FINC6017_Merger and Acquisition_2009 Semester 1_Week 7_WACC

airfare n. The airfare to a place is the amount it costs to fly there. 飞机票价
Most airfare price drops last less than 48 hours, so people need to be ready to jump when a fare falls.
airports (Sometimes shortened to hub). 轴辐路网
空中交通组织法
In order to optimize extended hub-and-spoke regional transportation network, interactive fuzzy programming model was introduced.
price-fixing n. the setting of prices by agreement
among producers and distributors 协定物价
With overt price-fixing cartels clearly illegal, the railroads turned to mergers as the way to eliminate competition between them.
merger n. the joining together of two separate
companies or organizations so that they become one 合并 （CET6）
There has been a lot of talk about a merger with anothe someone means to trick them into

法学专业《法律专业英语》课程试题（A 卷）2011～2012学年第二学期（2009级）合分人： 复查人：I ．（每题 1 分，共 10 分） 1．贸易术语 2 当事人3．私法4．社会保险5．监事会6．即期汇票7．不动产8．无效婚姻9．提单10．担保交易法column A and column B （每题1分，共 5分） Column Asuperior court 世界贸易组织 customs formalities 上级法院CIF 国际货币基金组织 WTO海关手续IMF 成本保险费加运费III. Translate the following sentences into Chinese ：（每题6分，共 30 分） 1．designed to facilitate or frustrate the international flow of goods , service, labor and capital.2．The fundamental division in all civil law systems is that between public law and private law. Generally speaking ，public law includes at least constitutional law ，administrative law and criminal law ，while private law at least includes civil law andcommercial law.3．A copyright is the exclusive right given by the law to the creator of a literary or artistic work to use reproduce or display the work. A copy right does not prevent the copying of an idea, as long as a work is not made public, it has the same protection as though it had been copyright.4. The contract of employment is a contract that can be enforced by legal action. And there are six requirements of a valid contract, which are as follows: intention, agreement, consideration, reality of consent, the proposed contract must be legal both in its object and in the manner in which it is performed, and you must have contractual capacity.5. In civil law countries, the main form of corporations are the limited liability company and the stock corporation. But in England, the two basic categories of corporation are the private company and public company. In the U.S.A, the close corporations and public corporations are divided into limited liability companies and stock companies.题3分，共15 分）1．汇票或支票有三个原始当事人：出票人、付款人和受款人。

广东外语外贸大学国际经济贸易学院《国际贸易实务》2009-2010学年第二学期期末考试试卷（A卷）考核对象：金融081、082、083、084班保险081、082班考试时间：2小时班级：_______ 学号：________ 姓名：_________ 成绩：________Ⅰ. Put T for true or F for false in the corresponding blanks on your answer sheet. ( 20% )1.（）According to INCOTERMS 2000, under FOB contract, the buyerhas no obligation to contract for insurance and pay theinsurance premium.2.（）According to INCOTERMS 2000, under CIF contract, the sellermust procure marine insurance, while under CFR contract, it isa common practice that the buyer contracts for insurance andpays the insurance premium. So under the CIF contract, thegoods are seller’s risk during the internaitonal marine transport,while under the CFR contract, it is the buyer who should bearthe risk of loss of or damage to the goods during theinternaitonal marine transport.3.（）Under CIF contract, the seller would better ship the goods beforethe time of shipment stipulated in the contract for fear of theloss of late arrival of the goods to the buyer.4.（）When the risk of loss of or damage to the goods is transferredfrom the seller to the buyer, all the charges and obligations ofthis internaional transaction will be transferred from the seller tothe buyer immediately.5.（）According to INCOTERMS 2000, under EXW contract, the sellr’sobligation is minimum.6.（）International customs and practice is the international standardwhich is of some guiding significance to international business.So all the international business persons should abide by theinternational customs and practice.7.（）In order to avoid disputes, we should try our best to use muchmore kinds of methods to stipulate the quality of the goods inthe international contract.8.（）According to CISG, if the package of the goods is not inacordance with the terms and conditions of the contract, thebuyer could reject the goods and lodge claims.9.