FACULTY OF BUSINESS AND TOURISM STUDIES

SCHOOL OF BUSINESS AND MANAGEMENT

BACHELOR OF BUSINESS ENTERPRENEURSHIP
BA713: FINANCIAL MANAGEMENT
Semester 2, 2020

ASSESSMENT 1: ASSIGNMENT ONE (1)

Due date: Friday 13th November 2020 at 4.30pm

Submission: Submit your assignment through the assignment box at
the front of the SBM office or to my office on the due date.
Weight: 15%
Do all questions.
Question 1 (25 marks)

James Aru, a 25-year-old university graduate, wishes to retire at age 60. To

supplement other sources of retirement income, he wishes to deposit $300 each
quarter into a tax-deferred individual retirement arrangement (IRA). The IRA has a
yield rate of 8%, which is assumed to be attainable over the next 35 years, and
interest is compounded monthly.

(a) If James makes a periodic end-of-quarter $300 deposits into the IRA, how
much will he have accumulated on his 60th Birthday? (5 marks)
(b) If James makes a periodic beginning-of-quarter $300 deposits into the
IRA, how much will he have accumulated on his 60 th Birthday? (5 marks)
(c) If James decides to wait until age 30 to begin making end-of-quarter $300
deposits into the IRA, how much will he have accumulated on his 60 th
Birthday? (5 marks)
(d) If James decides to wait until age 30 to begin making beginning-of-quarter
$300 deposits into the IRA, how much will he have accumulated on his 60 th
Birthday? (5 marks)
(e) Using your findings in parts (a) to (d), discuss the effect of beginning-of-year
deposits and the delay in making deposits on the future value accumulated by
James’s by his 60th Birthday(5 marks)

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Question 2 (60 marks)
Wisdom Enterprises Ltd has the following financial reports for 2018 and 2019 (60
marks).

Wisdom Enterprises Ltd

Income Statement for 2018 and 2019
  2019 2018
Net Sales 2,750,000.00 2,250,000.00
Cost of Goods Sold - -
Opening Inventory 180,000.00 175,000.00
+Net purchases 1,650,000.00 1,250,000.00
  1,830,000.00 1,425,000.00
-closing inventory 320,000.00 180,000.00
Cost of Goods Sold 1,510,000.00 1,245,000.00
Gross Profit (Loss) 1,240,000.00 1,005,000.00
  - -
Less Operating Expenses - -
Variable Overhead - -
Advertisement 35,000.00 27,000.00
Legal fees 35,000.00 27,000.00
Depreciation 91,000.00 57,000.00
Office Supplies 52,500.00 40,500.00
Communications 42,000.00 32,400.00
Store wages 175,000.00 108,000.00
Total Variable Overhead 430,500.00 291,900.00
Fixed Overhead - -
Office Salaries 210,000.00 162,000.00
Rent 210,000.00 180,000.00
Insurance 87,500.00 67,500.00
Utilities 84,000.00 64,800.00
Travel & Entertainment 105,000.00 81,000.00
Total Fixed overhead 696,500.00 555,300.00
Total Overhead 1,127,000.00 847,200.00
  - -
Operating Profit 113,000.00 157,800.00
Interest expense 16,950.00 23,670.00
Net Profit Before Tax 96,050.00 134,130.00
Tax 28,815.00 40,239.00
Net Profit After Tax 67,235.00 93,891.00

Wisdom Enterprises Ltd

BALANCE SHEET AS AT END OF YEAR

ASSETS 2019 2018

CURRENT ASSETS      
Cash    
69,500.00 168,800.00

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 Net Accounts Receivable    
325,500.00 186,000.00
Inventory    
320,000.00 180,000.00
Prepaid Expenses    
67,500.00 45,000.00
Other current assets    
45,000.00 30,000.00
Total Current Assets    
827,500.00 609,800.00
         
FIXED ASSETS        
Total Fixed Assets    
1,623,017.0 1,216,110.0
0 0
Less Accum Depreciation    
283,000.00 192,000.00
Net Fixed Assets    
1,340,017.0 1,024,110.0
0 0
         
TOTAL ASSETS    
2,167,517.0 1,633,910.0
0 0
LESS LIABILITIES        
CURRENT LIABILITIES        
Accounts payable    
315,000.00 225,000.00
Accrued expenses    
99,000.00 66,000.00
Short-term debt    
48,000.00 24,000.00
Total Current Liabilities    
462,000.00 315,000.00
         
Long Term Liabilities        
Mortgages    
906,916.00 723,369.00
Other Long term Liabilities    
327,475.00 151,650.00
         
Total Long Term Liabilities    
1,234,391.0 875,019.00
0
TOTAL LIABILITIES    
1,696,391.0 1,190,019.0
0 0

3
        
NET ASSETS  
471,126.00 443,891.00
Represented by:      
OWNERS EQUITY      
Share Capital        
500,000 ordinary shares, fully paid    
150,000.00 150,000.00
100,000 preference shares fully paid
(20 % p.a.) 50,000.00 200,000.00 50,000.00 200,000.00
Reserves        
General reserves    
75,000.00 50,000.00
Asset revaluation reserve
80,000.00 155,000.00 60,000.00 110,000.00
Retained Profits    
116,126.00 133,891.00
TOTAL NET WORTH (OWNERS    
EQUITY) 471,126.00 443,891.00

Other Information:

1. Credit sales is 60% of total sales in both years

2. Dividends paid out are 10,000 to preference shareholders and 75,000 to ordinary shareholders
in each year.

Required:

(a) Assess and comment on the Liquidity position and performance of Wisdom Enterprises Ltd
over the 2 years, and make appropriate recommendations where necessary (10 marks)
(b) Assess and comment on the Solvency position and performance of Wisdom Enterprises Ltd
over the 2 years, and make appropriate recommendations where necessary (10 marks)
(c) Assess and comment on the Profitability position and performance of Wisdom Enterprises Ltd
over the 2 years, and make appropriate recommendations where necessary (10 marks)
(d) Assess and comment on the working capital performances of Wisdom Enterprises Ltd over the
two years, and provide appropriate recommendations where necessary (10 marks)
(e) Calculate the operating cash cycle and cash demand period for Wisdom Enterprise Ltd for the
2 years and provide relevant recommendations where necessary (10 marks)
(f) Comment on the overall financial health of Wisdom Enterprises Ltd over the 2 years given your
assessment of its liquidity, solvency, cash, working capital and profitability performance. Is
Wisdom Enterprises Ltd a good potential investment for you? (10 marks)

Question 3

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Still to be completed and distributed