BUSINESS AND
ACCOUNTING
FUNDAMENTALS OF FINANCIAL
MANAGEMENT
B7-FFM-17
MOGOMOTSI MOREMI
1924102
MR ISAAC NTHOMOLA
, SECTION A
Question 1
a. The goal of the firm is to maximize the shareholder’s wealth which is wealth
maximization. Shareholders become happy when the share price increase not when the
profits increase since the profits are short term. An increase in the share price of the firm,
increases value of the company, which increases the market share. An increase in the
profits is not what shareholders be happy about. Profits are indicated as the building
blocks to the long term goal of the business.
b. Measures for performance
- A firm performance can be measured through several indicators. This indicators
should determine/show how the firm is performing the market. One of the measure
that Cresta Marakanelo can use is productivity of the firm to see whether the firm is
on the right track to achieve its goals.
Question 2
a. Sunk cost – is the cost which have already incurred in the past as the firm has paid while
Opportunity cost- the cost of forgoing an activity/cost/product to do other activity for
example, leaving an agricultural activity to manufacture vehicles. A firm is forgoing the
agricultural activity to pursue manufacturing of vehicles. In the scenario, the cost that is
indicated is sunk cost as the firm has already paid for the land.
b. Payback Period (PBP)
YEAR NET CASHFLOWS($) CUMULATIVE($)
0 -500 000 -500 000
1 70 000 -430 000
2 70 000 -360 000
3 80 000 -280 000
4 100 000 -180 000
5 100 000 -80 000
6 120 000 +40 000
ACCOUNTING
FUNDAMENTALS OF FINANCIAL
MANAGEMENT
B7-FFM-17
MOGOMOTSI MOREMI
1924102
MR ISAAC NTHOMOLA
, SECTION A
Question 1
a. The goal of the firm is to maximize the shareholder’s wealth which is wealth
maximization. Shareholders become happy when the share price increase not when the
profits increase since the profits are short term. An increase in the share price of the firm,
increases value of the company, which increases the market share. An increase in the
profits is not what shareholders be happy about. Profits are indicated as the building
blocks to the long term goal of the business.
b. Measures for performance
- A firm performance can be measured through several indicators. This indicators
should determine/show how the firm is performing the market. One of the measure
that Cresta Marakanelo can use is productivity of the firm to see whether the firm is
on the right track to achieve its goals.
Question 2
a. Sunk cost – is the cost which have already incurred in the past as the firm has paid while
Opportunity cost- the cost of forgoing an activity/cost/product to do other activity for
example, leaving an agricultural activity to manufacture vehicles. A firm is forgoing the
agricultural activity to pursue manufacturing of vehicles. In the scenario, the cost that is
indicated is sunk cost as the firm has already paid for the land.
b. Payback Period (PBP)
YEAR NET CASHFLOWS($) CUMULATIVE($)
0 -500 000 -500 000
1 70 000 -430 000
2 70 000 -360 000
3 80 000 -280 000
4 100 000 -180 000
5 100 000 -80 000
6 120 000 +40 000
