Question no.2Calculation of cash flow of CQU Auto. Particular Amount Sales revenue Less: cost of goods soldGross profit Less : operating expenses Selling expenses $ (4000) General and administration expenses $(7500) Depreciation expenses $(5000)Total operating expenses $(16500)Operating profitNet profit before interest and tax Less: Interest $ (3500) Net profit after tax Less:30% tax $ (4500) Net profit after tax Add: depreciation expenses $ 5000Cash flow from operation $85000.00$50000.00$35000.00$18500$15000 $10500$15500 Earnings available to ordinary shareholders 3.00Working note of question number 2a)Gross profits(sales-cost of goods sold)(CPP.EDU, 2012)85000.00-50000.00=35000b)Operating profits (gross profit-selling expenses-general and operating expenses-depreciation expenses ) (Martin, 2015)35000-4000-7500-5000=18500c)Net profit before taxes(operating profit-interest expenses) (Martin, 2015)18500-3500=15000d)Net profit after tax (Tax 30%)30%of NPBT(30%*15000)=4500e)Cash flow from operations (NPBT-TAX) (Martin, 2015)(15000-4500)=10500f)Earnings available to ordinary shareholders(Earnings after taxes/no. of shares outstanding) (Martin, 2015)15000/5000=3Questions 3A) Financial ratio calculation of CQU south Africa Pty ltd for the year 2017Ratio 201520162017Industry average 2017Current ratio (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)1.61.71.671.6Quick ratio (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)0.910.960.9Inventory ratio (Martin, 2015)8.19.37.0088.4Average collection days (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)33days37days41days39daysTotal assets turnover (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)2.32.22.12.2Debt ratio (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)60%56%53.33%58%Time interest earned (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)2.53.55.532.3Gross profit margin (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)21%19.70%18.9%20.40%Operating profit margin (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)4.70%4.80%5.13%4.70%Net profit margin (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)1.80%1.60%2.525%1.40%Return on investment (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)4.10%3.50%5.30%3.08%Return on equity (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)10.30%7.90%11.36%7.30%B) ANSWER:The liquidity measure the position of the organization. It mainly focus to measure the cash of the organization as well as raising money and converting money. In 2017 the liquidity profile like current ratio is more than 1 whereas quick ratio is less than 1 which shows that liquidity position of the firm is good. Similarly, the efficiency ratio like; inventory turnover, debt ratio, total assets turnover and average collection day’s ratio helps in the advancement of the company internal environment as well as outside of the environment. The company is able to convert into the sales by 7 times whereas, the assets are change by 2 times. Similarly, the average collection period is 41 days. The profitability of the organization always compare with the income statement and also provide information to generate the profit for the company. The profitability ratios includes the gross profit margin, profit margin, and return on equity which is calculate as 18.9%, 2.525%, 11.36 %respectively. This data helps to take quick decision of investment to the organization. C)ANSWER According to the cross sectional and time series analysis, it can be concluded that there is no specific fluctuation in liquidity ratio as compared to 2015, 2016 but there is excelling liquidity position of CQU the industry average 2017. Since, the inventory turnover and total assets turnover ratios reduced in 2017,the firm seems to be less efficient when it comes to management of inventory and assets. We can assume that the delay paying customers have increased lately as the debtor collection period is more at present and the firm is less efficient as compared to industrial average reflection. In 2017, the firm is more into increasing equity part in its capital structure though it is not more than industrial average, which is cleared from the decreasing trend of the debt ratio.However, when it comes to paying interest on loans, firm