FIN3703 Assignment 2 (QUIZ) Semester 2 2024 - DUE 7 September 2024

FIN3703 Assignment 2 (COMPLETE QUESTIONS & ANSWERS) Semester 2 2024 - DUE 7 September 2024 ;100 % TRUSTED workings, Expert Solved, Explanations and Solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)........... Dalton Ltd – is the third largest South African manufacturer of high-quality JoJo tanks with its head offices situated in Midrand. The company owns four branches: one in Naturena, the second in Ennerdale, the third in Pachuca and the fourth in Roodepoort. Although the market for JoJo tanks has been expanding extremely well, Dalton could not share in this growth due to the technical challenges experienced with the current machine. To increase production and sales, the company is considering embarking on an extensive marketing campaign, offering better credit terms and replacing the current injection moulding machine with a more technically advanced model which will cost the company R3 000 000. In funding the replacement project, a five-year loan will be raised from standard bank at a floating interest rate of 11.75% per annum. The replacement requires that the company increases its working capital by R240 000. In financing the working capital, the company will secure a total revolving credit loan with a limit of R240 000 from Capitec bank, at a floating interest of 12.2% per annum. DALTON Ltd TREASURER As a Unisa final year treasury management student, you have been appointed as a treasurer by Mac Rebert, the chief executive officer (CEO) at Dalton Ltd head office. KEY PERFOMANCE AREA The human resources department provided you with detailed documents that among others, list the following treasurer key performance agreement areas (KPAs): ▪ Advise on the recruitment of treasury department personnel. ▪ ensure the implementation of GAAP. ▪ provide strategic leadership in the treasury office of the company. ▪ set overall financial strategies, goals and objectives for the company. ▪ Manage cash and liquidity. ▪ Establish and manage an excellent banking relationship. ▪ Manage corporate treasury risk. FIRST MEETING WITH THE CEO Mac Robert invited you to a special briefing session to discuss the funding and sub-risk policies below: DALTON’S FUNDING POLICY The funding strategy shall be submitted to board of directors for approval before the commencement of the financial year for which it is applicable and shall be reviewed for amendments should the need arise. The funding strategy shall outline the borrowing requirement for the financial year in question and shall outline the different funding sources the company may utilize to meet its borrowing requirement. The borrowing requirement consists of short-term and long-term funding needs of the company. The following funding sources are authorized by the board of directors: MONEY MARKET CAPITAL MARKET ▪ Commercial paper ▪ Bank overdraft ▪ Revolving credit ▪ Treasury bills ▪ Bank long-term loans DALTON’S RISK TREASURY POLICY There are various risks facing Dalton Ltd on regular basis which necessitate vigilance and precautionary measures. Some of the risks include liquidity risk and interest rate risk. It is the company’s policy that identified risks must be managed within the principles of risk mitigation strategies laid by the Board of Directors which are reflected in risk management policy documents. The company’s risk management policies consist of the following sub risk policies. CASH AND LIQUIDITY RISK MANAGEMENT POLICY The cash and liquidity risk management policy aims to define the mechanisms of how cash will be managed within the company to mitigate risk. Forecasting tools are used to create a cash surplus/requirement ladder, which is then utilized for investment/funding purposes, respectively. CREDIT RISK MANAGEMENT POLICY Counterparty/credit risk is the risk that the company may incur when dealing with counterparties who may not be able to meet all or a portion of their commitments within a certain time. Credit limits and the utilization thereof are confidential. It is the company policy that the criteria used to determine the credit limits shall not be revealed to any counterparty under any circumstances. Recognized credit rating agencies, where possible, may be utilized if the credit evaluation process is critical. There shall be continuous and constant monitoring of the credit quality of counterparties that Dalton is doing business