James Aru wishes to retire at age 60 and plans to contribute $300 quarterly to an IRA earning 8% interest compounded monthly. The summary examines how much he would accumulate depending on when contributions begin and whether they are made at the beginning or end of quarters. It also discusses the effects of these factors on the future value. Wisdom Enterprises' financial reports for 2018-2019 are presented, including income statements showing revenue, expenses and profits, and balance sheets outlining assets, liabilities and equity. Key figures such as revenue, costs, profits, assets and liabilities are compared between years.
James Aru wishes to retire at age 60 and plans to contribute $300 quarterly to an IRA earning 8% interest compounded monthly. The summary examines how much he would accumulate depending on when contributions begin and whether they are made at the beginning or end of quarters. It also discusses the effects of these factors on the future value. Wisdom Enterprises' financial reports for 2018-2019 are presented, including income statements showing revenue, expenses and profits, and balance sheets outlining assets, liabilities and equity. Key figures such as revenue, costs, profits, assets and liabilities are compared between years.
James Aru wishes to retire at age 60 and plans to contribute $300 quarterly to an IRA earning 8% interest compounded monthly. The summary examines how much he would accumulate depending on when contributions begin and whether they are made at the beginning or end of quarters. It also discusses the effects of these factors on the future value. Wisdom Enterprises' financial reports for 2018-2019 are presented, including income statements showing revenue, expenses and profits, and balance sheets outlining assets, liabilities and equity. Key figures such as revenue, costs, profits, assets and liabilities are compared between years.
James Aru wishes to retire at age 60 and plans to contribute $300 quarterly to an IRA earning 8% interest compounded monthly. The summary examines how much he would accumulate depending on when contributions begin and whether they are made at the beginning or end of quarters. It also discusses the effects of these factors on the future value. Wisdom Enterprises' financial reports for 2018-2019 are presented, including income statements showing revenue, expenses and profits, and balance sheets outlining assets, liabilities and equity. Key figures such as revenue, costs, profits, assets and liabilities are compared between years.
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FACULTY OF BUSINESS AND TOURISM STUDIES
SCHOOL OF BUSINESS AND MANAGEMENT
BACHELOR OF BUSINESS ENTERPRENEURSHIP BA713: FINANCIAL MANAGEMENT Semester 2, 2020
ASSESSMENT 1: ASSIGNMENT ONE (1)
Due date: Friday 13th November 2020 at 4.30pm
Submission: Submit your assignment through the assignment box at the front of the SBM office or to my office on the due date. Weight: 15% Do all questions. Question 1 (25 marks)
James Aru, a 25-year-old university graduate, wishes to retire at age 60. To
supplement other sources of retirement income, he wishes to deposit $300 each quarter into a tax-deferred individual retirement arrangement (IRA). The IRA has a yield rate of 8%, which is assumed to be attainable over the next 35 years, and interest is compounded monthly.
(a) If James makes a periodic end-of-quarter $300 deposits into the IRA, how much will he have accumulated on his 60th Birthday? (5 marks) (b) If James makes a periodic beginning-of-quarter $300 deposits into the IRA, how much will he have accumulated on his 60 th Birthday? (5 marks) (c) If James decides to wait until age 30 to begin making end-of-quarter $300 deposits into the IRA, how much will he have accumulated on his 60 th Birthday? (5 marks) (d) If James decides to wait until age 30 to begin making beginning-of-quarter $300 deposits into the IRA, how much will he have accumulated on his 60 th Birthday? (5 marks) (e) Using your findings in parts (a) to (d), discuss the effect of beginning-of-year deposits and the delay in making deposits on the future value accumulated by James’s by his 60th Birthday(5 marks)