（T）If the goods are sold by weight, but there isn’t any stipulationsabout the method for calculating weight in the contract, then thepayment for goods should be calculated according to its netweight.10.（）Partial loss or damage is not recoverable with FPA.11.（）In ocean marine insurance, general average should be borne bythe carrier totally, who may, upon presentation of evidence ofthe loss, recover the loss from the insurance company.12.（）Demurrage is a fine imposed on the charterer for the delay in theloading and/or unloading of the goods.13.（）Order B/L can be transferred with endorsement.14.（）Unclean B/L will be accepted by the buyer or the issuing bank.15.（）A B/L, Rail Way Bill, or Air Way Bill could be negotiated ortransferred because all of them are documents of title to thegoods.16.（）According to INCOTERMS 2000, under CIF contract, the sellerhas no obligation to give the buyer prompt shipping advice afterthe goods are shipped on board the vessel, because the sellerhas insured the goods for the buyer before shipment.17.（）According to UCP 600, the issuing bank shall have a maximumof five banking days following the day of presentation todetermine if a presentation is complying. When the issuingbank decides to refuse to honour, it must give a single notice tothat effect to the presenter.18.（T）According to UCP 600, all the credits are irrevocable andthereby constitute a definite undertaking of the issuing bank tohonour a complying presentation.19.（）Under D/P, the remitting bank and the collecting bank offer theircollection service with discretion but they usually don’t promiseto get the sales proceeds for the seller.20.（）Under D/A, the collecting bank should be responsible for thegoods ( inculding take and store the goods, etc. ) if the buyerdoesn’t accept the seller’s draft(s) and documents.Ⅱ. Please choose the best answer from the following choices of each question and write them on your answer sheet. ( 15% )21. The term of FOB should be followed by ( ) in a international tradecontract.A. named place of originB. named port of shipmentC. named port of destinationD. named place of destination22. According to UCP 600, the confirming bank must negotiate and/orhonor ( )A. if the issuing bank agrees to negotiate and/or honorB. if the applicant agrees to negotiate and/or honorC. if it has received a complying presentation from the presenterD. if the beneficiary has shipped the stipulated goods on time23. Under documentary collection, the draft must be ( )A. sight draftB. time draftC. banker’s draftD. commercial draft24. According to CISG, the international business person can ( )before the offer reaches the offeree.A. withdraw his/her offerB. revoke his/her offerC. withdraw his/her contractD. revoke his/her contract25. According to UCP 600, under L/C, the payer of the draft is ( ) .A. the buyerB. the advising bankC. the negotiating bankD. the issuing bank26. If the CIF value in a international contract is USD 9 000 000, and thereisn’t any special terms and conditions about insurance, then according to INCOTERMS 2000, the seller could insure the goods for ( ) .A. USD 9 000 000 against FPAB. USD 10 000 000 against WPAC. USD 9 000 000 against WPAD. USD 9 900 000 against TPND27. According to CISG, the acceptance can be submitted ( )A. in written formB. orallyC. in written form or be sent orally28. In the following payment terms, ( ) is the safest term to the seller.A. Payment against documents, at 30 days after sightB. Payment by T/T, at 30 days after arrival of goodsC. Payment against documents, at 30 days from the date of B/LD. Payment by acceptance L/C, at 30 days after sight29. Under CFR contract, the goods are damaged during marine transportand the buyer suffers losses estimated at USD 1 000 due to natural calamity, USD 800 due to fortuitous accidents, and USD 2 000 due to extraneous risks. If the buyer has insured the goods for USD 1 000 000 against WPA before shiment, then the insurer should pay ( ) compensation to the buyer.A. USD 3800B. USD 1800C. USD 3000D. USD 280030. In the following statements about loading and discharging charges incharter party, ( ) is correct.A. F.I. means the shipper should unload the goods by himself.B. F.O. means the shipper should load the goods by himself.C. The time charter party shouldn’t stipulate terms about these charges.D. The ship-owner isn’t responsible for these charges in tramp shipping.31. Counter sample is made by ( ) which can