Calculate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day.

Chapter 7 problemsFINC 63671 Chapter 7 Problems

1. Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700. The next three days’ settlement prices are $1.3126, $1.3133, and $1.3049. Calculate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day.

2. Do problem 1 again assuming you have a long position in the futures contract.

3. Using the quotations in Exhibit 7.3, note that the September 2016 Mexican peso futures contract has a price of $0.05481 per MXN. You believe the spot price in September will be $0.06133 per MXN. What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?

6. Using the market data in Exhibit 7.6, show the net terminal value of a long position in one 90 Sep Japanese yen European call contract at the following terminal spot prices (stated in U.S. cents per 100 yen): 81, 85, 90, 95, and 99.

Discuss the implications of each of these effects with the Board and draw conclusions with respect to the main risks in the business over this “prognosis” period.

Introduction to Finance

Instructions

Please read carefully before you answer
• Bachelor Students are to write an individual essay of a minimum of 1800 and a maximum of 2000 words
• Upload your final paper in MS Word (for text) and MS Excel (for calculations) file format; other formats will NOT be assessed.
• Students are required to submit a working website link of the selected case study company’s financial statements used in answering the respective questions.

Questions

Hermès International (Select a public company which is in the business of producing and marketing fast-moving consumer goods)

To execute the tasks below consult the company’s annual report over the 3 year period 2017-2019. In addition to the requirements for each question, ensure to provide formulas, assumptions and models as appropriate. Analysis or conclusions which are not based on the applicable theory will consequently limit your marks.

Task 1. Ratio analysis
You are required to:

I. Analyze the company’s consolidated financial statements over 2017-2019 using the following ratios as defined in the book (Financial Management for Decision Makers, Peter Atrill, 9th edition):
A. 4 Profitability ratios
B. 5 Efficiency ratios
C. 2 Liquidity ratios
D. 2 Financial gearing ratios

II. Reflect on these ratio outcomes over the 3 year period, and provide your conclusions and recommendations to the Board.

Task 2. Sensitivity analysis

Treat the figures in the 2017-2019 Income Statement and Balance Sheet of the company of your choice as if it were a 3-year prognosis. You are asked to execute a separate sensitivity analysis on the original figures as presented in the company’s annual report with each of the following 4 items:

1. Sales in each of the 3 years are 10% higher than currently “forecasted”; use the ‘percent- of-sales’ method

2. Sales in each of the 3 years are 10% lower than currently “forecasted”; use the ‘percent- of-sales’ method

3. Operating costs in each of the 3 years are 7% higher than currently “forecasted”

4. Operating costs in each of the 3 years are 7% lower than currently “forecasted”
For each of the situations A, B , C , and D you are required to:

I. Show the effects on the total 3-year Income Statements and Balance Sheets, including the effect on the required financing.

II. Discuss the implications of each of these effects with the Board and draw conclusions with respect to the main risks in the business over this “prognosis” period.

Task 3. Working capital analysis

1. Trade receivables of each of the 3 years are 20% higher than currently “forecasted”

2. Trade receivables of each of the 3 years are 20% lower than currently “forecasted”

3. Trade payables of each of the 3 years are 30% higher than currently “forecasted”

4. Trade payables of each of the 3 years are 15% lower than currently “forecasted”

5. Inventories of each of the 3 years are 40% higher than currently “forecasted”

6. Inventories of each of the 3 years are 20% lower than currently “forecasted”

You are required to:

I. Discuss the effects of each of these 6 deviations on the operating cash cycle in all 3 years.

II. Provide recommendations to the Board on what the focus of their working capital management should be for each of the six (6) scenarios above.

Task 4. Capital structure analysis

Discuss the capital structure of the company over the years 2017-2019.
You are required to:

I. Relate the term of the different sources of funds to the term of the different uses of funds.

II. Provide a rationale for your conclusions for each of the ‘’term of sources and application (uses)of funds” based on the appropriate concepts used in capital budgeting.

Describe one benefit and one detriment to having a job while also being a full-time student.

What’s the salary mentioned along with getting a CFP™ certification?

What does the acronym FAFSA stand for?

One of those “4 reasons you shouldn’t use a 529 Plan to pay for college” is just plain incorrect.  Which one, and how so?  (No worries, the answer is also found in the notes’ #3.

What percentage of WSSU students are taking student loans?

Is there a personal financial planning course offered by the UNC Online system?

What does the acronym CLEP stand for?

Are Black students encouraged to challenge authority in this section of the notes?

Do prison inmates qualify for Pell grants to help them obtain education which may help them qualify for jobs once they leave prison?

  • Planning ahead

Describe one benefit and one detriment to having a job while also being a full-time student.

Describe how “tuition reimbursement” is usually handled by an employer.

Planning ahead:  At least one of your letters of recommendation should be written by a professor in your major. Does it matter whether you get an “A” in their course?

If you borrow the national average amount in student loans at 4.66% to be repaid over 10 years, by the time you’ve paid it off how much will you have paid in interest expenses?

What percentage of Americans of ages 21 to 37 had received financial help from a relative or guardian, according to a 2018 survey?

Some students feel pretty harsh on where rank buying life insurance.  Where would you prioritize it on this list?

Which is more advantageous to you, a $1,000 tax credit or a $1,000 tax deduction?  Explain.

 

Explain how the following risks may affect sources of financing in international capital markets.

Companies seek the lowest average rate of financing costs to capitalize the business. Common sources of financing are as follows:

Common stock equity
Preferred stock equity
Bond debt
Explain how the following risks may affect these 3 sources of financing in international capital markets. In addition, explain how these risks may influence a company’s international weighted average cost of capital (WACC):