Financial Management

To complete an assignment of the topic of financial management within 8 hours. The assignment will be provided on 22nd October, UK time, and must be completed within 8 hours. There will usually be 3 assignment questions but their contents are only known after they are released, but a sample is provided below:

Further reading materials about the assignment and the topic will be provided after bid accepted and the writer must go through them before attempting the assignment.

Below are financial statements for Singapore Airlines.
Singapore Airlines
Consolidated Profit & Loss A/c for the Financial Year ended 31 March ($ million)
2008-9 2007-8
Revenue 15996.3 15972.5
Expenditure
Staff costs 2545.9 2903.4
Fuel costs 6408.4 5025.6
Depreciation 1649.7 1488.8
Impairment of property, plant and equipment 41.4 0
Amortisation of intangible assets 45.5 42.5
Aircraft maintenance and overhaul costs 381.6 430.9
Commission and incentives 394.5 434.4
Landing, parking and overflying charges 656.9 665.7
Handling charges 580.7 582.8
Rentals on leased aircraft 487.8 381.9
Material costs 385.3 322.1
Inflight meals 231 255.2
Advertising and sales costs 240.3 261.5
Insurance expenses 60.4 71.7
Company accomodation and utilities 187.2 175.3
Other passenger costs 146.7 137.8
Crew expenses 184.7 144.1
Other operating expenses 464.7 524.3
15092.7 13848
Operating profit 903.6 2124.5
Finance charges -89.7 -100.2
Interest income 96 181.2
Surplus on disposal of aircraft, spares and spare engines 60.6 49.1
Dividends from long-term investments, gross 23.7 34.8
Other non-operating items 29.4 96.8
Shares in profits of joint ventures 63.9 50.8
Shares in profits of associated companies 111.1 110.2
Profit before exceptional items 1198.6 2547.2
Exceptional items 0 0
Profit before taxation 1198.6 2547.2
Taxation
Taxation expense -190 -410.3
Adjustment for reduction in Singapore statutory tax rate 138.2 0
-51.8 -410.3
Profit for the financial year 1146.8 2136.9
Page 4 of 7
Singapore Airlines
Consolidated B/S for the Financial Year ending 31 March (in $ million)
2008-9 2007-8
Fixed assets
Aircraft, spares and spare engines 13042.5 13182.2
Land and buildings 732.6 729.3
Others 2217.3 2562.6
15992.4 16474.1
Intangible assets 553 106.6
Investment properties 7 0
Subsidiary companies 0 0
Associated companies 855.3 1121
Joint venture companies 127.5 95.1
Long term investments 43.2 43.3
Other non-current assets 403.6 361.8
Current assets
Inventories 503.2 507.7
Trade debtors 1485.5 2043.8
Deposits and other debtors 241.9 73.1
Prepayments 101.9 104.9
Amounts owing by subsidiary companies 0 0
Amounts owing by associated companies 0.4 0.5
Loans receivable within one year 0 0
Investments 655.6 464.3
Cash and bank balances 3848 5119
6836.5 8313.3
Less Current liabilities
Sales in advance of carriage 1143.6 1680.3
Deferred revenue 500.8 435.7
Current tax payable 348 415.1
Trade and other creditors 3581.5 3233.6
Amounts owing to subsidiary companies 0 0
Amounts owing to associated companies 0.6 1.2
Finance lease commitments 66.9 56.9
Loans 32.7 0.6
Notes payable 200 0
Other liabilities 35.3 44.1
Bank overdrafts 9.3 0
5918.7 5867.5
Net current assets / (liabilities) 917.8 2445.8
18899.8 20647.7
Share capital and reserves
Share capital 1684.8 1682
Treasury shares -44.4 -33.2
Capital reserve 86.3 95.6
Foreign currency translation reserve -137.9 -130.7
Share-based compensation reserve 187.3 136.4
Fair value reserve -660.8 443.4
General reserve 12815.3 12931.7
13930.6 15125.2
Minority interests 559.8 503.7
Total equity 14490.4 15628.9
Deferred account 673.9 787.3
Deferred taxation 2222 2542.1
Long term liabilities 1513.5 1689.4
18899.8 20647.7

Requirements
Question 1
a) Analyse the financial performance of the company from the perspective of four of the key
stakeholders, using the financial statements above. Use ratio analysis to support your discussions
(35 marks)
(35 marks in total)

Question 2
MBA plc is an investment organisation which is considering 2 potential new investments. These are
mutually exclusive options in that the acceptance of any one investment would prevent investment in
the other. The organisation uses a net present value (NPV) approach to such decisions and uses its
weighted average cost of capital (WACC) as the discount factor within the model. Currently MBA plc
has 100,000 x £1 Ordinary shares and £200,000 of debt. The Ordinary Shareholders expect a yield of
18% and the after-tax cost of debt is 12%. Details of the two investments are as follows:
Investment A has an immediate cash outflow of £33,000 and this would be followed by cash inflows of
£20,000 at the end of year 1, £20,000 at the end of year 2, £11,000 at the end of year 3 and £11,000 at
the end of year 4.
Investment B requires an immediate cash outflow of £30,000 and would be followed by cash inflows of
£12,000 at the end of year 1, £10,000 at the end of year 2, £20,000 at the end of year 3 and £20,000 at
the end of year 4.
Assume, for purposes of this case, that the annual cash inflows equate to taxable profits before capital
allowances.
For both investments, the initial outflows attract a first year taxation capital allowance of 35% based on
the initial investment amount, followed by writing down allowances of 35% of the tax written down value
for years 2 and 3. Each investment will be disposed of at the end of year 4 with a nil residual value. The
capital allowance to be claimed in year 4 for both investments will therefore be a balancing allowance
which will reduce the taxation written down value to zero. [For example if the initial investment had
been £100,000, then capital allowances to be claimed would have been £35,000 in year 1, £22,750 for
year 2, £14,788 for year 3 (tax written down value at this point = £100,000 – £72,538 = £27,462) and a
balancing allowance of £27,462.] The capital allowance is available for offset against taxable profits in each year.
MBA plc pays corporation tax at the rate of 25% of its taxable profits after allowing for capital
allowances. Assume that taxation in respect of year one profits is paid at the end of year two. [So, for
example if a project has taxable profits (before capital allowances) of, say, £40,000 in year 1 and if the
company claims a capital allowance of £35,000, it would be charged corporation tax of 25% x (£40,000
– £35,000) = £1,250 for that year. The £1,250 tax would be paid in year 2.]

Requirements
a) Calculate the net present values of each of the proposed investments and recommend which of the two, if any, should be selected. (25 marks)
b) Assume that immediately before making the above decision, MBA plc had the opportunity to
raise a further £300,000 of long term debt at the same rate as the existing debt. Assume that
the amount of Equity capital and its required return would not change. Discuss how the change
in capital structure might impact on the above decision? What other factors might MBA plc
consider before taking on the extra debt? (10 marks)
(35 marks in total)

Question 3
A mature, UK based manufacturing company serves a number of geographical markets in different parts of the world. It also buys some of its raw material inputs and services from overseas. It also owns and operates a number of distribution centres world wide. The company is quoted on the UK stock exchange but part of its capital structure includes debt instruments which are denominated in overseas currency. Some of this debt is at a fixed rate of interest, but the majority of it is at a flexible rate.
Requirements
a) In what ways to you think that the operations of this plc are impacted upon by its international
exposure? (15 marks)
b) What risk management techniques would you expect the company to be using in respect of any
potential international exposure?

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