CONFI

DENTI
AL 1 AC/
JULY2020/
MAF603

UNI
VERSI
TITEKNOLOGIMARA
FI
NALASSESSMENT
PAPER2

COURSE : CORPORATEFI
NANCE
COURSECODE : MAF603
EXAMI
NATI
ON : JULY2020
TI
ME : 2HOURS

I
NSTRUCTI
ONSTOCANDI
DATES

1. Thi
squest
ionpaperconsi
stsofTEN(
10)QUESTI
ONS.

2. AnswerALLquest
ionsi
nEngl
i
sh.

DONOTTURNTHI
SPAGEUNTI
LYOUARETOLDTODOSO
Thi
sexami
nat
ionpaperconsi
stsofsi
x(6)pr
int
edpages

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I
NSTRUCTI
ON:
ANSWERALLQUESTI
ONS

SHORTESSAYQUESTI
ON(
SEQ)

QUESTI
ON1

HexagonHoseBhd( Hexagon)managedt osecureapr ojectonsupplyi

ngandi nst
all
i
ng
pi
pinghoseatRapi
dNor thZoneproj
ect.Thecostofi nvestmentisest
imatedt obeRM12
mill
i
on.TheFinanceManagerhaspr oposesthefol
lowi
ngmi xt
ureofexternalfundi
ngt o
fi
nancet
heproj
ectfortheboardofdi
rector
s’consi
der
ati
on:

 Issue5% i
rr
edeemabl
edebentur
eatamar
ketv
alueofRM1,
050wi
thzer
ofl
otat
ion
cost.Theparval
uei
sRM1,000.

 Issue ordi
nar
yshar es atmarketpri
ce RM10.00 pershare. The f
lot
ati
on cost
associat
edwiththeissuancei
s4%oft hemarketpr
ice.Hexagonisexpect
edtopay
adi vi
dendofRM1. 188persharenextyearascomparedtoRM1. 10persharelast
year.Hexagonassumedt hedi
vi
dendtogrowataconstantr
ateof8%perannum.

 I
ssue7%pr eferr
edshar
es,
whichcur
rent
lyi
sselli
ngatRM110.Thenomi
nalval
ueof
pr
eferr
ed sharesisRM100 wit
hadi vi
dend pai
d based onnomi
nalval
ue. The
i
ssuancecostis2%ofthemar
ketval
ue.

Thecor
por
atet
axr
atei
s24%.

Requi
red:

Cal
cul
atet
hef
oll
owi
ngcostofcapi
tal
:

i
. Debt(aftert
ax)
i
i
. I
nternalequi
ty
i
i
i. Newor dinar
yshar
es
i
v. Pref
erenceshares
(
5mar
ks)

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QUESTI
ON2

TheEmpireRailBhd(Empir
e)wonasub-contr
acttoconst
ruct69ki
lomet
ersr
ailwaypr
oject
ofHighSpeedRailmegaproject
.Thepr
ojectcosti
sexpectedtobeRM58mill
ion.Bel
owi s
theopt
imalcapit
alst
ruct
ureofEmpir
easat30June2020:

RM
5%Debent ures 19,
300,
000
7%Pr eferr
edshares 12,
700,
000
Ordinarysharesatparv
alueRM1.
00 47,
500,
000
Retainedearnings 20,
500,
000
100,
000,
000

Empir
eplanstousevari
ousint
ernalandexter
nalsourcesoff
inanci
ngt
ofundt
hepr
oject
andhasesti
matedt
heindi
vi
dualcostofcapi
tal
asfoll
ows:

i
. Pr
e-t
axcostofdebti
s5.
35%
i
i
. Costofpr
efer
enceshar
esi
s6.
5%
i
i
i. Costofi
nter
nal
andext
ernal
equi
tyi
s19.
8%and20.
5%r
espect
ivel
y

Empir
edecidestoli
miti
tsretai
nedearni
ngsavail
abl
eforre-
inv
est
mentpurposestothe
maximum v
alueof85%onretai
nedear
ningsbal
anceasat30June2020.Thecor
porat
etax
rat
eis24%.

Requi
red:

Suggesttheappropr
iat
ewei ght
edav
eragecostofcapi
tal(
WACC)i
fEmpi
reagr
eedt o
undert
akether
ail
wayproj .
ect
(3marks)

QUESTI
ON3

GreenRef i
ner
yBhd( Green)i
sapalm oi
lrefi
nerymanufact
urerwishestoembarkint
o
medicalsuppl
iesi
nviewofgoodmar
ketout
lookintheheal
thi
ndust
ry.Curr
ent
ly,t
heequi
ty
t
odebtr at
ioGreeni
s4to1wi t
habet
aval
ueof1.25.

MaskProt
ectBhd(
Mask)hasbeenident
if
iedasaproxycompanytounder
takepr
ojecti
n
medi
cal
suppli
eswi
thequi
tybet
aval
ueof1.85andhasequi
tyt
odebtr
ati
oof3to2.

Therateofret
urnofarisk-
fr
eeassetisex
pect
edt
obeat5%.Theav
erager
etur
nonst
ock
marketis12%andthecorporat
etaxi
s24%.

Requi
red:

Comput
ethesui
tabl
epr
ojectspeci
fi
ccostofdi
scountr
atef
orGr
eeni
nnewpr
oject
.

(
2mar
ks)

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sit
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MAF603

QUESTI
ON4

Star
li
ghtSdnBhdi
sal
ever
edf
ir
m.Thef
oll
owi
ngi
stheext
ractoft
hef
inanci
alst
atementof
thi
sfir
m:

RM’
000 RM’ 000
Tot
alEqui
ty 2,000
Tot
alAsset
s 2,
500 Tot
alDebt 500
2,
500 2,500

Ear
ningsbeforeinter
estisRM250,000.Tot
aldebtofRM500,
000r
epr
esentt
hedebent
ures
i
ssuedatint
erestrateof8%perannum.