1 Question 2 (60 marks) Wisdom Enterprises Ltd has the following financial reports for 2018 and 2019 (60 marks).
Wisdom Enterprises Ltd
Income Statement for 2018 and 2019 2019 2018 Net Sales 2,750,000.00 2,250,000.00 Cost of Goods Sold - - Opening Inventory 180,000.00 175,000.00 +Net purchases 1,650,000.00 1,250,000.00 1,830,000.00 1,425,000.00 -closing inventory 320,000.00 180,000.00 Cost of Goods Sold 1,510,000.00 1,245,000.00 Gross Profit (Loss) 1,240,000.00 1,005,000.00 - - Less Operating Expenses - - Variable Overhead - - Advertisement 35,000.00 27,000.00 Legal fees 35,000.00 27,000.00 Depreciation 91,000.00 57,000.00 Office Supplies 52,500.00 40,500.00 Communications 42,000.00 32,400.00 Store wages 175,000.00 108,000.00 Total Variable Overhead 430,500.00 291,900.00 Fixed Overhead - - Office Salaries 210,000.00 162,000.00 Rent 210,000.00 180,000.00 Insurance 87,500.00 67,500.00 Utilities 84,000.00 64,800.00 Travel & Entertainment 105,000.00 81,000.00 Total Fixed overhead 696,500.00 555,300.00 Total Overhead 1,127,000.00 847,200.00 - - Operating Profit 113,000.00 157,800.00 Interest expense 16,950.00 23,670.00 Net Profit Before Tax 96,050.00 134,130.00 Tax 28,815.00 40,239.00 Net Profit After Tax 67,235.00 93,891.00
Wisdom Enterprises Ltd
BALANCE SHEET AS AT END OF YEAR
ASSETS 2019 2018
CURRENT ASSETS Cash 69,500.00 168,800.00
2 Net Accounts Receivable 325,500.00 186,000.00 Inventory 320,000.00 180,000.00 Prepaid Expenses 67,500.00 45,000.00 Other current assets 45,000.00 30,000.00 Total Current Assets 827,500.00 609,800.00
FIXED ASSETS Total Fixed Assets 1,623,017.0 1,216,110.0 0 0 Less Accum Depreciation 283,000.00 192,000.00 Net Fixed Assets 1,340,017.0 1,024,110.0 0 0
TOTAL ASSETS 2,167,517.0 1,633,910.0 0 0 LESS LIABILITIES CURRENT LIABILITIES Accounts payable 315,000.00 225,000.00 Accrued expenses 99,000.00 66,000.00 Short-term debt 48,000.00 24,000.00 Total Current Liabilities 462,000.00 315,000.00
Long Term Liabilities Mortgages 906,916.00 723,369.00 Other Long term Liabilities 327,475.00 151,650.00
Total Long Term Liabilities 1,234,391.0 875,019.00 0 TOTAL LIABILITIES 1,696,391.0 1,190,019.0 0 0
1. Credit sales is 60% of total sales in both years
2. Dividends paid out are 10,000 to preference shareholders and 75,000 to ordinary shareholders in each year.
Required:
(a) Assess and comment on the Liquidity position and performance of Wisdom Enterprises Ltd over the 2 years, and make appropriate recommendations where necessary (10 marks) (b) Assess and comment on the Solvency position and performance of Wisdom Enterprises Ltd over the 2 years, and make appropriate recommendations where necessary (10 marks) (c) Assess and comment on the Profitability position and performance of Wisdom Enterprises Ltd over the 2 years, and make appropriate recommendations where necessary (10 marks) (d) Assess and comment on the working capital performances of Wisdom Enterprises Ltd over the two years, and provide appropriate recommendations where necessary (10 marks) (e) Calculate the operating cash cycle and cash demand period for Wisdom Enterprise Ltd for the 2 years and provide relevant recommendations where necessary (10 marks) (f) Comment on the overall financial health of Wisdom Enterprises Ltd over the 2 years given your assessment of its liquidity, solvency, cash, working capital and profitability performance. Is Wisdom Enterprises Ltd a good potential investment for you? (10 marks)
