BWFF 2023 CONFIDENTIAL UNIVERSITI UTARA MAL. FINAL EXAM :MESTER SESSION 2010/2011 COURSE CODE/ NAME — : BWEF 2023 FINANCIAL MANAGEMENT II DATE : 27 NOVEMBER 2010 ( SATURDAY) TIME : 8.30 PM - 11.00 PM (2 1/2 HOURS) VENUE +: OMS, DTSO, KYM,PMIIKIP,KTB.KIA & MKM. INSTRUCTIONS : 1, This examination paper contains FIVE (5) questions in FIFTEEN (48) printed pages excluding the cover page. 2. This examination paper also contains FOUR (4) printed pages as attachment. 3. Answer ALL question in the space provided. MATRIC No: (in word) (in number ) IDENTIFICATION CARD No; | 1] TABLE No: | | DO NOT OPEN THIS EXAMINATION PAPER UNTIL INSTRUCTED CONFIDENTIALBIVFF 2023 ‘Matric No QUESTION 1 (20 MARKS A. WME Electric Sdn Bhd (WME) has just developed a solar panel capable of generating 200 percent more than any solar pane} currently in the market, As a result, WME is expected to experience a 15 percent annual growth rate for the next four years and after that the growth expected to be 5 percent per year indefinitely. Shareholders require a return of 12 percent on WME stock. The most recent annual dividends for 2010 are RML.75 per share. i, Calculate WME’s expected dividends from 2011 until 2015. (4 marks) ii, What is the current value of stock WME’s? (4 marks)BWFF 2023, Matric No: _ Stock C’s Bethad currently been sold in market for RM25. The expected dividend for next year is RM1.50 and the stock have a constant growth rate at 4 percent. If the Tequired rate of return on the similar stock is 7 percent, given the current price, should you buy or sel} more stock? Why? (4 marks) Although preferred stock does not have a set maturity associated with, issuing firm have some method of retirement. Explain ONE of the methods. (2 marks)BUFF 2023 ‘Matric No, Encik Zamani is considering TWO investment alternative. The following information is given: Alternative 1 Altemative 2 CD Berhad Bonds 7 DC Berhad Bonds Par Value: RM1,000 Par Value RMI,000 Market Price _: RM945.80 Market Price: RM980.40 Interest 29 percent (semiannually) _| Interest 8 percent (annually) Maturity: 8 years Maturity 710 years If Encik Zamani’s required rate of return is 10 percent, which of these bonds should he buy? (6 marks)WEF 2023 Matric No, QUESTION 2 (15 MARKS) A Last year, Million Dollar Company had RM70 million in total assets. Management desires to increase its plant and equipment during the coming year by RMI8 million. The company plans to finance 40 percent of the expansion with debt and the remaining 60 percent with equity capital. Bond financing will be at 12 percent before tax. Internal equity available is RM3.5 million. Any additional equity can be raise through the issuance of common stock. The common stock currently sold for RMS per share and has a flotation cost of RMS per share. ‘The expected dividend next year for Million Dollar Company is RM7.60. Investors expect dividends to grow at an annual rate of 10 percent in the future. ‘The marginal corporate tax rate is 28 percent. i. Calculate the after tax cost of debt. (2 marks) Calculate the cost of internal and external equity. (6 marks)BUFF 2023 Matric No: iii, Compute the weighted average cost of capital (WACC) at an investment of RM18 million. (5 marks) iv. “Financing with new common stock is generally more costly than financing with retained earning”. Explain your answer. (2: marks)QUESTION 3 (25 MARKS) BWEF 2023 Matric No A. You have two investment projects under consideration, The required rate of return on both projects is 15 percent. The after tax cash flows for the projects are listed below: Project A. 0 (40,000) | _(40,000) 1 20,300 0 2 20,300 0 3 20,300 71,500 i. Calculate the net present value (NPV) of each of the above projects. (4 marks)BWFF 2023, ‘Matric No _ ii, What is the intemal rate of retum (IRR) for each of the above projects? (Use interpolation method. Choase rate above 15 percent) (6 marks) iii, Discuss the ranking conflict base on your answer in (i) and (ii. (2 marks) iv. If the projects are mutually exclusive projects, which project should you choose? Why? (2 marks)BW FF 2023 ‘Maurie No R-fiber Comp is considering buying a new production machine. The proposed machine would cost the company RM85,000 and require an installation and modification cost of RM1I,500 to be installed properly. In addition, the new machine would require an increase of inventory and account payable of RM 3 000 and RMI 700 respectively. The new machine will be depreciated over its five vear life using the simplified straight Jine method, By using the new