Question Tag: Investment Analysis

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FM – Nov 2014 – L3 – SB – Q3 – Mergers and Acquisitions

Appraise Syntax Plc.'s proposed acquisition of Synapse Chemical Company based on forecast profits and provide a recommendation.

Question

Syntax Plc., a fertilizer company, is concerned about fluctuating sales and earnings. This caused the management of the company to consider acquisition of another company in the same line of business.

In order to boost its sales and stabilize its earnings, Syntax Plc.’s management has identified Synapse Chemical Company Plc. as a possible target. Syntax proposed to acquire Synapse for a consideration of N20 million, which was agreed to by both companies.

Synapse’s expected future profits, as projected from its past financial records, are as follows:

Forecast Profits

Year	Revenue (N’m)	Cost of Sales (N’m)	Other Expenses (N’m)	Depreciation (N’m)	Total Expenses (N’m)	Profit Before Tax (N’m)
2015	60	30	15	5	50	10
2016	70	35	15	4	54	16
2017	78	39	15	4	58	20
2018	86	43	15	4	62	24
2019	94	47	15	4	66	28

The following information is relevant:

The forecast profits have been limited to five years.
All sales are for cash.
The net book value of Synapse’s assets of N2 million is intended to be sold for N1 million in 2015. The expected loss from the disposal of these assets has been included in the depreciation for 2015. These assets currently have a tax written down value of N3 million. Capital allowances were claimed as at when due.
Synapse currently has a tax liability of N4.5 million due for payment in 2015.
The interest charges of N1 million of Synapse Plc. have been included in other expenses.
In order to maintain the future earnings forecast of Synapse Chemical Company, Syntax Plc. needs to invest in capital expenditure.

7. Company income tax is currently at 30 percent, and the tax delay is one year.

8. The after-tax weighted average cost of capital has been calculated at 22%.

The management of Syntax Plc. has asked you, as a Financial Expert, to appraise the intended acquisition of Synapse Chemical Company Plc. and advise on the reasonableness of the acquisition. Your advice should be in the form of a report to the Board of Directors of Syntax Plc.

Answer

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Tags: Acquisition Appraisal, Discounted Cash Flow, Investment Analysis, Profit Forecast, Valuation
Level: Level 3

Topic: Mergers and acquisitions
Series: NOV 2014

CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)

Explanation of the significance and shortcomings of Earnings Per Share (EPS) for Soar Plc’s management.

Question

The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc has sought your professional advice on the application of IAS 33.

Required: Advise the management of Soar Plc on the following:

i. Significance of Earnings Per Share (EPS). (5 marks)
ii. Shortcomings of Earnings Per Share (EPS). (5 marks)

Answer

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Tags: Comparability, EPS, Financial Performance, Financial Reporting, IAS 33, Investment Analysis
Level: Level 3

Topic: Earnings Per Share (IAS 33)

QTB – Nov 2014 – L1 – SB – Q2 – Measures of Dispersion

Compare the risk and return of two investments by calculating mean and standard deviation.

Question

In finance, the standard deviation is frequently used to measure the risk of an investment.
An investor is considering two possible investments A and B. A sample of 10 rates of return is recorded for each investment. These rates of return, given as percentages, are as follows:

Investment A:
4, 6, 6, 5, 4, 5, 8, 5, 5, 8

Investment B:
0, -2, 6, 12, 9, 16, -4, 16, 25, 12

Required:
a. Calculate the mean rate of return for each of the two investments. (6 Marks)
b. Calculate the standard deviation of the rate of return for each of the investments. (6 Marks)
c. Which of the two investments is riskier and why? (8 Marks)

(Total: 20 Marks)

Answer

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Tags: Investment Analysis, Mean, Risk Assessment, Standard Deviation
Level: Level 1

Topic: Measures of Dispersion
Series: NOV 2014

BMF – MAY 2015 – L1 – SA – Q17 – Investment Decisions

Understanding the decision rule for investment acceptance based on NPV.

