Question

Answer all the questions

1. Just Born LLC, is an organization with widely held shareholding in the city of Muscat in Oman. You

are appointed as a Financial Manager of this organization. The organization is planning to expand its operations by investing in other cities across Oman. You are in the process of sourcing and investing funds for the new operations. Your job involves advising management of Just Born LLC.

(Answer to all the following questions collectively shall be 150 to 200 words)

a. Report the Management of Just Born LLC, on various decisions you will make in capacity of Financial Manager focusing on financial markets, its classifications, cheapest source of funds and the role of Muscat Securities Market in sourcing capital with reasoning and justification.

b. Illustrate various methods you would use to evaluate your proposed long investments across

Oman.

Answer 1

a. Classification of financial market :

- Capital markets which consist of:

*) Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.

*) Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.

- Commodity markets, which facilitate the trading of commodities.

- Money markets, which provide short term debt financing and investment.

- Derivatives markets, which provide instruments for the management of financial risk.

- Futures markets, which provide standardized forward contracts for trading products at some future date.

Cheapest Source of funds :

Cheapest source of fund is debt financing through issue of bonds and debentures. Reason behind it cheap cost is the fixed interest rate & tax deduction on interest payment. More use of this financing increases returns for shareholders. However, main disadvantage of this method is that it has fixed obligation i.e., in case of share capital company pays dividend when it earns profit whereas in case of company pays interest even in case of loss.

Role of muscat securities market :

It is the market where all types of public securities are listed and traded including company’s own shares. Importance of muscat securities market lies in fact that without it no company can go public. It is the regulator of all securities being traded.

b. Methods to evaluate long term investments :

1. Payback Period Method

2. Accounting Rate of Return Method

3. Net Present Value Method

4. Internal Rate of Return Method

5. Profitability Index Method

6. Discounted Payback Period Method

7. Adjusted Present Value Method

    

Note: Above answer exceed the word count. I tried to write down the minimum details in answer. But for you convenience i am giving here under more crisp answer that is within limit of 200 words. Hope you find it helpful.

a. Classification of financial market :

- Capital markets:

*) Stock markets

*) Bond markets

- Commodity markets

- Money markets

- Derivatives markets

- Futures markets

Cheapest Source of funds :

Cheapest source of fund is debt financing through issue of bonds and debentures. Reason behind it cheap cost is the fixed interest rate & tax deduction on interest payment. More use of this financing increases returns for shareholders. However, main disadvantage of this method is that it has fixed obligation i.e., in case of share capital company pays dividend when it earns profit whereas in case of company pays interest even in case of loss.

Role of muscat securities market :

It is the market where all types of public securities are listed and traded including company’s own shares. Importance of muscat securities market lies in fact that without it no company can go public. It is the regulator of all securities being traded.

b. Methods to evaluate long term investments :

1. Payback Period Method

2. Accounting Rate of Return Method

3. Net Present Value Method

4. Internal Rate of Return Method

5. Profitability Index Method

6. Discounted Payback Period Method

7. Adjusted Present Value Method