CONFIDENTIAL 1 AC/JUN 2020/MAF503

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : FINANCIAL MANAGEMENT

COURSE CODE : MAF503
EXAMINATION : JUNE 2020
TIME : 30 MINUTES

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of one (1) part: PART A (8 questions)

2. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) a two-page Appendix 1

3. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 3 printed pages

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 CONFIDENTIAL 2 AC/JUN 2020/MAF503

PART A

This part consists of eight (8) multiple-choice questions. Answer ALL questions.

1. The following statements are correct EXCEPT

A. The longer the time period, the smaller the present value, given a RM100 future
value and holding the interest rate constant.
B. The greater the interest rate, the greater the present value, given a RM100 future
value and holding the time period constant.
C. A future dollar is always less valuable than a dollar today if interest rates are
positive.
D. The discount factor is the reciprocal of the compound factor.
(2 marks)

2. Time value of money supports the comparison of cash flows recorded at different time
period by

A. Discounting all cash flows to a common point of time

B. Compounding all cash flows to a common point of time
C. Using either a or b
D. None of the above.
(2 marks)

3. Hamzah expects to receive RM2,000 per year for the first 10 years and RM3,500 per
year in the next 10 years. Determine the present value of these 20 years cash flows,
using a 12% discount rate.

A. RM1,771
B. RM17,668
C. RM31,076
D. RM761
(2 marks)

4. What is the present value of a 5-year annuity-due with annual payment of RM300, and
discounted at 15% interest?

A. RM1,178.14
B. RM1,005.66
C. RM1,156.51
D. RM1,683.71
(2 marks)

5. Miss Alya plans to deposit an equal sum each year in MNA Bank, which earns 6%
interest compounded annually. Her first payment will be made at the end of each year.
Calculate the annual amount that Miss Alya must deposit to accumulate RM200,000 in
15 years.

FVIF 6%,15 years = 2.3966 FVIFA 6%,15 years = 23.276,

FVIF 12%,15 years = 5.4736 PVIFA 6%,15 years = 9.7122
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 CONFIDENTIAL 3 AC/JUN 2020/MAF503

A. RM83,452
B. RM36,539
C. RM8,593
D. RM20,593
(2 marks)

6. Assume that a firm has accurately calculated the net cash flows relating to an investment
proposal. If the net present value of this proposal is greater than zero and the firm is not
under the constraint of capital rationing, then the firm should:

A. calculate the IRR of this investment to be certain that the IRR is greater than the
cost of capital.
B. compare the profitability index of the investment to those of other possible
investments.
C. calculate the payback period to make certain that the initial cash outlay can be
recovered within an appropriate period of time.
D. accept the proposal, since the acceptance of value-creating investments should
increase shareholder wealth.
(2 marks)

7. ____________________ approach randomly select observations from each of the

distributions, combine those observations to determine final output and continue the
process until a representative record of probable outcome is assembled.

A. Sensitivity analysis
B. Probability analysis
C. Simulation analysis
D. Profitability index
(2 marks)

8. Investment in new project often required additional investment in working capital. The
normal assumption to incorporate with working capital are:

i. Working capital is needed right at the start of new project

ii. All working capital is recovered at the end of the project
iii. Working capital has tax effect and inflation effect
iv. Working capital changes cause incremental cash flows

A. i, ii and iii
B. ii, iii and iv
C. i, ii and iv
D. All of the above
(2 marks)
(Total: 16 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 1 AC/JUN 2020/MAF503

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : FINANCIAL MANAGEMENT

COURSE CODE : MAF503
EXAMINATION : JUNE 2020
TIME : 1 HOUR 30 MINUTES

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of one (1) part: PART B (2 questions)

2. Start each answer on a new page.

3. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) a two-page Appendix 1

4. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 3 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
 CONFIDENTIAL 2 AC/JUN 2020/MAF503

PART B

This part consists of two (2) questions. Answer ALL questions.

QUESTION 1

Cetak Xpert Sdn Bhd is a printing and advertising company. The company is considering to
purchase a new machine worth RM3,000,000. The new machine has a useful life of 5 years
and is estimated to have a residual value of 1% of its purchasing price. The company has to
pay RM50,000 and RM60,000 for transportation costs and installation costs respectively, for
assembling the new machine.

The new machine will replace the old machine that was purchased at the cost of RM6,000,000.
The old machine has been purchased and used from 1 January 2015 until now, 1 January
2020. The old machine is expected to be fully depreciated on 31 December 2024 and can be
sold as scrap for RM40,000 at the end of its life. However, if it is sold now, the company can
get RM2,000,000.

By using the new machine, the company will able to reduce wastage from RM400,000 to
RM200,000 per annum. The salaries and utilities expenses are also expected to decrease by
RM250,000 and RM170,000 per year respectively. At the moment, the company incurs
RM50,000 of maintenance expenses per annum and it is projected that the maintenance
expenses will increase by 40% per year. Due to higher efficiency, the new machine requires
additional work in process inventory of RM600,000.

The company has conducted a feasibility study for the new machine at a cost of RM90,000.
The forecasted training cost for the new machines is RM140,000.

The company’s required rate of return is 12% and the tax rate is 25%. The desired payback
period is 3 years. The company used the straight-line method for its depreciation of assets.

Required:

a. Calculate:

i. Initial outlay
ii. Annual differential cash flow
iii. Terminal cash flow
iv. Net Present Value
v. Internal rate of return
vi. Payback period
(20 marks)

b. Advise the management on whether the company should proceed with the buying of the
new machine.
(4 marks)
(Total: 24 marks)

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 CONFIDENTIAL 3 AC/JUN 2020/MAF503

QUESTION 2

Volten Berhad has decided to install a new packaging machine at the cost of RM50,000. The
new machine would have a useful life of five years with a trade-in value of RM5,000 at the end
of the fifth year. In order to operate the machine smoothly, the maintenance cost of RM2,000
will be incurred in the first year and the cost is expected to increase by 5% per year
subsequently.

The company has the following options to finance the purchase of the new machine:

a. To purchase the machine using bank loan facilities on which the pre-tax borrowing rate
is 12%, or

b. To lease the machine under an agreement which would require payment of RM12,500
payable in advance for five years.

The company will be able to claim a tax depreciation allowance on a 25% reducing balance.
Tax rate is 25% and is payable with a year's delay.

Required:

Advise the company which alternative of financing method is better. (Show all workings).
(20 marks)
(Total: 20 marks)

END OF QUESTION PAPER

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