Question

The decision rule for the acceptance of investment using Net Present Value (NPV) method is, accept if the:

A. NPV ≥ 0
B. NPV > 0
C. NPV < 0
D. NPV ≤ 0
E. NPV = 0

Answer

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Tags: Decision rule, Financial management, Investment Analysis, Net Present Value
Level: Level 1

Topic: Investment Decisions
Series: MAY 2015

SCS – Apr 2022 – L3 – Q6 – Investment decisions

Compute NPV for two investment options and evaluate potential benefits and difficulties for HPC.

Question

a) For the two strategic development options being considered by HPC, compute:
i) the Net Present Value of Option 1.
ii) the Net Present Value of Option 2.
iii) the Net Present Value for the worst-case outcome for Option 1. (10 marks)

b) Discuss THREE (3) potential benefits and TWO (2) difficulties for HPC of undertaking each of the strategic development options. Your answer should include an evaluation of the calculations of the profitability index of each option. (10 marks)

Answer

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Tags: Investment Analysis, NPV, Profitability Index, Strategic Development
Level: Level 3

Topic: Investment Decisions
Series: APR 2022

BMF – Nov 2021 – L1 – SA – Q5 – Basics of Business Finance and Financial Markets

Question on the meaning of DCF (Discounted Cash Flow).

Question

The acronym “DCF” represents:

A. Discounted Cash Flow
B. Discount Cash Flow
C. Distribution Cash Flow
D. Distributed Cash Flow
E. Discounted Cash Factor

Answer

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Tags: Discounted Cash Flow, Financial Appraisal, Investment Analysis
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2021

QT – Nov 2016 – L1 – Q5 – Measures of Central Tendency

Analyze the returns on two investments using central tendency, dispersion, and provide a decision based on the results.

Question

Suppose that Mr. Kuu, a retired chartered accountant, is facing a decision about where to invest the remaining small fortune after deducting the anticipated expenses for the next year from his consultancy earnings. An investment analyst has suggested two types of investments, and to help make the decision, he obtained some rates of return from each type. He would like to know what he can expect by way of the return on his investment, as well as other types of information, such as whether the rates are spread out over a wide range (making the investment risky) or are grouped tightly together (indicating a relatively low risk). The returns for the two types of investments are listed below:

If he decides to group the returns according to classes 19-10, 9-0, 1-10, 11-20, 21-30, 31-40 :

Required:

a) Draw histograms for each set of returns. (5 marks)
b) Compute the following measures of central tendency for the set of returns:
i) Mean (3 marks)
ii) Median (3 marks)
iii) Mode (3 marks)
c) Compute the following measures of spread for the set of returns:
i) Standard deviation (3 marks)
ii) Coefficient of variation (2 marks)
d) Based on (a), (b), and (c), which investment should Mr. Kuu choose and why? (1 mark)

Answer

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Tags: Central Tendency, Dispersion, Histograms, Investment Analysis, Risk Assessment
Level: Level 1

Topic: Measures of Central Tendency
Series: NOV 2016

FM – May 2018 – L2 – Q1c – Divisional Performance

Calculate and analyze return on investment and residual income before and after a new investment in a division.

Question

The Bottle Labelling Division of Crush Drink Ltd currently has capital employed of GH¢100,000 and earns an annual profit after depreciation of GH¢18,000. The divisional manager is considering an investment of GH¢10,000 in an asset which will have a ten-year life with no residual value and will earn a constant annual profit after depreciation of GH¢1,600. The cost of capital is 15%.

Required:
Calculate the following and comment on the results.
i) The return on divisional investment, before and after the new investment
ii) The divisional residual income before and after the new investment

Answer

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Tags: Divisional Profit, Investment Analysis, Residual Income, Return on investment
Level: Level 2

Topic: Divisional Performance
Series: MAY 2018

FM – Nov 2014 – L3 – SB – Q3 – Mergers and Acquisitions

Appraise Syntax Plc.'s proposed acquisition of Synapse Chemical Company based on forecast profits and provide a recommendation.

