26 Jun HOW MIGHT YOU GO ABOUT DEVISING AN INCENTIVE SCHEME FOR TOP MANAGERS?
Financial Decision Making & Risk Analysis
Question 1
How might you go about devising an incentive scheme for top managers? [15 Marks]
What might be the financial management objectives of state-owned industries? [15 Marks]
Question 2
Richard Mensah, a retired accountant, holds a large number of shares of stock in the BD Advisory Services Limited (hereinafter referred to as BD. The dividend payments from this stock make up a significant portion of Mr. Mensah’s income, so he was concerned when BD dropped its 2017 dividend to GHS1.25 per share from the GHS1.75 per share it had paid for the previous two years.
Mr. Mensah gathered the information below for analysis to determine whether the financial condition of BD was indeed deteriorating.
BD Statement of Financial Position as of December 31 (All amounts in Ghana Cedis)
2015 20162017
Cash 76,250 72,000 40,000
Accounts Receivable 401,600 439,000 672,000
Inventory 493,000 794,000 1,270,000
Total current assets 970,850 1,305,000 1,982,000
Land and Building 126,150 138,000 125,000
Machinery 169,000 182,000 153,000
Other Non Current assets 74,600 91,000 82,000
Total assets 1,340,600 1,716,000 2,342,000
Accounts and Notes Payable 171,100368,800 679,240
Accruals 78,500 170,000 335,000
Total current liabilities 249,600 538,800 1,014,240
2015 2016 2017
Long-Term Debt 304,250 304,290 408,600
Stated Capital 575,000 575,000 575,000
Retained Earnings 211,750 297,910 344,160
Total liabilities and equity 1,340,600 1,716,000 2,342,000
BD Yearly Income Statements for the Year Ending December 31
2015 2016 2017
Sales 4,135,000 4,290,000 4,450,000
Operating Cost 3,308,0003,550,000 3,560,000
Gross operating profit 827,000 740,000 890,000
General Admin. Expense 318,000 236,320 256,000
Other Operating Expenses 127,000 159,000 191,000
EBIT 382,000 344,680 443,000
Interest expense 64,000 134,000 318,000
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