific required rates of return
5.1.3 Evaluation of Projects on the Basis of Their Total Risk
5.2 Operating and Financial Leverage
5.2.1 Operating Leverage
5.2.2 Financial Leverage
5.2.3 Total leverage
5.2.4 Cash-Flow ability to service debt
Unit 6: Working Capital Management-I
6.1 Overview of Working Capital Management
6.1.1 Working capital issues
6.1.2 Financing current assets: Short-term and Long-term Mix
6.1.3 Combining liability structure
6.2 Cash and Marketable Securities Management
6.2.1 Motives for holding cash
6.2.2 Speeding up cash receipts
6.2.3 Slowing Down Cash payouts
6.2.4 Electronic Commerce
6.2.5 Investment in marketable securities
Unit 7: Working Capital Management-II
7.1 Accounts Receivable and Inventory Management
7.1.1 Credit and collection policies
7.1.2 Analyzing the credit applicant
7.1.3 Inventory management and control
7.2 Short-term Financing
7.2.1 Spontaneous financing
7.2.2 Negotiated financing
7.2.3 Factoring accounts receivable
7.2.4 Composition of short-term financing
Unit 8: Investment in Capital Assets
8.1 Overview of capital budgeting process
8.2 Estimating project “After-Tex incremental operating cash flows”
8.3 Capital Budgeting Techniques
8.4 Project evaluation and selection: Alternative Methods
8.5 Risk and Managerial Options in Capital Budgeting
Unit 9: Long-term Financing
9.1 Long-Term Debt, Preferred Stock and Common Stock
9.1.1 Types of long-term debt instruments
9.1.2 Bonds and their features
9.1.3 Preferred stock and its features
8.1.4 Common stock and its features
8.1.5 Dual-class common stock
9.2 The Loans and Leases
9.3.1 Term loans
9.3.2 Provisions of loan agreements
9.3.3 Equipment financing
9.3.4 Lease Financing
9.3.5 Lease financing vs. debt financing
Recommended Books:
(1) Fundamentals of Financial Management
By James C. Van Horn
(2) Financial Management
By M. Y. Khan P. K. Jains
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