Course Name FNS60215
Advanced Diploma of Accounting
Subject/module Financial Risk
Assessment method Part A – Written Questions
Part B – Case Study
Part C – Case Study
Units of Competency FNSACC609
Evaluate Financial Risk
1. Assessments should be completed as per your trainer’s instructions.
2. Assessments must be submitted by the due date to avoid a late submission penalty.
3. Plagiarism is copying someone else’s work and submitting it as your own. You must write your answers in your own words and include a reference list. A mark of zero will be given for any assessment or part of an assessment that has been plagiarised.
4. You may discuss your assessments with other students, but submitting identical answers to other students will result in a failing grade. Your answers must be yours alone.
5. Your trainer will advise whether the assessment should be digitally uploaded or submitted in hard copy. Assessments that are digitally uploaded should be saved in pdf format.
6. You must attempt all questions.
7. You must pass all assessments in order to pass the subject.
8. All assessments are to be completed in accordance with WHS regulatory requirements.
Assessment 2 Part A – Written or Oral Questions
1. What is capital budgeting? List FOUR methods used in capital budgeting.
2. An initial investment of $160,000 is expected to generate annual cash inflow of $42,000 for 5 years. Depreciation is allowed on the straight line basis. It is estimated that the project will generate scrap value of $10,000 at end of the
5th year. Calculate its accounting rate of return assuming that there are no
other expenses on the project. (5 marks)
3. Company A is planning to undertake a project requiring initial investment of $30 million and is expected to generate $5 million in Year 1, $12 million in Year 2, $15 million in Year 3, $20 million in Year 4 and $25 million in Year 5.
Calculate the payback period of the project. (5 marks)
4. a. What is Net present value (NPV)? (3 marks)
b. How will you make decision in case of standalone projects and mutually exclusive projects based on the results of NPV? (2 marks) c. Describe the strengths and weakness of NPV. (5 marks)
5. What is the internal rate of return (IRR)? How will you make the decision
based on the results of IRR? (5 marks)
6. Which general method is commonly used by the organisations to manage the main financial risks that may be faced? What are the main reasons for the
organisations to use such method? (10 marks)
7. List SIX components of the Code of Ethics that are all the members involved in the financial risk measurement and management must follow. (3 marks)
Part A Total Marks: 43
Assessment 2 Part B – Case Study
Evaluate Financial Risk
ABC Pty Ltd (ABC) is running a business to export the wood from Australia to its overseas customers. The company also has some local clients, but the majority (95%) of its client’s bases is from oversea. The overseas customers will pay US dollars for the products provided by ABC.
The financial ratios used by the company for two years are shown as below
Operating working capital / sales 0.3200 0.2435
Operating working capital turnover 4.20 5.10
Accounts receivable turnover 35.06 20.15
Inventory turnover 1.30 1.70
Accounts payable turnover 6.28 9.35
Days receivable 10.41 18.11
Days inventory 280.77 214.71
Days payable 58.12 39.04
Assume that ABC has a borrowing of $100,000 with Bank A with a variable interest rate, currently 5%. According to the recent market research and financial review, the industry experts expects that there may be an increase in the variable rate of interest in the short term.
You are the corporate risk manager, and required to write a REPORT to the director of ABC to include the following issues: ? Steps to assess and handle financial risk; ? The optimal capital structure that you will recommend, and advise how will you determine the company may be exposed to greater risk;
f Sources of funds that may be available to ABC; ? In order to minimise the risks, the company may develop risk management strategies that optimise mix of asset structures and liabilities in operations. Recommend four formal planning process and techniques that will be used to determine whether ABC’s long term investments are worth the funding of cash through the company’s capitalisation structure.
f The possible financial risks that ABC may face, and extent of its financial risk exposure;
f The methods that you will use to measure the financial risks identified above; ? The methods that you will recommend to manage the financial risks identified above; and
f Key features of financial legislation relevant to financial risk and compliance.
Part B Total Marks: 58 marks
Assessment 2 Part C – Case Study
Evaluate Financial Risk
Undertake your own research to obtain an organisation’s annual report. You can use one from an organisation with which you are familiar or one which is freely available on the internet or from ASIC.
1. Calculate the following financial ratios to assess and determine if the company you are working with may be exposed to the financial risks. Show
all the workings and your explanations. (24 marks) a. Current ratio;
b. Quick ratio;
c. Accounts receivable turnover ratio;
d. Days’ sales in receivable ratio;
e. Inventory turnover ratio;
f. Days in inventory ratio;
g. Operating working capital turnover ratio;
h. Debt to equity ratio; and
i. Times-interest-earned ratio.
2. What risk management strategies have been developed by the company to
minimise the risk? (5 marks)
Part C Total Marks: 29
Total Marks Assessment 2: 130
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