# SBS – MBA/MSCAssignment – 2022

## SBS – MBA/MSC

Assignment – 2022

Answer all the Questions. (Word Limit-2000-2500 words)

Shaybah Plc

4

All values in SAR Millions

Income statement for the year ended 31st Dec 2022

2020 2021 2022

Turnover 786 841 900

Cost of Sales 503 563 630

Gross Profit 283 278 270

Admin Costs 109 122 137

Net Profit 174 156 133

Dividends 50 80 80

Retained Earnings 124 76 53

Statement of Financial Position as at 31st Dec 2022

2020 2021 2022

Non-Current Assets 477 832 890

Current Assets 262 281 300

Total Assets 739 1,113 1,190

Current Liabilities 154 192 93

Non-Current Liabilities 100 412 412

Ordinary Shares 350 350 350

Retained Profits 135 259 335

739 1,113 1,190

Sector average ratios:

Return on capital employed 19%

Net profit margin 20%

Current ratio 1.6 Times

Debt/equity ratio (book value basis) 48%

Return on equity 15%

Question 1

Required:

5

1.1 Calculate the following ratios for Madeira Plc:

Gross Profit Margin

Net Profit Margin

Net Asset Turnover

Receivable Days

Payable Days

Return on Capital Employed

Debt / Equity Ratio

Return on Equity (12 marks)

1.2 Comment on the financial performance of Shaybah Plc between the years 2020 and 2022

using the ratios above and any other financial measure you feel appropriate.

(10 marks)

1.3 In 2020 the share price of Shaybah was 20 SAR per share. Today the share price is 21 SAR

per share. Critically evaluate if you believe the directors of Shaybah Plc are maximizing the

wealth of shareholders. What other goals might the company consider.

(8 marks)

Question 2

2.1 Shaybah has an ambitious plan to invest 100 billion SAR in the next 30 years. Explain how

the company might fund such an ambitious investment plan. You are required to evaluate the

benefits and drawbacks of equity finance and debt finance from the company’s perspective.

(10 marks)

2.2 Summarize the (theoretical) costs of each type of finance available to the company when

funding its investment appraisal in the future. What are the relative costs of retained earnings

compared with raising new finance via the debt and equity financial markets.

(10 marks)

Question 3

ZebraToon plc is looking to take on a new investment. The company will evaluate two mutually

exclusive projects, whose details are given below. The company’s cost of capital is 12%.

SAR Millions Project A Project B

Initial Investment (150) (152)

Year 1 40 80

Year 2 50 60

Year 3 60 50

Year 4 60 40

Year 5 85 30

- Calculate the Payback period (4 marks)
- Calculate the Net Present Value (NPV) of both projects (6 marks)

6 - Calculate the Internal Rate of Return (IRR) of both projects (6 marks)
- Critically discuss the merits of each investment appraisal method, then discuss the result

of the evaluations you have made of the two projects and advise the company which

project should be undertaken (9 marks)

Question 4

4.1 The fundamentals of finance are said to be the concept of ‘Risk and Return’ and secondly

the ‘Time Value of Money’. Critically evaluate how investment appraisal techniques can take

account of both fundamental theories to aid decision making

(10 marks)

4.2 Summarize the benefits of Leasing to the company when obtaining new fixed assets

(5 marks)

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