is better than the competitors as the interest earned ratio is better than its own record of 2015 and industry average record.Operating profit margin, net profit margin and return on equity has increased at present which is positive news to the investors as it gives more return to them.Gross profit margin and return on investment are declined which proves that cost of goods sold are not controlled properly. Nevertheless, a firm is able to give more return to the investors than its competitors since all the profitability ratios are more than industrial average except gross profit margin.Working note question 3Formula (Martin, 2015)2017Current ratio(current ratio=total current assets/total current liabilities)575000/345000=1.67Quick ratioQuick ratio=total current assets-inventory /total current liabilities)575000-243000/345000=0.96Inventory ratioInventory ratio= cost of goods sold/ average inventory1703100/243000=7.008Average collection daysAverage collection days=365/account receivable turnover ratio365/8.86=41 daysAccount receivable turnover ratioAccount receivable turnover ratio=sales/account receivable2100000/237000=8.86Total assets turnoverTotal assets turnover=sales/total assets2100000/1000000=2.1Debt ratioDebt ratio=total liabilities/total assets533000/1000000=53.33%Times interest earned Times interest earned=income before interest and taxes or EBIT/interest expenses107900/19500=5.53Gross profit marginGross profit margin= gross profit/sales396900/2100000=18.9%Operating profit marginGross profit margin= gross profit/sales107900/2100000=5.13%Net profit marginNet profit margin= net profits/sales53040/2100000=2.525%Return on investmentReturn on investment=net profit/total assets503040/1000000=5.30Return on equity Return on equity= net income /average shareholder equity53040/467000=11.35%Question number 4Given, Present value of resort (pv) = $350000 Expected inflation rate = 5% Interest rate (i)= 13% Payment (PMT) =? The future value of annuity = pv(1+inflation rate)n =350000(1+0.05) 20 =$928654.20For i=13% Fv =pmt (1+i)n-1 i fv PMT = (1+i)-1 i 928654.20 = (1+0.13)20 -1 0.13 =11472.39The coco-bay resort has to make $11472.391 of deposit to pay the account. b) When interest rate is 8% and compounded daily for the 20 years. Pv=350000Number of annual payment=20Number of daily payment =365Inflation =5%Interest rate = 8%Payment=?FV=PMT1+(0.08/365)*20*365-1/(0.08/365) 928654.19=PMT(1+{0.08/365)*7300-1/(0.08/3650 PMT=$51.50When the interest rate is reduced to 8% from 13% that is to be compounded daily for the period of 20 years. The payment should be $51.50 every day. Now, regular annuity at the end of 365 days in the first year @8 p.a compounded daily Then, PV= $35000Number of annual payment=1Number of daily payment= 365Inflation=5%Interest rate=8%PMT=? fv pmt= (1+i/365)n*365-1 i/365 928654.20 = (1+0.08/365)1*365-1 0.08/365 = 2444.12The regular payment that should be made daily is $2444.12. (stephen A ross, Randolh Westerfield, Bradford D Jorden, 2013)c) From above calculation, when the interest rate are 8% and 13%, Keeping the period constant i.e 20 years which is to be compounded daily with present value 350000 and future value of 928654.19 , we can compare the result.. Here as the payment to be made is $ 51.50 each day when the interest rate is 8% & when it increased to 13 %, the payment to be made each day is reduced. From this we can conclude that there is inverse relationship between payment and interest rate.Question number 5Details Annual Semi-annualPar Value of bond(M) $1,000 $1,000Coupon interest rate14%7%Time period (n)1020Interest rate (i)12%6%Current market price of bond$920$920Coupon amount(cf)(14% of $1000)$140.00$70.00 a) Value of CQU Packing Company bonds (B)0=?B0 = cf/m1-(1+i/m)-n*m+M/(1+i/m)n*m =701+0.06)-20+1000/(1+0.06)20= 700.68820/0.06+311.80=$1114.70The bond value of CQU packing company bond is $ 1114.70b) Value of no coupon bond (B0) =?B0=M/(1+i/m)n*m =1000(1+0.06)20 =$311.80The value of bond is $311.80 when coupon value is zero.c) The value of CQU packing company when the rate of return is 10%=cf/m1-(1+i/m-n*m+m/(1+i/m)n*m (CPP.EDU, 2012)=701-(1+.05-20+1000/(1+0.05)20=700.62311/0.506+346.74=1249.23The value of CQU packing company is $1249.23, when the rate of return is 10%.