with and any defaults will be written off as bad debts Credit limits must be formally reviewed at least annually including the risk of default. INVESTMENT RISK MANAGEMENT POLICY The investment of funds must be deposited with the authorized counterparty and the company must ensure that the financial institution is financially sound in reducing risk. To determine the financial soundness and creditworthiness of the investment managers with whom the company does business, a credit model of the counterparty concerned must be crafted INTEREST RATE RISK MANAGEMENT POLICY Interest rate risk shall be managed using suitable hedging instruments such as financial derivatives, taking due cognisance of interest exposure and corresponding liquidity risk. The decision whether to use fixed and/or floating interest rates shall be determined by the duly authorized official - having regard to the sensitivity and term of the underlying assets and liabilities, and nature of the interest rate environment. This is what you find in the company treasury department. Sibusiso Bengu, the most experienced personnel at the Roodepoort branch has 10 years’ experience and a good relationship with Standard bank manager. He also has the responsibility to ensure that every time the Standard bank branch account reaches R450 000, an amount by which the account exceeds R200 000 (that is R250 000) is transferred to the head office bank account. ==================================================================== = QUESTION 1 The treasurer must develop a cash flow statement to determine how much Dalton Ltd needs each day to fund the business’s operations. a. True b. False QUESTION 2 The ability for Dalton Ltd to replace its defected injection moulding is referred to as liquidity. a. True b. False QUESTION 3 A depreciation of R600 000 (R3 000 000/5) that will be written off by Dalton at the end of the following financial year after replacing their injection moulding, is part of expenses and will be treated as a cash outflow. a. True b. False NB. Ignore capital budgeting process depreciation calculations. QUESTION 4 The forecasts of Dalton Ltd cash flow indicate that there will be a cash deficit of R898 100 in September, October and November 2024. In financing this shortage, the company will issue a 90-day banker’s acceptance bill which its bank will guarantee by accepting it and the bill will then be discounted in the market with the relevant discount rate. The company will receive R970 100 in an exchange for the bill which will require that the company pays the nominal amount of R1 000 000 in 90-days’ time. The cost of the bankers’ acceptance for the company (which is a yield to the bank) is …. a. 4,76% b. 5.73% c. 6.11% d. 7.6% NB: Use 365 days. QUESTION 5 It is expected that the short-term interest will rise, and you wish to hedge the next roll over of the bankers’ acceptance bill with a forward rate agreement (FRA). Assume the following applies: Roll-over :30 November Spot rate on 20 September :14.5% FRA spot (Bid/offer) :10.0/11.0% The cost to the company of the roll-over will equal to …. a. R8 630 b. R28 027 c. R36 657 d. R 44 121 QUESTION 6 Some of the tasks that you are required to perform by Dalton Ltd as a treasurer are not key performance areas for a corporate treasurer. Agree Disagree. QUESTION 7 Which one of the following types of risks is accepted by Dalton Ltd? a. Liquidity risk b. Interest rate risk c. Credit risk d. Foreign exchange risk QUESTION 8 It sounds like the newly appointed treasurer read and understood the company policies, and complies with them in his daily operations a. Agree b. Disagree QUESTION 9 The interest payable if the business (Dalton) uses 20% of the revolving credit limit for 28 days and that the interest is calculated on daily basis, is equal to … . a. R449.13 b. R760.41 c. R870.30 d. R980.31 QUESTION 10 Which one of the following sweeping strategies is used at Dalton Ltd? a. Percentage sweeping method b. Fixed amount sweeping method c. Threshold sweeping method d. Range-based sweeping method. QUESTION 11 Mr Sibusiso Bengu informs you that in the past few years, the company experienced numerous challenges with Standard bank and that the bank’s poor services are impacting negatively on the operations of Dalton Ltd. He requests you as a company treasurer to give him authority to open a new bank account with ABSA bank for the Roodepoort branch. Which one of