help avoid disputes overthe quality of goods in the future transaction.A. the buyerB. the sellerC. the carrierD. the offerer32. The more or less clause is a clause that stipulates that ( ).A. the quantity delivered can be more or less within 5 percent.B. the quantity delivered can be more or less within 10 percentC. the quantity delivered can be more or less within 3 percentD. the quantity delivered can be more or less within certain extent33. Sales by description and illustration is applicable to ( ) most.A. wheatB. medical apparatusC. mineral oreD. ordinary stainless steel cup34. Neutral packing is adopted to ( ).A. prevent corrosion by acids or alkaliB. break tariff and non-tariff barriers of exporting countriesC. break tariff and non-tariff barriers of importing countriesD. A, B and C are all right35. Merchant vessels can be divided into liners and tramps, and to theowner of cargo, ( ) proved to be a more convenient means of international cargo distribution .A. linersB. trampsC. none of themⅢ. Calculation ( Please write your answers on your answer sheet, and the results should be rounded off to two decimals. 20% )36. A Company in Shenzhen quotes its exporting price, USD1000 PerMetric Ton FOB Shenzhen, to a Japanese company. But the Japanese company requires the exporter to offer CIF Yokohama price ( with the goods insured F.P.A.). If the freight from Shenzhen to Yokohama is USD 200 per Metric Ton, the insured amount is 110% of CIF value and the premium rate is 1% of F.P.A..(1) Please calculate how much this exporting company should offer CIFYokohama price per Metric Ton with the same profit. ( 8% )(2) If the Japanese company requires the exporter to offer CIFC5%Yokohama price ( with the goods insured F.P.A.). Please calculatehow much this exporting company should offer CIFC5% Yokohamaprice per Metric Ton with the same profit. ( 4% )(3) If the exporting quantity is 100 Metric Tons, the domestic purchasingprice of these goods is 6000 RMB per Metric Ton. The domestic totalcharges (including all kinds of domestic fees and taxes) are 13000RMB. And the export tax rebate is 3000 RMB totally. And theexchange rate is USD1:RMB6.8. Please calculate the rate of profitor loss of this export transaction. ( 8% )Ⅳ. Case Study ( Please write your answers on your answer sheet, 10%)37.On 15th May, 2010, a chinese company offered to a french company, “sell 10000 Qing Yan Brand bicycles, Article No. 171069, FOB Shanghai USD 100 per set, shipment during July, 2010. Subject reply here on or before 20th May, 2010. ...... ”.On 17th May, 2010, the french company replied by FAX, “we accept your offer dated 15th May, 2010, but at the price of FOB Shanghai USD 80 per set, shipment during October, 2010.”The chinese company hadn’t replied to the french company and sold their bicycles to another foreign company.However, on 19th May, 2010, the french company replied by FAX again, “we completely accept your offer dated 15th May, 2010.”The chinese company replied to the french company at once by FAX, “we have sold the bicycles to others. We will offer you in the future as possible as we can.”But the french company thought that the contract has been concluded and required the chinese company to ship the bicycles during July, 2010 at Shanghai port.According to CISG, do you think the above two companies have conculded a contract? Why?V. Write your answers on your answer sheet to the following question 38, which is based on the following L/C. ( 35% )--------------------------------------------------------------------------- RECEIVED MESSAGEStatus: MESSAGE DELIVEREDStation: 1 BEGINNING OF MESSAGEOwn Address : BOCOZOXXXXX: BANK OF CHINA: GUANGZHOUOutput Message Type : 700 ISSUE OF A DOCUMENTARY CREDITSent by : ACNZ2WXXX WESTPAC BANKCOPROPATION WELLINGTON: (FOR ALL NEW ZEALAND BRANCH)Output Date/Time : 061207/0928Priority : Normal27/ SEQUENCE OF TOTAL: 1/140A/ FORM OF DOCUMENTARY CREDIT: IRREVOCABLE20/ DOCUMENTARY CREDIT NUMBER: 0612/2048792331C/ DATE AND PLACE OF EXPIRY: 070121 P. R. O. C.50/ APPLICANT: NEW CHEM INC.AUCKLAND, NEW ZEALAND59/ BENEFICIARY: GUANGZHOU FOREIGN TRADE CORP.GUANGZHOU, P. R. OF CHINA32B/ CURRENCY CODE AMOUNT: USD 34870,0041D/ AVAILABLE WITH … BY … : ANY BANK BY NEGOTIATION42C/ DRAFTS AT …… : SIGHT FOR FULL INVOICE VALUE42A/ DRAWEE: WPACNZZWAKLWESTPAC BANKING CORPORATION, AUCKLAND43P/ PARTIAL SHIPMENTS: NOT ALLOWED43T/ TRANSSHIPMENT: ALLOWED44A/ ON BOARD/DISP/TAKING CHARGE: ANY P. R. C. PORT44B/ ROF TRANSPORTATION TO: AUCKLAND NEW ZEALAND44C/ LATEST DATE OF SHIPMENT: 06121345A/ DESCP OF GOODS AND/OR SERVICE: BLACK SILICON CARBIDE CIF AUCKLAND46A/ DOCUMENTS REQUIRED:+COMMERCIAL INVOICES+FULL SET CLEAN “ON BOARD”BILLS OF LADING MADE OUT TO ORDER BLANK ENDORSED MARKED “FREIGHT PREPAID” AND NOTIFY APPLICANT+INSURANCE POLICY OR CERTIFICATE COVERING OCEAN MARINE TRANSPORTATION ALL RISKS AND WAR RISKS.