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Business Finance - Question 1

(a) Ultimate goal of the firm is to maximize the wealth of the shareholders or the owners of the firm. Profit maximization cannot be taken as the decision making criteria, as profit considers the total benefits accruing to the firm and not the risk that the firm is carrying.

(b) Three decisions that a manager takes are:

  • Investment decision
  • Financing decision
  • Dividend decision

Each of these decisions are inter related, as all decisions involve cash inflows or outflows, the investment decision made by the firm is based on the assumption of cash inflows from the project, the financing that the company shall avail will be based on the amount of funds required for investment. Similarly, dividends to be paid by the firm shall be derived based on the investing opportunities available with the firm.

Business Finance - Question 2

Particulars

Impact on cash

Amount

Source/Use

Increase in accounts payable

Up

25,000

Source of cash

Increase in inventory

Down

(15,000)

Use of cash

Decrease in accounts receivable

Up

27,000

Source of cash

Decrease in borrowings

Down

(65,000)

Use of cash

   

(28,000)

 

Business Finance - Question 3

(a)

Cash flow

PVF

Annuity value

5,000.00

1.00

5,000.00

5,000.00

0.93

4,672.90

5,000.00

0.87

4,367.19

5,000.00

0.82

4,081.49

5,000.00

0.76

3,814.48

5,000.00

0.71

3,564.93

   

25,500.99

Thus, present value of annuity shall be 25,501.

(b) Monthly repayment = [P*R*(1+R)^N]/[(1+R)^N-1]

[600,000*(0.07/12) + (1+0.07/12) ^240]/[(1.07)^240-1]

= $ 4,688

After two years, we would owe $ 573,517 to the bank.

Interest portion in 25th repayment is $ 3,346.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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