University of Hargeisa

Department of Accounting and Finance

Financial Management II
GROUP ASSIGNMENT (20 Marks)
PART I: UNDERSTANDING THE CONCEPTS

Do the following questions briefly:

1. Explain briefly what Financial Management is.

2. Write down the advantages of financial management.

3. Explain briefly what you mean by Cash Management.

4. What are the Tools/Methods that are used for cash management?

5. Write down and explain briefly the Three Primary Policy Variables that are
used in Credit Policy Administration?

6. Explain briefly what you mean by Inventory Management.

7. Write down and explain briefly Some Key Factors Influencing Inventory
Management.

8. Explain briefly the Various Sources of Short-Term Financing/Funds.

PART II: APPLICATION

Visit a Functioning Private Business Company

Ask the following questions and write their answers briefly/bulletin format.

1. The Tools/Methods that the company uses for Cash Management.

Lecturer: Abdirisak Ali Mohamed, BBA (UoH), MA in TCA (ECSU)

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 2. Does the company use Credit Policy Administration to management its
accounts receivable?
3. Write down the Methods/Procedures that the company uses in its
Inventory Management.
4. a) Does the company borrow any debt?
b) If yes, from where the company borrows the debt (Source of Debt)?
c) Write down the conditions/requirements that are needed from the
company when it borrows the debt?
d) What is the Debt Percentage in the company’s capital structure?

Part III: Calculations

1. Bosworth petroleum needs $500,000 to take a cash discount of 2/10, net 70. A
banker will loan the money for 60 days at an interest cost of $8,100.

a. What is the annual rate on the bank loan?

b. How much would it cost (in percentage terms) if Bosworth did not take the
cash discount and paid the bill in 70 days instead of 10 days?
c. Should Bosworth borrow the money to take the discount?
d. If the banker requires a 20% compensating balance, how much must
Bosworth borrow to end up with the $500,000?
e. What would be the interest rate in part d if the interest charge for 60 days
were $13,000? Should Bosworth borrow with the 20% compensating
balance? (There are no funds to count against the compensating balance
requirement.)

2. The Kerban Corporation finds that it is necessary to determine its capital cost
of capital. Kerban’s current capital structure calls for 40 percent of debt, 5 percent
of preferred stock, and 55 percent of common equity. Initially common equity will
be in the form of retained earnings (K e) and then new common stock (Kn). The
costs of the various sources of financing are as follows: debt, 7.4 percent, preferred

Lecturer: Abdirisak Ali Mohamed, BBA (UoH), MA in TCA (ECSU)

E-mail:cabdi005@gmail. Page 2
stock, 10 percent, retained earnings, 13 percent, and new common stock, 14
percent.

a) What is the initial weighted average cost of capital? (Include debt, preferred
stock, and common equity in the form of retained earnings, Ke.)
b) If the firm has $27.5million in retained earrings, at what size of investment
will the firm run out of retained earnings?
c) What will the marginal cost of capital be immediately after that point?
(Equity will remain at 55 percent of the capital structure, but it will all be in
the form of new common stock, Ke.)
d) The 7.4 percent cost of debt referred to above applies only to the first $32
million of debt. After that the cost of debt will be 8.6 percent. At what size
of investment will there be a change in the cost of debt?
e) What will the marginal cost of capital be immediately after that point?
(Consider the facts in both parts c and d.)

N.B

1. Your group should be around Eight Students per group.

2. The deadline of the assignment will be 22 December, 2022.

3. There will be direct questions that will be asked every group member after the
submission Inshaa Allah.

4. Write down the name of the company you visit and show the name of the data
provder, signature and the stamp of the company.

5. Use the Harvard or APA Style referencing system in your reference.

6. Neatness and good display have their considerations.

7. For any late submission, marks will be deducted (3 marks/day).

Lecturer: Abdirisak Ali Mohamed, BBA (UoH), MA in TCA (ECSU)

E-mail:cabdi005@gmail. Page 3
……………………….. Good Work and Good Luck…………………………….

Lecturer: Abdirisak Ali Mohamed, BBA (UoH), MA in TCA (ECSU)

E-mail:cabdi005@gmail. Page 4