Please took the online test for me ,you must get 80 percent .other-ways I will be fail. Essay Example

Online Test Assessment 1

Assessment 1

Question one

  1. Current ration as moved from 2.0:1 to 2.5:1 reasons for the increase may be:

  • Increase in current assets

  • Decrease in current liability

  1. Gross profit ratio

From 45% to 40% decrease may be because of

  • Decrease in gross profit

  • Increase in sales with high cost of sales

  1. Inventory turnover

Has changed from six times per year to five times per year this may be due to;

  • Increase in sales

  • Reduction in stock ordered

  1. Debtor’s turnover ratio

Has changed from 40 days to 45 days

  • Increased credit period

  • Increase in defaulting rate

  1. Price Earnings Ratio

Has changed from 12 times to 13 times

  • This might be because of perceived growth

  • Increase in return on capital

  • Riskier business environment

  • Changes in starting earning

Debtors turnover rate increased from 30 days to 45 days, therefore the management should reduce the credit period they give to the creditors and otherwise recommend cash sales

Net profit declined from 25% to 20%, the company should reduce overhead expenses in order to maximize net profit.

Debt to equity ratio has increased from 40% to 50% showing that the company liquidity has deteriorated hence the company should have good measure on controlling the liability to help the company to be liquid enough.

Time interest coverage has changed from five times to four times. This ratio shows how the ease at which the company can pay its interest on the outstanding interest. The company should increase and improve on sales in order to improve its interest coverage ratio

Return on Equity- shows how well the company has utilized shareholders’ investment. It has changed from 20% to 17% hence the management should put more capital into productive ventures.

  1. Earnings yield

Earning yield will increase with reduction of Cost of sales resulting into increase in gross profit margin

  1. Times interest coverage

With payment of debts using ordinary share, time interest coverage will increase

  1. Current ratio

The current ratio will increase with reduction of debtors

  1. Liquid ratio

Liquidity ratio will increase with increase in borrowed fund

Price per earnings ratio will increase

Question Two A

  1. Stable dividend policy: quarterly dividends are set at quarterly dividends are set at a fraction of yearly earnings. This policy reduces uncertainty for investors and provides them with income.

  2. Constant dividend payout: The percentage of earnings paid to shareholders in dividend.

  3. Share buys backs: a buy back allows companies to invest in them, by reducing the number of shares outstanding on the market. Buyback

  1. Residual dividend policy: The dividend refers to a method of calculating dividends. A dividend is payment made by a company its shareholders.

Question Two B

  1. Cum-div -this is when a buyer is entitled to security that has been declared but not paid

  2. Ex-div – A company has confirmed the person who will receive it in this stock

  3. Declaration date- is the date when dividend is declared

  4. Ex-dividend date is the date when the person who will receive ex-dividend is confirmed

  5. Capital Gains Tax- this is the profit gained due to tax relieve or on capital through tax policies Dividend imputation –this is a corporate tax system in which some or all of the tax paid by a company may be attributed to shareholders through means of tax credit

Question three

  1. The expected returns for each company

MWB return Exp Rt = (20*10)+(40*15) +(40*25)% = 0.17

BAAS returns Exp Rt = (20*40)+(40*25) +(40*20)%= 0.26

  1. The standard deviation of the expected returns for each company

  1. The weighted average standard deviation

  1. The expected return of the portfolio

  1. The standard deviation of the expected returns of the portfolio

  1. The correlation coefficient between MWB Ltd and BAAS Ltd

  1. Explain by using the answers how risk has been reduced

Through spreading risk to more than one company, the correlation is less than 1 that is 0.043 meaning failure in one company does not affect other

  1. Identify the type of risk that has been reduced

Business type risk and the company risk

Question 3B

  1. List 3 assumptions made by the Capital Asset Pricing Model

  • Risk premium

  • Rate on a risk security

  • Return on security

  1. This is the theoretical rate of return of an investment with no risk of financial loss:Define the risk free rate

  2. Beta show portfolio investment with lower volatility than market and also market with volatile investment whose price investment is less correlated with the market

Question three C

  1. Expected return

  • Red = 1.35

  • Blue =1.19

  • Yellow = 0.95

  1. The return and expected returns are directly related

Question 4

  1. Primary markets are the market is where the securities are being created or developed while secondary markets are where securities are being traded

  2. Domestic- Political stability

  • Economic conditions

Overseas

  • Rules and regulation

  • Political stability

a). Advantages

It is important for both surplus and deficit spending hence increasing economic efficiencies

b). Examples

  • Financial institutions

  • Commercial Banks

  • Investments Banks

  1. Float – this is currency fluctuation

  2. Placement- sale of security to a small number of investors

  3. All Ordinaries – this is the oldest index share I Australia

  4. Bear market – is a market in which prices are falling hence encouraging selling

Define a direct investment direct establishing a production business into another country. Examples include;

Manufacturing firm

Direct venturing into building industry

Most property appreciate

Exit strategy is easy and simple

Indirect investment is a situation where a company or an individual invest into another country through amalgamation

Or partnership

Examples

  • Having a subsidiary

  • Setting up an agent

Benefits are

  • Easy to set up

Question Five

  1. Inventory turnover rate, gross profit ratio