WHY A COMPANY MAY EXPERIENCE CASH-FLOW ISSUES?

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WHY A COMPANY MAY EXPERIENCE CASH-FLOW ISSUES?

This assignment is to be completed in groups of three. It consists of four (4) questions, all of which must be attempted. (If it is unavoidable, groups of two will be considered). Students are advised to concentrate on the following for questions:

•    Introduction (definitions must be given if relevant),
•    Content,
•    Expression,
•    Presentation, 
•    Conclusion, and 
•    Reference List.

Note:

•    The above items are attributes of a good assignment – they are not necessarily sections.
•    Work that fails to show adequate acknowledgement of sources will not receive a mark.
•    Essays must have academic references in the reference list and the referencing must follow good academic format. Students are strongly urged to read reviewed academic journal articles. 
•    Penalty for late submissions: 10 per cent of your earned marks will be deducted for each day after the due date, unless prior arrangements are made with the lecturer and are consistent with the School rules and practices.
•    A high level of scrutiny will be conducted to detect plagiarism. Students are strongly advised to use Turnitin.

Q1.    (Word limit 350 +/- 50)
Discuss the limitations of portfolio theory in terms of its application to real world capital markets. (5 Marks)

Q2.    (Word limit 300 +/- 50)
Discuss several reasons why a company may experience cash-flow issues and suggest ways in which such problems might be mitigated.   (5 Marks)

Q3.    (Word limit 300 +/- 50)
Describe the key factors influencing the choice and mix of financing that should be used in investment. (5 Marks)

Q4    (Word limit 900 +/-100)
STD Ltd. is a listed company with significant dealings in imports and exports. Given their plans for a new $8,000,000 project, the Chief Financial Officer (CFO)’s main task is to prepare a document to the Board to discuss the best way of funding the project. The CFO is considering several options: a long-term debt, debenture issues, new share issue, or a combination thereof.  After considering the current domestic and global economic conditions and the statement below by the Australian Reserve Bank Governor, please provide advice to the CFO as to which of the (above) listed options is optimal (NB: justify the option you choose). (10 Marks)

“Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.

The global economy is expanding at a moderate pace, with some further softening in conditions in China and East Asia […], but stronger US growth. Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia`s terms of trade are falling.

The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease policy. Equity market volatility has continued, but the functioning of financial markets generally has not, to date, been impaired. Long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low. Overall, global financial conditions remain very accommodative.

In Australia, the available information suggests that moderate expansion in the economy continues. While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.

In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney and Melbourne, though trends have been more varied in a number of other cities. Regulatory measures are helping to contain risks that may arise from the housing market. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved lower and been more volatile recently, in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.

The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board`s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target”.