the following statements is correct? a. Mr Bengu has 10 years’ experience; he established a good relationship with banks previously and he knows precisely what he is doing. Yes, you authorise him to open a new bank account. b. No, you do not authorise him to open the new bank account with ABSA. QUESTION 12 Upon reviewing the operational processes and procedures at Dalton Ltd, what type of risks do you expect to see being covered in the company’s policy documents? a. Liquidity risk policy, dealing policy, credit risk policy, commodity risk policy, foreign exchange rate policy. b. Interest rate risk policy, credit risk policy, foreign exchange rate policy, liquidity risk policy. c. Commodity risk policy, Inter-company funding policy, interest rate risk policy, ring-fencing policy. d. foreign exchange rate risk policy, ring-fencing policy, intercompany funding policy, commodity risk policy. FOR QUESTIONS 13 TO 15 REFER TO THE FOLLOWING INFORMATION: Van Schaik bookstore supplies textbooks to college and university bookstores. The books are supplied with a provision that they must be paid for within 30 days. In 2023 Van Schaik bookstore supplied and billed books totalling R760 000. Collections, net of return credits, during the year totalled R690 000. The company spent R300 000 in cash acquiring the books that it Supplied. QUESTION 13 Using the accrual accounting value (accrual principle) the company’s net profit for the past year equals to ... . a. R390 000 b. R460 000 c. R480 000 d. R490 000 QUESTION 14 Using the cash accounting value (cash principle ) the company’s net cash flow for the past year equals to … . a. R390 000 b. R460 000 c. R480 000 d. R490 000 QUESTION 15 Which one of the following statements is correct? a. The accounting net income is more useful to the financial manager. b. The cash flow statement is more useful to the accountant. c. The cash flow statement is more useful to the financial manager. d. None of the above is correct QUESTION 16 Which of the following statements are correct? a. Future contracts are traded on a formal exchange. b. Forward contracts are traded over the exchange. c. Forward contracts are not traded over-the-counter. d. Forward contracts are traded over-the-counter. 1. A and B 2. A and C 3. B and C 4. A and D QUESTION 17 Match column A with column B below: COLUMN A COLUMN B 1 Front office a Produces plans to achieve targets 2 Middle office b Settles deals (transactions) once authorisation has been done. 3 Back office c Books and executes trades. d Enforces and reviews risk limits. e Leads the treasury department. The correct option/match is … a, 1. c; 2. d; 3.b b, 1. d; 2. a; 3.c c, 1. e; 2. b; 3 e d, 1. d; 2. e; 3.a QUESTION 18 Which of the following statements is correct about the money market instruments? a. The par value of the money market security is the same as issue value. b. The issue value is a discounted amount of the par payable by the investors. c. The yield or actual return is the same with the discount rate. d. In most cases the issuance value of the money market security will be or is greater than the par value. FOR QUESTION 19 AND 20 REFER TO THE FOLLOWING INFORMATION: Low-Shading Ltd is a recently formed South African company aiming to provide alternative energy solutions to a broad market. The company imports energy equipment and sells primarily foreign-built solutions locally and abroad. On 6 March 2023, the company sold R150 000 worth of energy supply equipment to US-based company and at the time of sale, one rand was worth or equal to 0.05488 dollars (exchange/spot rate was R1/0.05488). QUESTION 19 The amount payable to Low-Shading Ltd by a US-based company on 6 March when the spot rate is R1/0.05488 equals to … . a. $5 232 b. $6 232 c. $7 232 d. $8 232 QUESTION 20 Assume that according to the terms and conditions of the transaction, the US-based company is allowed to settle its bill in three months. On 15 May 2023, the US company settled its account with Low-shedding Ltd, but at that time the exchange or spot rate dropped (the rand had depreciated) to R1/0.05256. The value of the payment will be reduced to by… because of the rand depreciation. a. $6 884 b. $7 884 c. $6 .884 d. $5 884 QUESTION 21 Due to the depreciation of rand to the dollar, Low-shading Ltd has incurred a loss of … and this is an example of … risk a. $348; transaction b. $390; transaction c. $440; translation d. $495; translation