Requi
red:

Cal
culat
ethecostofequi
tyf
ort
heSt
arl
i
ghtSdnBhd.Assumet
hef
ir
m oper
atesi
nat
ax-
fr
ee
env
ironment
.

(
3mar
ks)

QUESTI
ON5

Seroj
aSdnBhdi saninteri
ordesignfir
m.Itiscurrent l
yall
-equi
tyfinancedfi
rm.Thecostof
equit
yforthi
sfi
rmis8%.Thi sf
irmintendstounder takeanewpr ojectcosti
ngRM500,000.I
f
theproj
ectisexecut
ed,itisexpectedthattheear ningsbeforeinterestandtax(EBI
T)wil
l
i
ncreasetoRM275,000peryearinperpetui
ty.Thecor porat
etaxrateis25%.

Requi
red:

I
f6%Debent
uresi
stobei
ssuedt
ofi
nancet
hepr
oject
,cal
cul
ate:

i
- Thev
alueoft
hef
ir
m
(
2mar
ks)

i
i
- Theov
eral
lcostofequi
ty(
RWACC)
(
2mar
ks)

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sit
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ogi
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MAF603

QUESTI
ON6

Bel
owi
stheexcer
ptofTheEdgeFi
nanci
alDai
l
y,20thApr
il2020:

“
Intermsoft hepropert
ysector,anover
hanginsalesi
slikel
yt obeexacerbat
edasdemand
f
orbig-t
icketit
emsar eli
kel
ytov ani
shduet oagri
m economi coutl
ook.Basedonthel
atest
f
igur
es,aggregateproper
tysaleshavedecl
inedby12%year-on-year
.

RHB Invest
mentBankBhdadv i
sedinv
estorst
oav oi
ddev el
operswi
thhi ghgeari
ng,an
unsoldcompletedinv
entor
yaswellasunsol
dstocksf
rom ongoingpr
ojectsasitbeli
eves
theseremaini
ngunsolddevel
opmentpr
oject
swil
lbeslow movinggoi
ngf orwar
d,ty
ingup
devel
opers’
cashf l
ow.”
(
Sour
ce:ext
ract
edf
rom ht
tps:
//www.
theedgemar
ket
s.com/
art
icl
e/gr
im-
1q-
ear
nings-
out
look-
sel
ect
ed-
indust
ri
es)

Requi
red:

Br
iefl
yexpl
aintwo(2)reasonswhyRHBI nv
estmentBankBhdadv
isei
nvest
orstoav
oid
i
nvesti
ngi
nproper
tydev
eloperswi
thhi
ghgeari
ng.
(3mar
ks)

QUESTI
ON7

AMalaysi
ancompanyhasagr eedtobuyaCanadianasset
,thusitwi
llneedtobuyCanadi
an
Dol
lar
sandsellRinggi
tMalay
sia(RM)toexecut
et hetr
ansacti
on.Assuming,t
heMalaysi
an
companybel
i
ev estheCanadi
anDollari
sexpect
edt oappr
eciat
eagainstRM whenpayment
i
sduebytheendofJuly2020.

Requi
red:

Advi
set
heMalay
siancompanyt
heappr
opr
iat
est
rat
egyt
ohedget
ransact
ionr
iskbet
ween
l
eadi
ngandl
aggi
ng.

(
2mar
ks)

QUESTI
ON8

ProlabBhd( Pr
olab)isfr
equentl
yimpor t
edchemi calpr
oduct
sfr
om compani
esintheUnited
StatesofAmer ica(US). Prol
abisr equir
edt omakepay mentof$USD200,
000tot heUS
supplier
sattheendofOct ober2020.Today ,
isattheendofJul
y2020,
thecur
rentexchange
rateis$0.30perRinggi
tMalaysi
a(RM) .

Ringgi
tMal
aysi
a(RM)isexpectedt
oappreci
ateagai
nst$USDby3%att
heendofOct
ober
2020andbyafurt
her2%attheendofNov
ember2020.

Requi
red:

I
fPr
olabdecidest
oadoptl
aggi
ngst
rat
egy
,det
ermi
nehowmuchPr
olabwoul
dbenef
itf
rom
t
hest
rategy
.
©HakCi
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(
3mar
ks)

QUESTI
ON9

ThespotexchangeratebetweenMal ay sianRi nggi

tandVietnameseDongi sRM1.00t o
VND5,
441.
59.Assumi ngthatther
ei spur chasi
ngpowerpar ityanamountofi tem costi
ng
RM50inMalaysi
awillcostVND272,079.50i nVietnam.Overthenextyear
,thepri
ceinfl
ati
on
i
nMalaysi
aisexpect
edt obe1.5%whi l
einf l
ati
oni nViet
nam i
sexpectedtobe4.6%.

Requi
red:

i
. Cal
cul
atet
heexpect
edspotexchanger
atef
ornexty
ear
.

i
i
. Br
ief
lydi
scusst
heef
fectofi
nfl
ati
ont
othecount
ercur
rency

(
3mar
ks)

QUESTI
ON10

Managi ngthei
nter
estrat
eri
skai
msatcaptur
ingt
heri
sksarisi
ngfr
om themat ur
it
yandre-
pri
cing mismatches and i
s measur
ed f
rom boththe earni
ngs and economicval
ue
perspecti
ve.

Requi
red:

Br
ief
lyexpl
ainhowi
nter
estr
ater
iskcanbemanaged.
(
2mar
ks)

(
Tot
al:
30mar
ks)

ENDOFQUESTI
ONPAPER

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