Finance coursework:

2.2. Questions

Financial Transactions Adjustments (see E-mail 1 and Appendix 1 for Details)

a) Assess the impact of the TEN transactions that have not been accounted for in the latest draft financial statements. Your answer should state whether there will be an impact or not on each of these financial statements and, if so, what that impact will be on balances of Statement of Profit or Loss, Statement of Financial Position and Statement of Cash Flows. Calculations are NOT required but can be used to illustrate the points made. You should ensure that the impact of the transactions is clearly explained, as some of the members of the senior management team do not have an accounting background. (20%)

Financial Analysis (see E-mail 2 for Details)

a) Prepare for Royal Gold the equivalent ratios to those provided by Richard in his e-mail. Your calculations should be based on the figures as per Draft Financial Statements in Appendix 1. (8%)
b) Assess the financial and operating performance of Royal Gold in comparison to its sector averages. (10%)
c) Explain FOUR possible limitations on the usefulness of the above comparison. (4%)

Company Valuation (see E-mail 3 and Appendix 2 for Details)
a) Calculate the value of Sparkly Things Ltd using the following methods: Asset-based valuation; Dividend Valuation Model (using CAPM to estimate the required return to the shareholders); and P/E ratio. Considering the niche products that Sparkly Things Ltd trades, it is believed that a suitable P/E ratio would be 16. You can assume that the equity Beta of a similar listed company is 1.6, the risk-free rate of return is 2% and the expected market return is 10%. (7%)
b) Critically discuss the valuation methodologies used above and provide an argument for the amount you expect Sparkly Things Ltd to be worth. (10%)
c) Explain the limitations of the Capital Asset Pricing Model (CAPM), making reference to the impact they could have on the number you have calculated – as per requirement a) above. (5%)

Project Appraisal (see E-mail 4 for Details)
a) Calculate the Net Present Value (NPV) of the proposed investment in the machine and state whether the project should be undertaken. Your answer should make reference to the scenario. (13%)
b) In the context of Discounted Cash Flows calculations, explain the treatment of the following transactions: Market research costs;
Interest payments on loan; Depreciation; and Fixed costs. (8%)
c) Critically discuss other investment appraisal techniques that you could have used to assess the project and comment on which one is the most appropriate to use in this case.

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