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  • 15 Marks

MA – L2 – Q69 – Performance Analysis

Evaluate the performance of XYZ Group's three product segments using financial data and an analytical model.

It is now the end of Year 2. XYZ Group has three divisions, each producing and selling a different group of products. Information about the financial performance of each division/product group is as follows.

Segment A Year 1 Year 2 Year 3 (forecast)
GH¢000 GH¢000 GH¢000
Sales 8,000 8,323 8,741
Cost of sales 4,400 4,520 4,610
Gross profit 3,600 3,803 4,131
Transport costs 400 415 430
R&D expenditure low low Low
Market share 11% 10% 8%
Sales volume index 100 102 104

Segment B Year 1 Year 2 Year 3 (forecast)
GH¢000 GH¢000 GH¢000
Sales 10,000 11,220 12,600
Cost of sales 6,000 6,480 7,000
Gross profit 4,000 4,740 5,600
Transport costs 350 390 450
R&D expenditure high high high
Market share 27% 27% 27%
Sales volume index 100 110 121

Segment C Year 1 Year 2 Year 3 (forecast)
GH¢000 GH¢000 GH¢000
Sales 6,000 5,600 5,400
Cost of sales 3,900 4,080 4,210
Gross profit 2,100 1,520 1,190
Transport costs 360 476 540
R&D expenditure medium medium medium
Market share 20% 20% 20%
Sales volume index 100 107 114

Required:
Use this information to evaluate the performance of the three product groups. You should try to use an analytical model to support your financial analysis.

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  • 10 Marks

FM – L2 – Q32 – Sources of finance

Explain key features and appropriate uses of equity, venture capital, business angels, private equity funds, and bonds as sources of finance.

Explain the key features of the sources of finance listed below. Describe when it might be appropriate to use each of them.

(a) Equity (shares)

(b) Venture capital

(c) Business angel

(d) Private equity fund

(e) Bonds

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  • 10 Marks

MA – L2 – Q68 – Other aspects of performance measurement

Suggest non-financial performance measures for service quality, marketing effectiveness, and personnel in a financial institution.

Suggest non-financial performance measurements for a financial institution under the following headings:

  • Service quality
  • Marketing effectiveness
  • Personnel

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  • 8 Marks

FM – L2 – Q31 – Sources of finance: debt

Calculate the change in EPS if convertible bonds are converted into equity shares for a company with given financial data.

A company has the following equity shares and bonds in issue:

2,000,000 equity shares of GH¢0.50 each.

GH¢1,000,000 of 4% convertible bonds.

The current earnings per share (EPS) is GH¢0.25.

The rate of tax is 30%.

The convertible bonds are convertible into equity shares at the rate of 40 shares for every GH¢100 of bonds.

Required

On the basis of this information, calculate the expected change in EPS if all the bonds are converted into equity shares.

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  • 10 Marks

FM – L2 – Q30 – Financial markets

Outline advantages/disadvantages of stock exchange listing and types of issue costs associated.

(a) Outline the advantages and disadvantages of obtaining a stock exchange listing.

(b) What are the types of issue costs that are associated with obtaining a stock exchange listing?

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  • 15 Marks

MA – L2 – Q67 – Performance Analysis

Evaluate financial performance of three divisions of XYZ Group using an analytical model, based on provided financial data for Years 1-3.

XYZ GROUP: FINANCIAL ANALYSIS
It is now the end of Year 2. XYZ Group has three divisions, each producing and selling a different group of products. Information about the financial performance of each division/product group is as follows.

Division A Year 1 Year 2 Year 3 (forecast)
Sales GH₵000 GH₵000 GH₵000
8,000 8,323 8,741
Cost of sales 4,400 4,520 4,610
Gross profit 3,600 3,803 4,131
Transport costs 400 415 430
R&D expenditure low low low
Market share 11% 10% 8%
Sales volume index 100 102 104

Division B Year 1 Year 2 Year 3 (forecast)
Sales GH₵000 GH₵000 GH₵000
10,000 11,220 12,600
Cost of sales 6,000 6,480 7,000
Gross profit 4,000 4,740 5,600
Transport costs 350 390 450
R&D expenditure high high high
Market share 27% 27% 27%
Sales volume index 100 110 121

Division C Year 1 Year 2 Year 3 (forecast)
Sales GH₵000 GH₵000 GH₵000
6,000 5,600 5,400
Cost of sales 3,900 4,080 4,210
Gross profit 2,100 1,520 1,190
Transport costs 360 476 540
R&D expenditure medium medium medium
Market share 20% 20% 20%
Sales volume index 100 107 114

Required:
Use this information to evaluate the performance of the three product groups. You should try to use an analytical model to support your financial analysis.