+PACKING LIST+CERTIFICATE OF ANALYSIS+BENEFICIARY CERTIFICATE STATING BATCH NUMBERS APPEAR ON ALL DOCUMENTS AND PACKAGES47A/ ADDITIONAL CONDITIONS:DRAFTS DRAWN HEREUNDER MUST BEAR DOCUMENTARY CREDIT NUMBER AND DATE.EACH PRESENTATION OF DISCREPANCIES DOCUMENTS UNDER THIS CREDIT,A FEE OF NZD70.00( OR ITS EQUIVALENT IN THE CURRENCY OF YOUR DRAWING) IS FORACCOUNT OF BENEFICIARY AND MUST BE DEDUCTED FROM YOUR REIMBURSEMENT CLAIM OR WILL BE DEDUCTED FROM THE PROCEEDS (IN THE EVENT CLAIM IS PAID BYOURSELVES). ALL DOCUMENTS IN DUPICATE UNLESS OTHERWISE STATED.71B/ CHARGES:ALL BANK CHARGES OUTSIDE COUNTRY OF ISSUING BANK ARE FOR ACCOUNT OF BENEFICIARY.48/ PERIOD FOR PRESENTATION:DOCUMENTS TO BE PRESENTED WITHIN 21 DAYS AFTER ISSUANCE OF BILL OF LADINGBUT WITHIN THE VALIDITY DATE OF THIS DOCUMENTARY CREDIT49/ CONFIRMATION INSTRUTIONS: WITHOUT78/ INSTRUCS TO PAY/ACCPT/NEGOT BANK:UPON RECEIPT OF COMPLIANT DOCUMENTS, WE UNDERTAKE TO REMIT PROCEEDS BYTELEGRAPHIC TRANSFER IN TERMS OF YOUR INSTRUCTONS, WITHIN TWO BUSINESSDAYS, LESS OUR REIMBURSEMENT CHAREGES AND COSTS OF NZD80.00, THEEQUIVALENT OF WHICH WILL BE DEDUCTED FROM YOUR CLAIM. DRAFT AND DOCUMENTSARE TO BE COURIERED IN ONE LOT TO WESTPAC BANKING CORPORATION, NEW ZEALAND. SAC: SWIFT Authentication Correct38.（1）本信用证的申请人和受益人？（4%）（2）本信用证的种类(至少写出两种)？（4%）（3）本信用证的到期日及到期地点？（4%）（4）本信用证是否允许转运，是否允许分批装运？（4%）（5）本信用证的最迟装运日？（2%）（6）本信用证对汇票有何要求？（6%）（7）本信用证对提单有何要求？（6%）（8）本信用证对保险单据有何要求？（5%）广东外语外贸大学国际经济贸易学院《国际贸易实务》2009-2010学年第二学期期末考试试卷（A卷）参考答案考核对象：金融081、082、083、084班保险081、082班考试时间：2小时班级：_______ 学号：________ 姓名：_________ 成绩：________ Ⅰ. Put T for true or F for false in the corresponding blanks. ( 20% )1.T2.F3.F4.F5.T6.F7.F8.F9.T 10.F11.F 12.T 13.T 14.F 15.F 16.F 17.T 18.T 19.T 20.FⅡ. Please write the best answer in the corresponding blanks. ( 15% ) 21.B 22.C 23.D 24.A 25.D 26.B 27.C 28.D 29.B 30.C 31.B 32.D 33.B 34.C 35.AⅢ. Calculation ( The results should be rounded off to two decimals. 20% )36.（1）CIF= ( FOB+F) / (1 - premium rate×110％）＝(1000+200)/(1-1%×110％)=1200/(1-0.011)＝1200/0.989≈1213.35 USD per metric tonI.e. this exporting Company should offer CIF Yokohama USD1213.35 per Metric Ton to its customer with the same profit.( 2 )CIFC5%＝CIF/（1－5％）＝1213.35/0.95≈1277.21 USD per metric tonSo, the exporting Company should offer CIFC5% Yokohama USD 1277.21 per metric ton to its customer with the same profit.( 3 )The domestic purchasing price plus domestic total charges minus the export tax rebate is domestic cost of export.I.e. the total domestic cost = 6000×100 + 13000 －3000= 610000 RMBThe revenue in RMB = foreign exchange earning × exchange rate= FOB ×100×exchange rate=1000×100× exchange rate=100000 × 6.8= 680000 RMBSo, the rate of profit = (revenue－domestic cost) ÷ domestic cost × 100%= (680000－610000) ÷ 610000 × 100%≈11.48%Ⅳ. Case Study ( 10% )37. ( 1 )According to CISG, the two companies have not conculded a contract.( 2 ) CISG Article 19, “1）A reply to an offer which purports to be an acceptance but contains additions, limitations or other modificationsis a rejection of the offer and constitutes a counter-offer.2）However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do notmaterially alter the terms of the offer constitutes an acceptance,unless the offeror, without undue delay, objects orally to thediscrepancy or dispatches a notice to that effect. If he does not soobject, the terms of the contract are the terms of the offer with themodifications contained in the acceptance.3) Additional or different terms relating, among other things, tothe price, payment, quality and quantity of the goods, place and timeof delivery, extent of one party's liability to the other or the settlementof disputes are considered to alter the terms of the offer materially. ”( 3 ) On 17th May, 2010, the french company replied by FAX, “ we accept your offer dated 15th May, 2010, but at the price of FOB ShanghaiUSD 80 per set, shipment during October, 2010.”That is to say, the french company altered the price and the time of shipment in the chinese company’s offer dated 15th May, 2010.So the reply made by the french company dated 17th May 2010 wasa counter-offer and a new offer.Then, the offer made by the chinese company dated 15th May 2010 became invalid.The chinese company hasn’t accepted the new offer made by the french company dated 17th May 2010.The reply made by the french company dated 19th May 2010 was a new offer too. And the chinese company hasn’t accepted thenew offer made by the french company dated 19th May 2010 too.So the two companies have not conculded a contract.V. Write your answers in the corresponding blanks. ( 35% )38.