Recent information on the earnings per share and share price of Par Co is as follows:The 8

Flit Co is preparing a cash flow forecast for the three-month period from January to the end of March. The following sales volumes have been forecast:

Notes:

1. The selling price per unit is $800 and a selling price increase of 5% will occur in February. Sales are all on one month’s credit.

2. Production of goods for sale takes place one month before sales.

3. Each unit produced requires two units of raw materials, costing $200 per unit. No raw materials inventory is held. Raw material purchases are on one months’ credit.

4. Variable overheads and wages equal to $100 per unit are incurred during production, and paid in the month of production.

5. The opening cash balance at 1 January is expected to be $40,000.

6. A long-term loan of $300,000 will be received at the beginning of March.

7. A machine costing $400,000 will be purchased for cash in March.

Required:

(a) Calculate the cash balance at the end of each month in the three-month period. (5 marks)

(b) Calculate the forecast current ratio at the end of the three-month period. (2 marks)

(c) Assuming that Flit Co expects to have a short-term cash surplus during the three-month period, discuss whether this should be invested in shares listed on a large stock market. (3 marks)

Which of the following is LEAST likely to fall within financial management?

A.The dividend payment to shareholders is increased

B.Funds are raised to finance an investment project

C.Surplus assets are sold off

D.Non-executive directors are appointed to the remuneration committee

ments. In terms of capital market efficiency, to which of the following does the investor’s belief relate?

A.Fundamental analysis

B.Operational efficiency

C.Technical analysis

D.Semi-strong form efficiency

The company has the following targets for the next year:

What is the net investment in working capital required for the next year?

A.$8,125,000

B.$4,375,000

C.$2,875,000

D.$6,375,000

king capital should increase as sales increase 2 An increase in the cash operating cycle will decrease profitability 3 Overtrading is also known as under-capitalisation

A.1 and 2 only

B.1 and 3 only

C.2 and 3 only

D.1, 2 and 3

be a solution? 1 Imperfect competition 2 Social costs or externalities 3 Imperfect information

A.1 only

B.1 and 2 only

C.2 and 3 only

D.1, 2 and 3

dividend of 33·6 cents in one year’s time. The company has a cost of equity of 13%. What is the market price of the company’s shares to the nearest cent on an ex dividend basis?

A.$3·20

B.$4·41

C.$2·59

D.$4·20

Which of the following statements is correct?

A.Governments may choose to raise interest rates so that the level of general expenditure in the economy will increase

B.The normal yield curve slopes upward to reflect increasing compensation to investors for being unable to use their cash now

C.The yield on long-term loan notes is lower than the yield on short-term loan notes because long-term debt is less risky for a company than short-term debt

D.Expectations theory states that future interest rates reflect expectations of future inflation rate movements

The following are extracts from the statement of financial position of a company:

The ordinary shares have a nominal value of 50 cents per share and are trading at $5·00 per share. The preference shares have a nominal value of $1·00 per share and are trading at 80 cents per share. The bonds have a nominal value of $100 and are trading at $105 per bond.

What is the market value based gearing of the company, defined as prior charge capital/equity?

A.15·0%

B.13·0%

C.11·8%

D.7·3%

following government actions relate predominantly to fiscal policy? 1 Decreasing interest rates in order to stimulate consumer spending 2 Reducing taxation while maintaining public spending 3 Using official foreign currency reserves to buy the domestic currency 4 Borrowing money from the capital markets and spending it on public works

A.1 only

B.1 and 3

C.2 and 4 only

D.2, 3 and 4