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  • 15 Marks

FM – L2 – Q29 – Sources of finance: equity

Calculate the theoretical ex-rights price per share for Kumasi Lubricants Plc's rights issue to fund new equipment.

Kumasi Lubricants Plc wishes to increase its production capacity by purchasing additional plant and equipment at a cost of GH¢3.8 million. The abridged statement of profit or loss for the year ended 30th November 20X6 is as follows:

GH¢m
Sales turnover 140.6
Profit before interest and taxation 8.4
Interest 6.8
Profit before tax 1.6
Tax 0.4
Profit after taxation 1.2

Earnings per share: 15 cents

In order to finance the purchase of the new plant and equipment, the directors of the company have decided to make a rights issue equal to the cost of the equipment. The shares are currently quoted on the stock exchange at GH¢2.70 per share and the new shares will be offered to shareholders at GH¢1.90 per share.
Required:
(a) Calculate:
(i) the theoretical ex-rights price per share

(ii) the value of the rights on each existing share

(iii) Existing P/E ratio = GH¢2.70 / GH¢0.15 = 18.0

(b) What are the options available to a shareholder who receives a rights offer from a company?

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  • 10 Marks

FM – L2 – Q28 – Sources of finance: equity

Calculate the theoretical ex-rights price per share for a company's 1 for 4 rights issue to finance new plant and equipment.

A company, Kofi Enterprises Plc, wishes to increase its production capacity by purchasing additional plant and equipment. Its statement of profit or loss for the year ended 30th November Year 3 is as follows:

GH¢m
Sales revenue 224
Profit before interest and taxation 45.5
Interest 11.4
Profit before tax 34.1
Tax 7.7
Profit after tax 26.4

Earnings per share: GH¢0.30

To finance the new investment, Kofi Enterprises Plc will make a 1 for 4 rights issue. The shares are currently quoted on the Stock Exchange at GH¢5.50 per share and the new shares will be offered to shareholders at GH¢4.50 per share.
Ignore the transaction costs of the share issue.

Required:
(A) Calculate the theoretical ex-rights price per share.

(B) Calculate the value of the rights on each existing share.

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  • 10 Marks

FM – L2 – Q27a – Portfolio Theory and CAPM

Calculate the average rate of return for two stocks over five years.

Apex Enterprises has a mixture of investment portfolios, Stock A and Stock B. The historical performance return on the stocks are as follows:

Year Stock A Return Stock B Return
20X5 -10% -3%
20X6 18% 21%
20X7 39% 44%
20X8 14% 4%
20X9 33% 28%

Required:
(a) Calculate the average rate of return for each stock during the period of 20X5 to 20X9.

(b) Calculate the average return on the portfolio during the period if Apex Enterprises held 50% each of Stock A and Stock B.

(c) Calculate the return of the portfolio using standard deviation approach.

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  • 10 Marks

FM – L2 – Q25 – Portfolio theory and the capital asset pricing model (CAPM)

Calculate expected return and risk for two projects and advise on investment choice based on risk-return tradeoff.

Regal Enterprises Ltd. has a mixture of investment portfolios, Project 3 and Project 4. The historical performance return on the projects are as follows:

Return Probability
Project 3 6.0 0.6
1.0 0.4
Project 4 8.0 0.5
-1.0 0.5

Required:
(a) Calculate the expected return and standard deviation for Project 3 and Project 4. (6 marks)
(b) The divisional manager will invest in projects that are more risky if they offer a higher return. Advise which project the manager will invest in, considering the expected returns of Project 1 (3.6) and Project 2 (3.95).

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