（1）Applicant: NEW CHEM INC.，AUCKLAND, NEW ZEALANDBeneficiary: GUANGZHOU FOREIGN TRADE CORP.GUANGZHOU, P. R. OF CHINA（2）Irrevocable，Sight, Negotiable, Unconfirmed,Non-transferable,Documentary（3）21th January,2007 in china（4）PARTIAL SHIPMENTS: NOT ALLOWEDTRANSSHIPMENT: ALLOWED（5）LATEST DATE OF SHIPMENT: 13th December,2006（6）DRAFTS AT SIGHT FOR FULL INVOICE VALUE,DRAWEE: WPACNZZWAKL,WESTPAC BANKING CORPORATION, AUCKLANDDRAFTS DRAWN HEREUNDER MUST BEAR DOCUMENTARY CREDIT NUMBER AND DATE.（7）FULL SET CLEAN “ON BOARD”BILLS OF LADING MADE OUT TO ORDER BLANK ENDORSED, MARKED “FREIGHT PREPAID” AND NOTIFY APPLICANT, IN DUPICATE（8）INSURANCE POLICY OR CERTIFICATE COVERING OCEAN MARINE TRANSPORTATION ALL RISKS AND WAR RISKS, IN DUPICATE。

7Chapter 11. Financial management & financial objectivesChapter GuideA. Financial management functionA1. The nature and purpose of financial management a) Explain the nature & purpose of financial management,b) Explain the relationship between financial management and financial andmanagement accounting.A2. Financial objectives and relationship with corporate strategya) Discuss the relationship between financial objectives, corporate objectivesand corporate strategy.b) Identify and describe a variety of financial objectives, including:i. Shareholder wealth maximisation, ii. Profit maximisation,iii. Earnings per share growth,A3. Stakeholders and impact on corporate objectives a) Identify the range of stakeholders, their objectivesb) Discuss the possible conflict between stakeholder objectives.c) Discuss the role of management in meeting stakeholder objectivesincluding the use of agency theory.d) Describe and apply ways of measuring achievement of corporateobjectives, including:e) Ratio analysis, using appropriate ratios such as return on capital employed,return on equity , earnings per share and dividend per sharef) Changes in dividends and share prices as part of total shareholder return. g) Explain ways to encourage the achievement of stakeholder objectives,including8 i. managerial reward schemes such as share options andperformance-related payii. regulatory requirements such as corporate governance codes of best practice and stock exchange listing regulationsA4. Financial and other objectives in not-for-profit organisationsa) Discuss the impact of not-for-profit status on financial and other objectives.b) Discuss the nature and importance of Value for Money as an objective andhow to measure the achievement of objectives in not-for-profit organisations.c) Discuss ways of measuring the achievement of objectives in not-for-profitorganisations.Chapter Overview9✓ Financial management defined as the management of the finance of anorganisation in order to achieve the financial objectives of the organisation1.1 Financial management✓ Maximizationof shareholder’s wealth is often assumed to be the mainobjective of a business.Lecture example 1Walter Wall Carpets made profits before tax in 20x8 of $9,320,000. Tax amounted to $2,800,000. The company’s share capital is as follow:$ Ordinary Shares ( $1 at par) 10,000,000 8% preference share 2,000,000 12,000,000Required(a) Calculate the EPS for 20X8(b) Discuss why EPS may not be a good measure of performance, and what other measures could be used to assess Walter’s performance?✓ In short-term, funds may be needed to pay for purchase of inventory, or tosmooth out changes in receivables. The financial management is here to ensure that working capital requirements are met.1.2 Financial planningThe financial manager will need to plan to ensure that enough funding is available at the right time to meet the needs of the organisation for short, medium and long-term capital.