FINANCIAL MANAGEMENT – Page 12

FM – L2 – Q9 – Financial Policy Decisions

Discuss investment, financing, and dividend policy decisions, their interrelation, and impact on firm value.

Question

When determining the financial objectives of a company, it is necessary to take three types of policy decision into account: investment policy, financing policy, and dividend policy.

Required:

Discuss the nature of these THREE types of decisions, commenting on how they are inter-related and how they might affect the value of the firm (that is the present value of projected cash flows).

Answer

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Tags: Cash Flows, Cost of Capital, Debt Finance, Dividend Policy, Equity Finance, Financial Decisions, Financing Policy, Investment Policy, Project Viability, Shareholder Value
Level: Level 2

Topic: Introduction to Investment Appraisal

FM – L2 – Q8 – Introduction to financial management

Describe four key factors indicative of a successful organization.

Question

(A). One of the key expectations of the Finance Manager is to ensure the success of the organisation. Describe FOUR (4) key factors that are indicative of a successful organisation.

(B). The quarterly report of the treasury unit of Saruwa Limited contains a paragraph on government policy targets and progress towards achievement of the targets. The technical director has expressed disagreement about the time spent in discussing these policies as wasteful because the policies have no relevance to the business activities of the confectionery company.

Required:

As Head of Finance, you have been tasked to discuss SIX (6) points on government revenue mobilisation policies to agree or disagree with the Technical Director’s position.

(C). (i) Distinguish between fiscal policy and monetary policy.

(ii) Explain TWO adverse effects a contractionary fiscal policy could have on businesses.

Answer

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Tags: Business impact, Contractionary fiscal policy, Economic policy, Financial management
Level: Level 2

Topic: Economic and regulatory environment

FM – L2 – Q7 – Dividend policy

Discuss if share option schemes for directors/employees benefit shareholders of Sunlit Enterprises.

Question

Discuss whether share option schemes for either directors or employees generally, can benefit the interests of the shareholders in Sunlit Enterprises.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Governance, Employee motivation, Managerial objectives, Share options, Shareholder wealth
Level: Level 2

Topic: Dividend policy

FM – L2 – Q6 – Economic and regulatory environment

Explain government measures to reduce a current account deficit and their impact on a multinational company.

Question

Explain how a government might try to reduce a large current account deficit on the balance of payments, and illustrate what impact such government action might have on a multinational company operating in the country concerned.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Balance of Payments, Current Account Deficit, Fiscal Policy, Government Policy, Monetary Policy, Multinational Companies
Level: Level 2

Topic: Economic and regulatory environment

FM – L2 – Q5 – Economic and regulatory environment

Explain how government economic policies influence company decision-making.

Question

(A). Explain how a government might seek to influence decision-making by companies through its economic policies.

(B). Explain how a government’s ‘green policies’ might affect capital investment decisions by companies.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Competition policy, Economies of scale, Financial strategy, Market dominance, Mergers and acquisitions
Level: Level 2

Topic: Economic and regulatory environment

FM – L2 – Q4 – Financial Objectives

Justify and criticize the assumption that a company's objective is to maximize shareholder wealth

Question

(A)

Justify and criticize the usual assumption made in financial management literature that the objective of a company is to maximize the wealth of the shareholders. (Do not consider how this wealth is to be measured.)

(B)

Outline other goals that companies claim to follow, and explain why these might be adopted in preference to the maximization of shareholder wealth.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Alternative objectives, Corporate goals, Management priorities, Shareholder wealth, Stakeholder interests
Level: Level 2

Topic: Introduction to financial management

FM – L2 – Q3 – Corporate Social Responsibility

Identify main issues covered by a company's corporate social responsibility policy.

Question

(A). What are the main issues that might be covered by a company’s policy on corporate social responsibility?

(B). What types of company are most likely to face CSR risks?

(C). What is the nature of CSR risk?

Answer

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Tags: Corporate Social Responsibility, Ethical Investing, Litigation risk, Reputation Risk, Risk Management
Level: Level 2

Topic: Economic and regulatory environment

FM – L2 – Q2 – Economic and regulatory environment

Explain why managers and owners may have different objectives, with examples of conflicts.

Question

(a) Managers and owners of businesses may not have the same objectives. Explain this statement, illustrating your answer with examples of possible conflicts of interest.

(b) In what respects can it be argued that companies need to exercise corporate social responsibility?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Private Sector Objectives, Public Sector Objectives, Stakeholder Goals
Level: Level 2

Topic: Economic and regulatory environment

FM – L2 – Q1 – Sources of finance: equity

Calculate and comment on ratios relevant to investors for SunnyCorp, including EPS, PE ratio, dividend yield, dividend cover, interest yield, and gearing.

Question

The following figures have been extracted from the annual accounts of SunnyCorp:

Item	Amount
Issued share capital	1,000,000 ordinary shares of ZAR 1 each, fully paid
Issued debt capital	ZAR 250,000 10% debentures
Reserves
Capital (share premium reserve)	ZAR 200,000
Accumulated profits
Profit and distributions
Profit for the year	ZAR 600,000 (before interest and tax)
Ordinary dividend payments	ZAR 0.20 per share

The current market price of SunnyCorp’s equity shares is ZAR 3.20 each. Its debentures are priced at ZAR 90 per cent. The company’s rate of corporation tax (income tax) is 30%.

Required:
Calculate the ratios that are likely to be of interest to an investor or potential investor in SunnyCorp.
Comment on each:
(8 marks for calculations, 8 marks for comments)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Debentures, Dividend yield, Earnings per share, Equity ratios, Financial Ratios, Gearing, Investor metrics
Level: Level 2

Topic: Dividend policy

Subject (SQ): FINANCIAL MANAGEMENT

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FM – L2 – Q9 – Financial Policy Decisions

Discuss investment, financing, and dividend policy decisions, their interrelation, and impact on firm value.

FM – L2 – Q8 – Introduction to financial management

Describe four key factors indicative of a successful organization.

FM – L2 – Q7 – Dividend policy

Discuss if share option schemes for directors/employees benefit shareholders of Sunlit Enterprises.

FM – L2 – Q6 – Economic and regulatory environment

Explain government measures to reduce a current account deficit and their impact on a multinational company.

FM – L2 – Q5 – Economic and regulatory environment

Explain how government economic policies influence company decision-making.

FM – L2 – Q4 – Financial Objectives

Justify and criticize the assumption that a company's objective is to maximize shareholder wealth

FM – L2 – Q3 – Corporate Social Responsibility

Identify main issues covered by a company's corporate social responsibility policy.

FM – L2 – Q2 – Economic and regulatory environment

Explain why managers and owners may have different objectives, with examples of conflicts.

FM – L2 – Q1 – Sources of finance: equity

Calculate and comment on ratios relevant to investors for SunnyCorp, including EPS, PE ratio, dividend yield, dividend cover, interest yield, and gearing.

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Subject (SQ): FINANCIAL MANAGEMENT

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Discuss investment, financing, and dividend policy decisions, their interrelation, and impact on firm value.

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Discuss if share option schemes for directors/employees benefit shareholders of Sunlit Enterprises.

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