Question

Synapse’s expected future profits, as projected from its past financial records, are as follows:

Forecast Profits

Year	Revenue (N’m)	Cost of Sales (N’m)	Other Expenses (N’m)	Depreciation (N’m)	Total Expenses (N’m)	Profit Before Tax (N’m)
2015	60	30	15	5	50	10
2016	70	35	15	4	54	16
2017	78	39	15	4	58	20
2018	86	43	15	4	62	24
2019	94	47	15	4	66	28

The following information is relevant:

The forecast profits have been limited to five years.
All sales are for cash.
The net book value of Synapse’s assets of N2 million is intended to be sold for N1 million in 2015. The expected loss from the disposal of these assets has been included in the depreciation for 2015. These assets currently have a tax written down value of N3 million. Capital allowances were claimed as at when due.
Synapse currently has a tax liability of N4.5 million due for payment in 2015.
The interest charges of N1 million of Synapse Plc. have been included in other expenses.
In order to maintain the future earnings forecast of Synapse Chemical Company, Syntax Plc. needs to invest in capital expenditure.

7. Company income tax is currently at 30 percent, and the tax delay is one year.

8. The after-tax weighted average cost of capital has been calculated at 22%.

Answer

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Tags: Acquisition Appraisal, Discounted Cash Flow, Investment Analysis, Profit Forecast, Valuation
Level: Level 3

Topic: Mergers and acquisitions
Series: NOV 2014

CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)

Explanation of the significance and shortcomings of Earnings Per Share (EPS) for Soar Plc’s management.

Question

Required: Advise the management of Soar Plc on the following:

i. Significance of Earnings Per Share (EPS). (5 marks)
ii. Shortcomings of Earnings Per Share (EPS). (5 marks)

Answer

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Tags: Comparability, EPS, Financial Performance, Financial Reporting, IAS 33, Investment Analysis
Level: Level 3

Topic: Earnings Per Share (IAS 33)

QTB – Nov 2014 – L1 – SB – Q2 – Measures of Dispersion

Compare the risk and return of two investments by calculating mean and standard deviation.

Question

Investment A:
4, 6, 6, 5, 4, 5, 8, 5, 5, 8

Investment B:
0, -2, 6, 12, 9, 16, -4, 16, 25, 12

(Total: 20 Marks)

Answer

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Tags: Investment Analysis, Mean, Risk Assessment, Standard Deviation
Level: Level 1

Topic: Measures of Dispersion
Series: NOV 2014

BMF – MAY 2015 – L1 – SA – Q17 – Investment Decisions

Understanding the decision rule for investment acceptance based on NPV.

Question

The decision rule for the acceptance of investment using Net Present Value (NPV) method is, accept if the:

A. NPV ≥ 0
B. NPV > 0
C. NPV < 0
D. NPV ≤ 0
E. NPV = 0

Answer

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Tags: Decision rule, Financial management, Investment Analysis, Net Present Value
Level: Level 1

Topic: Investment Decisions
Series: MAY 2015

SCS – Apr 2022 – L3 – Q6 – Investment decisions

Compute NPV for two investment options and evaluate potential benefits and difficulties for HPC.

Question

Answer

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Tags: Investment Analysis, NPV, Profitability Index, Strategic Development
Level: Level 3

Topic: Investment Decisions
Series: APR 2022

BMF – Nov 2021 – L1 – SA – Q5 – Basics of Business Finance and Financial Markets

Question on the meaning of DCF (Discounted Cash Flow).

Question

The acronym “DCF” represents:

A. Discounted Cash Flow
B. Discount Cash Flow
C. Distribution Cash Flow
D. Distributed Cash Flow
E. Discounted Cash Factor

Answer

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Tags: Discounted Cash Flow, Financial Appraisal, Investment Analysis
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2021

QT – Nov 2016 – L1 – Q5 – Measures of Central Tendency

Analyze the returns on two investments using central tendency, dispersion, and provide a decision based on the results.