✓ In the medium or long term, the organisation may have planned purchasesof non-current assets. The financial manager must ensure that funding is available.1. Nature and purpose of financialmanagement101.3 Financial controlThe control function of the financial manager becomes relevant for funding which has been raised; the financial manager may compare data on actual performance with forecast performance.1.4.1 Investment decisions1.4 Financial management decisions ✓ Investment decisions (in projects, takeovers or working capital) need to beanalyzed to ensure that they are beneficial to the investor; this is covered in later chapters.✓ Investments can help a firm to achieve key corporate objectives such asmarket share, quality etc; these will be monitored by the management accounting department. Investments also help a firm to achieve key financial objectives such as improving earnings per share.Lecture example 2Magneto plc has objectives to improve earnings per share and dividends per share by 10% pa.£m Last year Current year Profits before interest and tax 22,300 23,726 Interest (3,000) (3,000) Tax (5,790) (6,218) Profits after interest and tax 13,510 14,508 Preference dividends (200) (200) Dividends (7,986) (8,585) Retained earnings 5,324 5,723 No ordinary shares issued (millions) 100,000 100,000RequiredEvaluate whether Magneto has achieved its earnings & dividend per share objectives111.4.2 Financing decisionFinancing decisions mainly focus on how much debt a firm should use, and aim to minimise the cost of capital. This is covered in later chapters1.4.3 Dividend decisionThe dividend decision is determined by how much a firm has decided to spend on investments and how much of the finance needed for this it has decided to raise externally, and is a good example of the interrelationship between these 3 decisions. The dividend decision is covered in later chapters.✓ Profitability 2.1 Corporate objectiveCorporate objective are relevant for the organisation as a whole, relating to key factors for business success, which are typically as follow✓ Market share ✓ Growth ✓ Cash flow✓ Customer satisfaction✓ The quality of the firm’s products ✓ Industrial relations ✓ Added value✓ Profitability and return 2.2 Financial objectivesFinancial target may include: earnings; earnings per share; dividend per share; gearing level; profit retention; operating profitability.The usual assumption in financial management for the private sector is that the primary financial objective of the company is to maximise shareholder’s wealth. And this objective can be assessed from following aspects:✓ Debt and gearing ✓ Liquidity✓ Shareholders’ investment ratios2. Financial objectives and the relationshipwith corporate strategy12✓ The welfare of employees 2.3 Non-financial objectivesA company may have important non-financial objectives, which will limit the achievement of financial objectives. Examples of non-financial objectives are as follow:✓ The welfare of management ✓ The provision of a service✓ The fulfilment of responsibility towards customers ✓ The fulfilment of responsibility towards suppliers ✓ The welfare of society as a wholeCategories 3.1 Stakeholder groups and conflictsStakeholders are individuals or groups who are affected by the activities of the firm. They can be classified as followStakeholder groupsInternal✓ Employees and pensioners ✓ ManagersConnected✓ Shareholders ✓ Debt holders ✓ Customers ✓ Bankers ✓ Suppliers ✓ CompetitorsExternal✓ Government ✓ Pressure groups✓ Local and national communities ✓ Professional and regulatory bodies3. Stakeholders and impact on corporateobjectives13✓ Maximise short-term profits 3.2 Agency theoryAgency relationship describe the relationship between the management and shareholders expressingthe idea that the managers act as agents for the shareholder, using delegated powers to run the company in the shareholder’s best interest.Unless managers are also owners of the business, they may prefer to: ✓ Minimise dividends✓Reduce risk by diversifying✓ Boost their own pay and benefits ✓ Avoid debt financeManagementAgent theoryConflict of interestsConflict of interestsThe danger that management may not act in the best interest of shareholders is referred to as the agency problem .3.3 Corporate governanceIn the UK, corporate governance regulation have been designed to monitor the actions of management. Here are some main requirements:14Lecture example 3ERTIN PLCThe following information relates to Erin plc, a