ACCT706_Managerial Finance S2 2019 Assignment: Fisher and Paykel Healthcare Limited (FPH)

ACCT706_Managerial Finance S2 2019 Assignment: Fisher and Paykel Healthcare Limited (FPH) 150 150 Affordable Capstone Projects Written from Scratch

Using the consolidated financial statements of Fisher and Paykel Healthcare for the years 2018 and 2019, prepare common-size balance sheets and income statements. (6 marks) 2. Compare and evaluate the overall financial performance of FPH in 2018 and 2019. (8 marks) 3. Evaluate FPH’s risk management strategy and explain how it helps the management to improve the quality of decision making. (6 marks) 4. Using the following financial ratios for 2018 and 2019, and other associated information available in the public domain, assess the financial health of FPH. A. Liquidity ratios B. Capital structure ratios C. Asset management efficiency ratios D. Profitability ratios E. Market ratios (10 marks) 5. Assume you are a banker evaluating a loan (long-term) request from FPH for $70 million. What would be your concerns in deciding on approval or denial of the loan request? (10 marks) Page 3 of 4 Question 2: Wealth maximisation and Time Value of Money (40 Marks) 2.1 Answer the following: a) Explain the main reason that an agency relationship exists in the company form of business? What kind of problems can arise? (5 marks) b) Why is the goal of financial management to maximise the current value of the company’s stock? In other words, why isn’t the goal to maximise the future value? (5 marks) c) Discuss how company shareholders can encourage their managers to act in a way which is consistent with the objective of shareholder wealth maximisation. (5 marks) 2.2 After completing his Bachelor of Business (Accounting) degree, Jamie secured a permanent position as an assistant accountant. Jamie’s financial plan is to retire in 30 years from now. So, he is thinking about creating a fund that will allow him to receive $32,000 at the end of each year for 25 years after his retirement. He is expecting to earn 6.75% per annum during the 25-year retirement period. Required: a. To provide the 25- year, $32,000 a year annuity, calculate how much should be in the fund account when Jamie retires in 30 years. (2 marks) b. How much will Jamie need today as a single amount to provide the fund calculated in part (a) if he earns 6.5% per year during the 30 years preceding retirement? (2 marks) c. What effect would an increase in the interest rates, both during and prior to retirement, have on the values calculated in parts (a) and (b)? Explain why. (2 marks) d. Assume that Jamie will earn 6.75% per annum on his savings during the 30 years preceding his retirement and 7.15% during the 25 years after his retirement. To fund the 25- year stream of $32,000 annual annuity payments, Jamie will be making end-of-year deposits for 30 years. How much does Jamie need to deposit annually? (4 marks) 2.3 Suppose you take out an $840,000, 20-year mortgage loan to buy a residential apartment. The interest rate on the mortgage is 4.65% per annum, and payments are required to be made annually at the end of each year. a. Calculate the annual mortgage payment on the loan (2 marks) b. Construct a mortgage amortisation table showing loan balance at the beginning of each period, annual repayment amount, interest payment, the amortisation of the loan and the loan balance for each year. (13 marks) Page 4 of 4 Question 3: Capital Budgeting and Investment appraisal (20 marks) Techron Holdings Limited is planning to purchase a new material handling machine for its manufacturing unit. The company is considering the following four mutually exclusive investments. The required payback period is six and a half years. The financial data regarding the four machines is given below (ignore taxes). Machine/asset Machine A Machine B Machine C Machine D $ $ $ $ Revenue 400,000 748,000 520,000 550,000 Operational costs 160,000 369,000 290,000 260,000 Depreciation 80,000 400,000 300,000 240,000 Interest 120,000 160,000 90,000 80,000 Initial investment 920,000 1,400,000 1,040,000 1,160,000 Project life (years) 8 10 14 12 The manufacturing department has requested the Chief Financial Officer (CFO) to evaluate the above investment opportunities using both payback period and internal rate of return methods. The CFO of Techron is seeking your help to calculate each machine’s payback period, internal rate of return and determine appropriate hurdle rates. Required: (a) Calculate each machine’s payback period and state which alternative should be accepted based on this criterion. (4 marks) (b) Calculate each machine’s internal rate of return (IRR), and using a hurdle rate of 22% state which of the alternatives is acceptable by this criterion. (8 marks) (c) Discuss why the above two investment appraisal methods do not give consistent answers for the accept/reject decision. Which method should the CFO employ? Why? (8 marks)