FNSACC511 Provide Financial & Business Performance Information - Case Study Assignment Help

In this assessment you are required to read the case study provided and answer the questions that follow in Part A and Part B.

Case Study

Jolfa Ltd. is an Australian retailing company. Currently, Jolfa Ltd. only operates in Australia. The Balance Sheet and Income Statement for Jolfa Ltd. are given below.

Jolfa Ltd. Balance Sheet as at 30 June, 2015
Current Assets	$ '000	$ '000
Cash	50
Accounts Receivable	80
Inventory	120	250
Non-Current Assets
Plant and equipment	950
Land and Building	1100
Goodwill	140	2190
Total Assets		2440
Current Liabilities
Accounts Payable	280
Provn for Long Service Leave	85	365
Non-Current Liabilities
Debentures	550
Mortgage loan	220	770
Total Liabilities		1135
Net Assets		$1305
Equity
Share Capital:
1,150,000 ordinary shares issued at $1.00		1150
Retained earnings		155
Total Equity		$1305

Additional information

• Current share price is $1.55
• Most recent dividend was $0.05 per share. Dividends are expected to grow by 7% per year.
• 550 Debentures were issued with a face value of $1,000 trading at par value of 8.5%
• The mortgage loan is currently at a variable rate of 8.9%.

Jolfa Ltd. Income Statement   for the Year Ended 30 June 2015
	$ '000	$ '000
Total Sales		2310
Less cost of goods sold
Opening Inventory	220
Purchases	1620
Goods available for sale	1840
Less closing Inventory	120	1720
Gross Profit		590
Less operating expenses
Depreciation	110
Interest	90
Rent	30
Wages	150
Advertising/marketing	20
Other	40
Total Expenses		440
Net Profit before tax		150
Tax	45
Net Profit After Tax		105

Industry standards/benchmarks

Current Ratio                                          1.45:1

Liquid Ratio                                             1.06:1

Debt to Equity ratio                                 160%

Earnings per Share                                $0.45 per share

P/E ratio                                                  15

Return on Equity                                     10.5%

Net Profit Ratio                                       22%

Times Interest Covered                          4 times

Dividend Payout ratio                             20%

PART A

Part A consists of four (4) Tasks, A1, A2, A3, A4. Read the Tasks, which refer to the case study above, and record your answers in the blank pages which follow.

Task A1

1. a) From the information provided calculate the:
2. Current Ratio

 

1. Liquid Ratio

• Debt to Equity ratio

1. Earnings Per Share
2. P/E ratio
3. Return on Equity

• Net Profit ratio
• Times interest covered

1. Dividend Payout Ratio
2. b) Prepare a report to the management of Jolfa Inc in which you discuss each of the ratios from above. Compare the ratios to the industry standards given.

Industry Standards are used as Jolfa’s agreed criteria

Provide management with some ideas as to how the company could improve the ratios so that the majority are above the industry standards. How would improving these ratios benefit the company? Keep in mind that your suggestions may improve some ratios and worsen others.

Task A3

1. Jolfa Ltd. is considering opening a new outlet in China. It has estimated future cash flows and based on these it has decided that the new outlet will be a profitable investment. Research the possible risks that the company might face if this new outlet is opened in China.

Make a PowerPoint presentation of your findings that would be suitable for presenting to Jolfa Management. Note: Please make reference to the following government website for this task:

Exploring goods or services overseas – what you need to know.[1]

Task A4

Calculate the WACC of Jolfa Inc using the above information. Assume a company tax rate of 30%.

Note:  All calculations should be made to at least three decimal places in parts of this task.

PART B - Case Study

Part B consists of two tasks, B1 and B2. Read the Tasks and record your answers in the pages that follow.

Task B1

Jolfa Ltd is also considering the following investment project:

Capital outlay                                                                            $200,000

Net Profit p.a. (before depreciation and tax)                             $ 90,000

Depreciation p.a.                                                                        $ 40,000

Economic life: 5 years

Salvage value: Zero

Tax rate payable (assume paid in year of income): 30%

Required rate of return: 12% (WACC + Risk factor)

Calculate the following:

1. The Net Profit after Tax for each year.
2. The Annual Cash Flow for each year.

• Accounting Rate of Return (using total investment).

1. Payback Period.
2. Net Present Value.
3. Internal Rate Of Return

Task B2 - Multiple Choice:

Select the answer that would correctly complete the following sentence.

Evaluating projects on an Independent Basis (rather than Mutually Exclusive) and using NPV evaluation method means you would:

• Choose the individual project with the highest NPV (Net Present Value).
• Choose the individual project with the highest ARR.
• Choose all projects with a positive NPV.
• Choose all projects with an ARR greater than the W.A.C.C.
• None of the above