BACC3701 – FINANCIAL MANAGEMENT

a) In Finance, the focus is more on wealth maximisation of the shareholder, though profit maximisation is considered as a part of the wealth maximisation objective. Discuss.
b) Define “the stand-alone principle” applying in evaluating projects and discuss the types of cash flows in project evolution.

a) Given an expected increase in sales of 12%, what is the amount of external funding required?
b) To maintain the current debt/equity ratio how much debt and how much equity is required?
c) Assuming the company is only operating at 95% capacity, how much new funding (if any) is required? (2+2+2=6 marks)

a) Calculate the cost associated with each new source of finance. The firm has no
retained earnings available.
b) Calculate the WACC given the existing weights. The financial controller does not believe the existing capital structure weights are appropriate to minimise the firm’s cost of capital in the medium term and believes they should be as follows.

a) Given an expected increase in sales of 13%, what is the amount of external funding required?
b) At this growth rate what is the addition to retained earnings?
c) Calculate the Sustainable Growth Rate (SGR)
d) At the SGR what external funding is required?
e) What would be the growth rate at which no external financing would be required? (6 Marks)

Conclusion