Question

If he decides to group the returns according to classes 19-10, 9-0, 1-10, 11-20, 21-30, 31-40 :

Required:

Answer

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Tags: Central Tendency, Dispersion, Histograms, Investment Analysis, Risk Assessment
Level: Level 1

Topic: Measures of Central Tendency
Series: NOV 2016

FM – May 2018 – L2 – Q1c – Divisional Performance

Calculate and analyze return on investment and residual income before and after a new investment in a division.

Question

Answer

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Tags: Divisional Profit, Investment Analysis, Residual Income, Return on investment
Level: Level 2

Topic: Divisional Performance
Series: MAY 2018

Question Tag: Investment Analysis

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FM – Nov 2014 – L3 – SB – Q3 – Mergers and Acquisitions

Appraise Syntax Plc.'s proposed acquisition of Synapse Chemical Company based on forecast profits and provide a recommendation.

Forecast Profits

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CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)

Explanation of the significance and shortcomings of Earnings Per Share (EPS) for Soar Plc’s management.

You're reporting an error for "CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)"

QTB – Nov 2014 – L1 – SB – Q2 – Measures of Dispersion

Compare the risk and return of two investments by calculating mean and standard deviation.

You're reporting an error for "QTB – Nov 2014 – L1 – SB – Q2 – Measures of Dispersion"

BMF – MAY 2015 – L1 – SA – Q17 – Investment Decisions

Understanding the decision rule for investment acceptance based on NPV.

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SCS – Apr 2022 – L3 – Q6 – Investment decisions

Compute NPV for two investment options and evaluate potential benefits and difficulties for HPC.

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BMF – Nov 2021 – L1 – SA – Q5 – Basics of Business Finance and Financial Markets

Question on the meaning of DCF (Discounted Cash Flow).

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QT – Nov 2016 – L1 – Q5 – Measures of Central Tendency

Analyze the returns on two investments using central tendency, dispersion, and provide a decision based on the results.

You're reporting an error for "QT – Nov 2016 – L1 – Q5 – Measures of Central Tendency"

FM – May 2018 – L2 – Q1c – Divisional Performance

Calculate and analyze return on investment and residual income before and after a new investment in a division.

You're reporting an error for "FM – May 2018 – L2 – Q1c – Divisional Performance"

FM – Nov 2014 – L3 – SB – Q3 – Mergers and Acquisitions

Appraise Syntax Plc.'s proposed acquisition of Synapse Chemical Company based on forecast profits and provide a recommendation.

Forecast Profits

You're reporting an error for "FM – Nov 2014 – L3 – SB – Q3 – Mergers and Acquisitions"

CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)

Explanation of the significance and shortcomings of Earnings Per Share (EPS) for Soar Plc’s management.

You're reporting an error for "CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)"

QTB – Nov 2014 – L1 – SB – Q2 – Measures of Dispersion

Compare the risk and return of two investments by calculating mean and standard deviation.

You're reporting an error for "QTB – Nov 2014 – L1 – SB – Q2 – Measures of Dispersion"

BMF – MAY 2015 – L1 – SA – Q17 – Investment Decisions

Understanding the decision rule for investment acceptance based on NPV.

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SCS – Apr 2022 – L3 – Q6 – Investment decisions

Compute NPV for two investment options and evaluate potential benefits and difficulties for HPC.

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BMF – Nov 2021 – L1 – SA – Q5 – Basics of Business Finance and Financial Markets

Question on the meaning of DCF (Discounted Cash Flow).

You're reporting an error for "BMF – Nov 2021 – L1 – SA – Q5 – Basics of Business Finance and Financial Markets"

QT – Nov 2016 – L1 – Q5 – Measures of Central Tendency

Analyze the returns on two investments using central tendency, dispersion, and provide a decision based on the results.

You're reporting an error for "QT – Nov 2016 – L1 – Q5 – Measures of Central Tendency"

FM – May 2018 – L2 – Q1c – Divisional Performance

Calculate and analyze return on investment and residual income before and after a new investment in a division.

You're reporting an error for "FM – May 2018 – L2 – Q1c – Divisional Performance"

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