fictitious company incorporated in England.Boardof directors Basic salary Outstanding share options Chairman and Chief executive H A Mefftord210,000 500,00Finance director Mrs F M Barnfield FCCA120,000 100,000Production directorM L T Hojy85,000 100,000Other executive directors S Lompertas75,000 50,000P T Figler 80,000 50,000 Lord Gwumba 100,000 100,000 Non-executive directors Dr P Dorection20,000 60,000Mrs B D Mefftord 25,000 100,000The agenda of a board meeting of Erin plc is as follows. ✓ Minutes of the last meeting ✓ Proposed investment in France✓ Consideration of the remuneration of board members✓ Proposal for the formation of an audit committee, with Mrs. F M Barn field,P T Filer and Dr P Direction as nominated committee membersRequiredIdentify weaknesses in the corporate governance of Ertin plc and describe what actions are required to comply with best practice.15✓ Profitability and return 4.1Measuring financial objectivesAs a part of the system of financial control in an organisation, it will be necessary to have ways of measuring the progress of the enterprise, so that managers know how well the company is doing. A common means of doing this is through ratio analysis, which is concern with comparing and quantifying relationship between financial variables, such as those variables found in the SOFP and IS of the enterprise.Ratios can be grouped into four categories : ✓ Debt and gearing ✓ Liquidity✓ Shareholders’ investment ratios4.1.1 Profitability and returnRRRRRRRR =Profit from operations%ROCE =Profit from operations Revenue ×RevenueCapital employed=Profit Margin ×Asset turnover4.1.2 Debt and gearing GGGGGGGGGG GG GG =DebtEquityII GG II GG GGGGIIII ccccccGGGG =Profit from operationsInterest4.1.3 LiquidityCurrent ratio =Current assetsCurrent liabilitiesAcid test ratio =Current assets −Inventories4. Measuring the performance164.1.4 Shareholders’ investment ratiosDDGG cc GG DD GGGGDD yyGG GG yy DD =Dividend per shareMarket price per share×100%RRGGGGGGGG GG GG ppGGGG IIℎGGGGGG =Profit distributable to ordinary shareholdersPPGGGG cc GG RRGGGGGGGG GG GG GGGGII GG cc =Market price per shareThe value of the P/E ratio reflects the market’s appraisal of the share future prospects.Income statement of Burton plc for year ended 31.12.2010 4.2 Total shareholder returnFor a profit making company, maximization of shareholder wealth is assumed to be the financial objective. The ability of a firm to create wealth for shareholders is measure by total shareholder return.TTccII GG yy IIℎGGGGGGℎccyy DD GGGG GGGGII rr GGGG =Dividend +Change in share priceShare price at the beginning of yearLecture example 4Summary financial information for Burton plc is given below, covering the last two years.2009 2010 £ 000 £ 000 Turnover 43,800 48,000 Cost of sales (16,600) (18,200) Salaries and wages (12,600) (12,900) Other costs(5,900) (7,400) Profit before interest and tax 8,700 9,500 Interest (1,200) (1,000) Tax(2,400) (2,800) Profit after interest and tax 5,1005,70017Statement of financial position of Burton plc as at the year ended31.12.20102009 2010 Non-current asset 30,900 30,200 Current asset Inventory 3,500 4,000 Trade receivables 6,500 8,700 Bank 2,000 2,800 Total Asset 42,900 45,700 Shareholder’s funds 22,600 25,700 Non-current liability 11,300 9,000Current liability9,000 11,000 Total equity and liability 42,900 45,700 Number of shares in issue 9,000 9,000 Dividends payable 2,000 2,200 P/E ratio Burton plc 17.0 18.0 Industry 18.0 18.2RequiredReview Burton’s performance using profit, debt, liquidity, shareholder investor ratios, and total shareholder return in the current year.18Benefit of linking reward schemes and performance4.3 Managerial reward schemesGoal congruence may be better achieved and the agent problem better dealt with by offering organisational rewards for the achievement of certain levels performance. The conventional theory of reward structures is that if the organisation establishes procedures for formal measurement of performance, and rewards individuals for good performance, individuals for good performance, individuals will be more likely to direct their efforts towards achieving the organisation’s goals.✓ Give individuals an incentive to achieve a good performance level ✓ Attract and keep the employees valuable to an organisation✓ By tying an organisation’s key performance indicators to a scheme, it isclear to all employees what performance creates organisational success. ✓ Focused on continued improvement.