(Answered) APC308 Financial Management




The assignment covers all module learning outcomes.

Word count –

Question 1                          1000 words

Question 2                          1000 words

Question 3                          1250 words

There is a total allowance of 10% +/- on the total word count for each question.

Select and attempt any TWO from the following three questions. Each question that is attempted will carry a maximum mark of 50%.

Question 1

  1. Discuss the factors that influence the financing decision, differentiating between the different types of finance and the purposes of having the different types. (25 Marks)
  2. You are given the following information about Baby PLC:

Financial Position Statement at January 20X0

                                                                                                £000                                       £000

Non-Current Assets                                                                                                        1,621

Current Assets                                                                                                                     594



Equity Finance:

Ordinary Shares (25p)                                                    300

Reserves                                                                             180                                           480

Non-Current Liabilities:

8% Preference Shares                                                   360

10% Bonds (Redeemable after 6 years)                 400

5% Bank Loans                                                                  840                                         1,600

Current Liabilities                                                                                                                135

Total Liabilities                                                                                                                   2,215


You are also given the following information:

Yield on Treasury Bills                                                     6%

Baby PLC Equity Beta                                                      1.30

Equity Risk Premium                                                       8.4%

Current ex-div ordinary share price                         £2.46

Current ex-div preference share price                   £0.72

Current ex-interest bond price                                  £108

Corporate tax rate                                                              30%

  1. Required: Calculate the company’s WACC using market weightings.                                                                                                                            (18 marks)
  2. What are the issues with using Weighted Average Cost of Capital (7 marks)        

                                                                                                 TOTAL             (50 marks)

Question 2

Billy Ltd has provided the following figures for two investment projects, only one of which may be chosen.

Project X                      Project Y

    £                                  £   

Initial outlay                                                    90,000                         80,000


Profit for year             1                                              30,000                         15,000

2                                              30,000                         15,000

3                                              35,000                         30,000

4                                              15,000                         40,000


Estimated resale value at end of year 4        30,000                         20,000

Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%.


  1. Calculate for each project
  2. Payback
  3. Average Return on Capital Employed
  4. Net present value (NPV) (20 marks)
  5. Critically discuss the merits and limitations of payback and NPV        (18 marks)

(Your answer is to be presented in an essay format NOT Bullet Points)


  1. Explain which project you would recommend for acceptance and why    (4 marks)


  1. Discuss the purpose and the strengths and weaknesses of Capital Rationing.                                                                                                             (8 Marks)


                                                                          TOTAL                         (50 Marks)

Question 3

  1. Market efficiency can be defined using three differing strengths; weak form, semi strong form, and strong form. Critically analyse and evaluate the three differing strengths of market efficiency, ensuring the response integrates relevant empirical research within this area of study. Demonstrate using an example of a semi strong and a strong efficient hypothesis market form. (25 marks)
  2. All companies aim to obtain the optimal capital structure, but some companies take it too far and result in having too high gearing. Discuss how to obtain the optimal capital structure and if it is possible by discussing the relevant theories, and what the companies should try to avoid when trying to obtain the optimal capital structure (25 Marks)


TOTAL                         (50 Marks


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