Accounting and Financial Management of A Virtual Company RGCC (Case Study Sample)
This sample was a final exam on Accounting and Financial Management comprising six essay and financial analysis questions. Question 1 was a case study on a virtual company RGCC, which required the student to explain why the company may not be classified as a responsible investment based on ESG (environmental, social, and governance standards). Question 2 was about the benefits and limitations of the wealth maximization approach for RGCC in the context of responsible investing. Question 3 was about the advantages of a rights issue over a Euro bond, given that RGCC’s Board of Directors had opted to finance the company’s expansion through a right’s issue rather than a Euro bond. Question 4 provided the company’s financial data for the years 2014, 2015, and 2016 and required the student to calculate the operating cash flows and free cash flows for the years 2014 and 2016. Question 5 required a calculation of the intrinsic value of the firm (RGCC) to determine whether the company’s stock is overvalued or undervalued. Question 6 required the student to calculate RGCC’s financial ratios from 2013 to 2016 and analyze the company’s liquidity, activity, debt, profitability, and market performance.
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Accounting and Financial Management
Student’s Name
Institutional Affiliation
Accounting and Financial Management
Question A
UK investment analysts may refuse to classify RGGC as a responsible investment because RGGC activities raise several ESG (Environmental, Social, and Governance) concerns that make it fall short of a responsible investment. A responsible investment is a concern that creates long-term economic, social, and environmental (sustainable) value (Guyatt, 2006). It correctly prices financial and social, economic, and environmental risks by combining financial and non-financial value creation (Fung et al., 2010).
RGGC faces a number of current and future financial and non-financial risks. First, its market is not well-diversified as the company is dependent on the EU market. When the U.K. formally leaves the common market, import tariffs may be imposed, making its products uncompetitive. RGGC would be facing a potential loss of market share, which could lead to reduced profitability. The new strategy of opening a subsidiary in Poland to cushion RGGC from losing its market to EU competitors exposes the company to the risks accruing to any new company, including operational risk, compliance risk, reputation risk, and competition risk. It will encounter a new market, new employees, and new operating environment. To succeed, RGGC will require a strategic approach and the transfer of key UK managers to the Polish subsidiary.
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