UNIVERSITY OF LUSAKA SCHOOL OF POSTGRADUATE STUDIES MASTERS OF ARTS PUBLIC ADMINSTRATION NAME: ZUWA SINKAMBA PHONE NUMBER;0977753042 STUDENT NUMBER: MPA 18111151 COURSE: FINAMCIAL MANAGEMENT COURSE CODE; MAF 750 LECTURER: MR. KANGWA KAPALAYI QUESTION ONE i) the role of the board of directors are include corporate governance and strategic governance. Cooperate governance involve the relationship that the board of directors have amongst themselves. The other role encompasses the role of the board in strategic management. Also, with top management and shareholders. The case above cites some of the cooperate roles and strategic roles that the board of directors have. Cooperate governance One of the roles of the board of directors in the case sited above is a serious problem in the relationship between the board of directors and top management. For the board of directors to remove the managing director after he publicly accepted the liability for polluting a water source that affected 600 villagers show that there was a conflict of interest between top management and the board of directors. As far as strategic management is concerned, it is the role of the board of directors to monitor the happening at the firm. There was a lapse in monitoring role by the board when they had no clue that top management a bad record with labor officers. The board should have step in monitor inside and outside cooperate activities. It is also evident that the board had evaluated and influenced management’s decision as their role is concerned when management went as far as evaluating and influencing the top management to begin excavating an area located in wildlife reserve despite it having a back lash from the community. ii. Corporate governance is about enabling organisations to achieve their goals, control risks and assuring compliance. Good corporate governance incorporates a set of rules that define the relationship between stakeholders, management and the board of directors of a company and influence how the company is operating. To avoid mismanagement, good corporate governance is necessary to enable companies operate more efficiently, to improve access to capital, mitigate risk and safeguard stakeholders. It also makes companies more accountable and transparent to investors so as to minimize expropriation and unfairness for shareholders the three primary objectives of corporate governance are: The motivation of valuemaximizing decisions; the protection of assets from unauthorized acquisition, use or disposition, and the production of proper financial statements (e.g., that meet the legal requirements) Therefore, here below is how board effectiveness can be improved; The board must be held accountable for their duties and responsibilities It must be more cognizant of their level of diligence and engagement in board matters Considering the pressures that arise, the board is required to get the right talent on their boards, including having an effective board chair. The board must know and understand their roles, specifically in the areas of oversight, guiding organisational behavior and clearly delineating their responsibilities form the responsibilities of the management. Consequently, digital tools like board selfevaluations, can help to elevate their performance and also to streamline board processes as the best means for improving board effectiveness. Question TWO (a) Salient factors in managing the following: i) Cash Cash is a key part of working capital management. In as much as cash needs to be invested in order to earn returns, any business need to have a certain amount readily available. This is due to the fact that cash is needed for transactions – meeting day-to-day expenses for instance payroll and payment of suppliers, precautionary – to be held as cushion against unplanned expenditure as well as to guard against liquid problem and investment/speculative motives – cash need be available so that a business is able to take advantage of market opportunities. Moreover, the failure to carry sufficient cash levels can lead to loss of settlement discounts, loss of supplier goodwill, poor industrial relations and potential liquidation. Therefore, debt to be collected as quickly as possible, suppliers have to be paid as late as possible and promptly bank cash takings. ii. Debtors In order to manage our debtors, persons, firms or companies that owe us money, Debtors statements is an important factor in improving our cash flows. These are statements or documents that used in helping us control our customers’ accounts. They are vital to a companies’ cash flow and for keeping its accounts up to date as they make available a summary of all unsettled payments a business is owed by customers or clients. This is also fundamental in focusting cash flows accurately. Using debtors’ statements is critical as it impacts our business relationships that we have with our clients. Debtors’ statements can assist us in making a cash flow forecast and give us a healthier idea of how much money we can realistically spend in the near future without risking our financial welfare. Sending debtors statements out to our clients at regularly is a decent way of gently reminding them that they are owing us money. iii) Inventory Inventory is a product made or acquired by a business with the purpose of selling. Inventory is an integral part our firm’s day-to-day business operation. The quantity of a product in stock that is meant for sale appears on our balance sheet as an asset. We need to maintain our inventory so that we know how much of it we have; how much it is worth and the rate at which it is selling. This knowledge about our inventory makes it possible for us to plan efficiently when it comes to their finances. we need inventory to do our business; a company cannot sell what it doesn't have. Being wellinformed about our inventory levels is important to ensure that our businesses run efficiently. Inventory management is one of the main ways we can maximize sour potential sales. When we don’t maintain our adequate levels of inventory, it puts us in a position to lose out on potential sales or customers. when we carry over too much inventory, we run the risk of our inventory becoming outdated or damaged. Inventory can help us plan and budget financial expenditures effectively. we may suspend some expenses, such as debt repayment, to make or acquire extra inventory that