machine, sales is expected to increase by RM25 000 and annual maintenance cost for the new machine would be 10 percent of the incremental sales over the life of the asset. At the end of its life the firm expect to be able to sell the machine for RM10 000. The firm’s tax rate is 28 percent and its required rate of return is 12 percent. i, Calculate the initial outlay associated with the new machine. (2 marks) ii, Calculate the annual cash flow. (3 marks)BUFF 2023, Matric No, iii, Calculate the terminal cash flow. (3 marks) iv. Should the firm buy the machine? Justify your answer. (G marks)QUESTION 4 (25 MARKS) A. BWEF 2023 Matric-No: En. KaKa intends to open a hand phone factory in Changloon. Before started the business he needs to estimate the amount of one unit hand phone that need to be sold in order to generate the profits. As an investment officer, En Kaka needs help from you in doing the financial planning for the company. Details of the information are given as follows: Interest Expense RM240,000 Output level 18,000 unit Degree of Operating Leverage (DOL) 3 times Tax rate 28% Total Asset RM1,800,000 Total Asset Tumover Times Operating Income on Total Asset 35% Operating Income RM630,000 Based on the information given, En KaKa request to calculate i. The selling price for a unit of hand phone? 10 (4 marks)BWFF 2023 Matric No: ii, Variable and fixed costs. (4 marks) iii. If the degree of Combine leverage (DCL) is 1.62, what is DFL? (2 marks) iv. What does it means with company’s Degree of Combine leverage (DCL) is equal to 2.02 (2 marks} cenBWFF 2023 Matric No: Syarikat Silang Kata Berhad intends to invest in one piping projects in Sintok worth RMI 000,000. To finance this investment project, the company is considering two financing alternative to generate the capital worth RMI 000,000. Alternative 1: The company can issue 20 000 new common stocks at market price of MSO per share. Alternative 2: The company can issue 10000 new common stocks at market price RMS0 per share. The balance will be finance through debt with Bank Bat the rate of 11 percent. If the investment is success, the company projected the investment will generate an operating income amounting to RM500 000. At this moment, the company already have an outstanding debt with Bank A amounting to RM75 000 at the rate of 9 percent, The existing number of common stocks issued for the company is 25 000 and the tax rate is 30 percent. i. Calculate the indifferent point of EBIT -EPS between two financing plans. (8 marks) 12BFF 2023 ‘Matric No fi If the project can generate an operating income RMS500 000, which financing plan should company adopted? Why? (5 marks) BBWEF 2023 ‘Matric No (QUESTION 5 (15 MARKS) A. Describe THREE (3) types of dividend policies. (6 marks) B. TNC Corporation (TNC) is planned to implement a stock split two-for-one. Before the split, there are 35,000 shares of common stock outstanding and you currently own 8 percent of TNC’s Corporation common stock. The stock now traded at a price of RM115 prior to stock split planned. i. Given that information, what will be your stock position before and after the stock split? (S marks) 4BFF 2023 ‘Matric No ii, The Chief Financial Officer believed the price will only fall 30% from the initial price after the stock split because she feels the price is above the optimal price range. If the CFO forecast is correct, what is your capital gain? (4 marks) END OF EXAMINATION PAPER 15” ‘BWEF2023 /EINANCIAL MANAGEMENT IT if Fai if a: DE i qu GE GVGEG GONE OSEE a G5R0E SHRUG TEE it ae He iG HEHE WOE GSeee eeeee eons ov: i Bee 2p i Be 2) g a the $e Geet ome ses : = See i er 3p a ae a a a E 22s Eee eee Se g Ze. ZEzaESESEEE=‘BWFF2023 /FINANCIAL MANAGEMENT IL FA, = 3 +B a nis pm om me in aE ae ein moe eo es eee i puegun ag pices cous uu en ea saat Sejeier aise: star ; RE GH RE SSE Ae Soe Ee ae a B Seon me Ss ae a i 5 co or af He : E an sta if if ESE EOEHH ig i i EE THE 4] 38 GS YHA Had aE BB: BBE ieee wrece peas gene nae 3 il + B 2 fh Gh tie : i‘BWFF2023/FINANCIAL MANAGEMENT It APPENDIX I FV, = PVQ+i FV, =PV (FVIF ,.) cy= Pt Dk G+k,) (+k) 2d - R= Blt ~ RyRy + BeERy)-Ry) z.6[e 2] Peek] e WACC =|efier tax cost of debt X % of debt financing] + [cost of equity X Yhof equity financing) CE D PS WACC=5 ROT) +RBWEF2023 /FINANCIAL MANAGEMENT It APPENDIX 2 : ¥. FCF, Nev = SPE 10 pro nile, +k) 10 . __=BIT ond Tai Flas ~ Fer rove, asay . SMe P_(epir-Ifi-1)-P JORNOVER TAL asey 5 DCL, =(DOL,) = (DFLzszr) : PIED AMET. SALES ar Tanner NET Pixeh ey PVIFA,,, np, =5 Sh SM u Uieny ny