FIN2601
ASSIGNMENT 1
SOLUTIONS
PREPARED BY: MTHOMBENI
0767297208
, QUESTION 1
A typical company has many types of shareholders, from individuals holding just a few
shares, to large institutions that hold very large numbers of shares. How does a financial
manager ensure that the priorities and concerns of such a wide variety of shareholders are
taken into account?
The financial manager should work to maximize the value of the investment of all
shareholders.
QUESTION 2
Raymond is interested in purchasing Dina's house. Since Raymond is a poor negotiator, she
hires Ava to negotiate a purchase price. Identify the parties to this transaction.
Raymond is the principal and Ava is the agent.
QUESTION 3
What is the primary difference between a sole proprietorship and a partnership as a form of
business?
A partnership has more owners than a sole proprietorship.
QUESTION 4
Avanta Edge is a relatively small, privately owned firm. Last year the company had profit for
the year of R15 000, and 10 000 shares were outstanding. The owners were trying to
determine the market value for the share, prior to taking the company public. A similar firm
which is publicly traded had price earnings (P/E) ratio of 5. What is the market value of one
of company shares?
Market price = P / E x EPS
EPS = (Profit – Preference dividends) / no of shares
= (15 000 – 0) / 10 000
= 1.50
Market price = 5 x 1.50
= 7. 50
1
ASSIGNMENT 1
SOLUTIONS
PREPARED BY: MTHOMBENI
0767297208
, QUESTION 1
A typical company has many types of shareholders, from individuals holding just a few
shares, to large institutions that hold very large numbers of shares. How does a financial
manager ensure that the priorities and concerns of such a wide variety of shareholders are
taken into account?
The financial manager should work to maximize the value of the investment of all
shareholders.
QUESTION 2
Raymond is interested in purchasing Dina's house. Since Raymond is a poor negotiator, she
hires Ava to negotiate a purchase price. Identify the parties to this transaction.
Raymond is the principal and Ava is the agent.
QUESTION 3
What is the primary difference between a sole proprietorship and a partnership as a form of
business?
A partnership has more owners than a sole proprietorship.
QUESTION 4
Avanta Edge is a relatively small, privately owned firm. Last year the company had profit for
the year of R15 000, and 10 000 shares were outstanding. The owners were trying to
determine the market value for the share, prior to taking the company public. A similar firm
which is publicly traded had price earnings (P/E) ratio of 5. What is the market value of one
of company shares?
Market price = P / E x EPS
EPS = (Profit – Preference dividends) / no of shares
= (15 000 – 0) / 10 000
= 1.50
Market price = 5 x 1.50
= 7. 50
1