it needed to keep cash flows steady. QUESTION 2(b) QUESTION 3 a) b) ii) On one hand annual percentage rate (APR), goes a step beyond simple interest telling individuals the true cost of borrowing money. For instance the APR received when buying a house considers the fees paid to originate the loan including the interest that need to be paid. Nonetheless, APR does not include the effects of compound interest. On the other hand, effective annual rate (EAR) also called annual percentage yield (APY), takes into account the effects of compound interest. The compound interest is useful for evaluating loans that compound interest at regular intervals like monthly or daily. Therefore, the main difference between APR and EAR is that APR is based on simple interest, whereas EAR takes compound interest into account. APR is most useful for the mortgage evaluation and auto loans, while EAR (or APY) is most effective for evaluating frequently compounding loans for instance credit cards QUESTION 4 i) The goal of wealth maximization has a number of distinct returns. To begin with, the goal clearly considers the timing and the risk of the benefits expected to be received from stock ownership. Likewise, managers must take into account the elements of timing and risk as they make important financial decisions, for example capital expenditures. Equally, managers can make decisions that will contribute to increasing shareholder wealth. It is possible to determine whether a particular financial decision is consistent with this goal. Moreover, shareholder wealth maximization is an impersonal goal that is stockholders who object to a firm’s policies are free to sell their shares under more favorable terms. From the afore-mentioned, the shareholder wealth maximization goal is very vital in financial management. ii) The three critical financial decisions regarding a firm’s resources are investment decision, financing decision and dividend decision. Investment decision is categorized into two that is short term (working capital management) and long term (capital budgeting) and it relates to the determination of total amount of assets to hold in the firm, the composition of these assets and the business risk complexions of the firm as perceived by its investors. It is the most vital financial decision more specifically due to the fact that funds involve cost and are available in a limited quantity. As a result, its good use is very essential to achieve the goal of wealth maximization. Equally, once the firm has taken the investment decision and commits itself to new investment, it has to decide the best means of financing these commitments. As a consequence, a firm will be endlessly planning for new financial needs. Moreover, the financial decision is not concerned only with how best new assets can be financed but it also shows concern with the best overall mix of financing for the firm. Finance manager has to make a selection of such sources of funds which will make optimum capital structure. However, what need to be considered is the proportion of various sources in the overall mix of the firm. As such, the debt equity ratio should be fixed in such a way that it helps in maximizing the profitability of the firm Further, the third critical financial decision relates to the disbursement of profits back to investors who supplied the capital to the firm. A decision has to take into consideration whether all the profits are to distribute, to retain all the profits in business or to keep a part of profits in the business and distribute others among shareholders. Thus, the dividend decision is concerned with the quantum of profits to be distributed among shareholders. iii) Financial market is significance to an economy as it acts as an intermediary between savers and investors, or rather help savers to become investors. Likewise, it helps businesses to raise more money for their business expansion. Such a market also help to lower unemployment because it creates massive job opportunities. This in turn brings about the growth of the economy. QUESTION 5 a) Pros and cons of the following sources of income. i) Debt (Corporate bond) Like anything in life, specifically in finance, corporate bonds have both pros and cons. The pros of debt (corporate bond) are as follows; Tend to be less risky and less volatile than stocks Wide universe of corporate issuers and bonds to choose from The corporate bond market is among the most liquid and active in the world The cons of Debt (Corporate Bond) are; Lower risk translates to lower return, on average Many corporate bonds must be purchased OTC Corporate bonds expose to investors to both credit (default) risk as well as interest rate risk ii) Finance Lease Pros It gives business customers the use of an asset of newer, higher specification than they could otherwise buy outright The cost of the asset is paid by monthly instalments unlike a large upfront investment Flexible repayment structures are available that are tailored to match a company’s cash flow There are claims of up to 100% of the VAT on commercial vehicles, and 50% on cars (subject to being VAT registered. Cons There is a secured agreement against the asset: thus if one fails to pay, the asset may be repossessed The credit rating of both the business and the guarantor can be affected negatively by non-payment One will not own the asset since the finance company are the legal owners of the asset In an event where an individual or his or her company are made bankrupt, the asset is not protected iii) Commercial Bank Loan Pros Repayments are more flexible Low interest rates that enable business owners to access critical funding whilst maintaining lower overhead costs Commercial lenders are not entitled to the business profits. Their only look-out is the debt repayment Funds are more available that is a small business loan can have access to large sums depending on the actual requirement of an enterprise. In short money is available for immediate use Lower interest rates and extended payment plans decrease the potential default, this in turn reduces the business investment’s risk Cons It affects the valuation of the business since a loan belongs to the bank hence appears on the liability side of the balance sheet Established business have the preference Loans do not guarantee the business improvement Businesses that are small lack choice The application process is exhaustive