✓ Schemes based on shares can motivate managers/employees to act in thelong-term interests of the organisation by doing things to increase the organisation’s market valueProblems associated with reward schemes✓ Performance-related pay and performance evaluation systems canencourage dysfunctional behaviour.✓ Schemes designed to ensure long-term achievements may not motivatesince efforts and reward are to distant in time from each other.✓ Performance measure can hardly provide a comprehensive assessment ofwhat a single person achieves for an organisation.✓ Self-interested performance may be encouraged at the expense of teamwork.✓ High level of output may be achieved at the expenses of quality.✓ They undervalue intrinsic rewards given that they promote extrinsicrewards.19✓ Surplus maximisation 5.1 Objectives for a NFP organisationObjective for a not for profit organisation will not based on profit achievement but rather on achieving a particular response from various target markets. Here are some possible objectives for a NFP organisation:✓ Usage maximisation✓ Budget maximisation/ output maximisation ✓ Satisfaction maximisation✓ Economy 5.2Value for moneyValue for money can be defined as getting the best possible combination of services from the least resources, which means maximising the benefits for the lowest possible cost. This usually accepted as requiring the application of economy, effectiveness and efficiency.✓ Efficiency✓ Effectiveness5. Measuring performance in not for profitorganisations20Chapter summary21Answer to Lecture Example 1a) $ Profit before tax 9,320,000Less tax(2,800,000) 6,520,000Less preference div.(160,000) Earning contribute to ordinary shareholders 6,360,000 Ordinary Shares 10,000,000 EPS 63 p (b)✓ Profits are historic, shareholders care about the future✓ Investment decisions require new finance , shareholders care about debtlevels✓ Profits are not cash flows, shareholders often want to see what returnsthey will be getting as dividends✓ Also profit can be manipulated by depreciation policy and by short-termism ✓ The share price is generally felt to capture shareholders feelings aboutfuture cash flows and risk ✓ Other measures:i). Non-financial objectives ii). TSRAnswer to Lecture Example 2£mLast year Current yearProfits before interest and tax 22,300 23,726 Interest 3,000 3,000 Tax5,790 6,218 Profits after interest and tax 13,510 14,508 Preference dividends (200) (200) Earnings 13,310 14,308 EPS13.3 p 14.3 pEPS Growth = (14.3-13.1)/13.3 = 7.5% Dividends7,986 8,585DPS Growth = (7986-8585)/7986 = 7.5%Lecture example Answers22Magneto has failed to hit these financial objectives but short term profit based measures are not a sufficient basis on which to fully assess the performance of MagnetAnswer to lecture example 3 ✓ Not enough NEDs (min 50%)✓ NEDs don’t seem to be independent, and should not be paid share options ✓ Remuneration should not be discussed by the main board ✓ Audit committee should only include NEDs ✓ No split between Chair & Chief ExecutiveAnswer to lecture example 4Profitability Previous year Current year ROCE 8,700/33900 = 25.7% 9,500/34,700 = 27.4% Gross profit margin 27,200/43,800 = 62.1% 29,800/48,000 = 62.1% Net profit margin 8,700/ 43,800 = 19.9% 9,500/48,000 = 19.8% ROCE of Burtonincrease 1.7% in this year indicate that company is more efficient on using assetLiquidity Previous year Current year Current ratio 12,000/9,000= 1.33 15,500/ 11,000 = 1.41 Acid ratio8,500/9000 = 0.9411,500/11,000 = 1.05Both current ratio and acid ratio are improved this year, indicate company’s ability to pay short-term debt is strengthened.Debt ratios Previous year Current year Gearing 11,300/ 22,600 = 50% 9,000/25,700 = 35% Interest cover 8,700/1,200 = 7.25 9,500/1,000 = 9.5 Gearing does not appear to be a problem, and a higher interest cover indicates Burton is in a stronger position to meet its finance cost.23Investment ratios P/E ratio 17.018.0EPS5,100/9,000 = 57 p5,700/9,000 = 63 p Dividend yield(2,000/9,000)/9.63 = 2.3%(2,200/9,000)/ 11.4 =2.1%The P/E ratio, which is influenced by perceived growth potential, has improved. Revealed investors are confident on Burton’s future.Total shareholder returnTSR = 0.244+1.779.63=21%Total shareholder return looks impressive, but the result should be taken with care due to lack of industry average information.。