May Engineering PLC Accounting Assignment 1

### Question Description

1) A-Calculate the net present value (NPV) of the potential capital expenditure project.

B-Advise May Engineering PLC whether they should proceed with the project.

2)Critically evaluate the usefulness of each of the following ratios to a multinational company reviewing their financial performance.

• Current ratio
• Capital gearing ratio
• Return on capital employed (ROCE)
• Rate of inventory turnover
• Trade receivables (debtors) collection period
• Trade payables (creditors) payment period

 Dividend yield

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Instructions: • Answer all of the questions below • The last date of submission is 13th of April 2019 • Post the assignment and presentation in their prospective folders on blackboard • A copy and paste might lead to Zero marks • Blackboard only accepts word format document, if you are preparing it though MAC make sure to save as word document. Question 1: 1. Visit SAMA (Saudi Arabian Monitory Authority) and find out what is SIBOR 2. During period of 2015-2018 what was the rate of SIBOR rate 3. Research the data available over the internet and find out how a possible hike in the SIBOR rate have affected the personal loans of Saudi People 4. Prepare a two minutes presentation about the whole research (only question 1). Question 2: May Engineering PLC are assessing a potential capital expenditure project. The management accountant has provided the following information: • • • The project requires the immediate purchase of equipment costing £200 000. The equipment is expected to last for five years and have a residual value at the end of year 5 of £35 000. Sales revenue generated from the project is expected to be: Year 1 Year 2 Year 3 Year 4 Year 5 • • • • £140 000 £170 000 £120 000 £130 000 £70 000 Cost of sales is estimated at 50% of sales revenue. Expenditure (including equipment depreciation) totals £45 000 per annum. May Engineering PLC require all projects to have a maximum payback period of 4 years. The company’s cost of capital is 12% per annum. REQUIRED a) Calculate the net present value (NPV) of the potential capital expenditure project. b) Advise May Engineering PLC whether they should proceed with the project. Question 3: Critically evaluate the usefulness of each of the following ratios to a multinational company reviewing their financial performance. • • • • • • Current ratio Capital gearing ratio Return on capital employed (ROCE) Rate of inventory turnover Trade receivables (debtors) collection period Trade payables (creditors) payment period Dividend yield ...
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Question 1:
SIBOR in full is known as Saudi Interbank offered rate. It is the basic interbank rate in Saudi
Arabia. It is the rate at which the contributing banks can borrow unsecured interbank funds in the
local currency. It is also the target for commercial and consumer lending rates in the country of
Saudi Arabia. The banks in Saudi Arabia access the loans at an average interest rate which is
termed as SIBOR. SIBOR is used as a basis of consumer/personal loans in the Kingdom of Saudi
Arabia making it a determinant for the interest rate in the country.
During the year 2015-2018, the rate of SIBOR rates has been increasing gradually with increase
in time. The following are the SIBOR rates from 2015-2018.
2015-0.85%
2016- 1.45%
2017- 1.90%
2018- 2.1%
In the mid-2017 SIBOR rates had reduced significantly and in late 2018 the SIBOR rates went to
as high as 2.6%.
A change in the SIBOR rat...

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