Evaluate primary objective of financial management

Reference no: EM133240780

Question 1

See Appendix 1 BHP Plc 2021 Financial Accounts

Calculate the following ratios for 2021 and 2022:
Net Profit Margin
Gross Profit Margin
Debtor (Receivable) Days
Creditor (Payable) Days
Debt Equity Ratio
Return on Capital Employed
Based on the ratios calculated above comment on the financial performance of BHP over two years.

Question 2
Critically evaluate and explain the primary objective of financial management, also consider what other objectives may be important from a shareholder perspective.

Question 3
Jumeriah Comms is considering several options for its investment strategy as it expands 5G mobile phone network infrastructure.
You have the following estimations of the revenues and expenditure.

Initial Investment AED 10,000,000 Sales AED 7,000,000 pa
Direct Costs AED 1,600,000pa Administration AED 700,000pa
Jumeriah Comms has a cost of capital of 10%. Ignore taxation
Jumeriah Comms believes the machinery will have a six-year life before the next generation upgrade.

Calculate the:
Expected payback period
Accounting Rate of Return

Net Present Value
Internal Rate of Return

Explain and evaluate which method calculated above is most reliable, which would a firm calculate in practice?

What are the challenges of conducting investment appraisal analysis?

Question 4

Alternatively, Jumeriah Comms is also considering investment into 5G technology via leasing or buying the phone masts.
The purchase price is AED 11,000 and the machine has a 5-year life. If it buys the machine Jumeriah Comms will need to fund it using capital that costs them 8% per year.
Alternatively, the lease payments will be AED 2,500 per year for 5 years with rentals payable at the start of each year.
What are the respective present value costs of purchasing the machine or leasing it?

Explain the reasoning for the differences in cost linking to fundamentals of finance theory.

Critically evaluate the key differences between funding a project via debt or equity finance, from the perspective of the company directors.

At a recent board meeting one director proclaimed the company should fund all projects with internal sources of financing as they are essentially ‘free' using logical arguments and finance theory explain why this statement is incorrect. Clearly explain the cost of each type of finance relative to the risk.

Attachment:- FM- ABS.zip

Reference no: EM133240780

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