Afb204 – Applied Business Assessment Answer

Assignment Task:

Task:

Question 1. (5 marks) Is there any standard or easily identifiable debt equity ratio that will maximise the value of a firm ? Why or why not ?

Question 2. (5 marks) In general, what is the formula for the present value of an annuity of C dollars per period at a discount rate of r per period, and what is the difference between an ordinary annuity and a perpetuity type annuity?

Question 3. (5 marks) Does a loan where interest is compounded monthly but you do not have to make the first loan payment for six months save you money? Explain.

Question 4. (5 marks) What is difference between the calculation of compounding interest and simple interest?

Question 5. (5 marks) Indicate the impact of the following corporate actions on cash using the letter I for an increase, D for decrease or N when no change occurs.

a) real estate is purchased and paid for with current debt.

b) A dividend is paid with funds received from sale of debt

c) Inventory is bought on credit .

d) A current abnk loan is repaid .

e) Next years’s taxes are prepaid .

f) Prefrence shares are issues

g) Sales are made on credit

h) Interest on non current debt is paid

i) Payments for previous sales are collected

j) The accunts payable balance is reduced

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