FOREIGN TRADE UNIVERSITY ACADEMIC YEAR 2021-2022 FIRST SEMESTER

HCMC CAMPUS TCHE321 CORPORATE FINANCE

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MID-TERM EXAM PART 2 (6 points)

Class: ML140
Time allowed: 90 minutes + 10 minutes submission

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PART 2-1: TUBA ELECTORNAT (3 points)

Write the answers with detailed calculations and explanation.

Use the information in Exhibit 1 and Exhibit 2 to answer Question 21 to 26.

Mai Linh, financial analyst at Mai Linh Investment Inc., is reviewing the financial information of Tuba
Electronat in preparation for a possible share purchase. Tuba produces electronic equipment. Tuba’s financial
information is presented in Exhibit 2 and Exhibit 3 and “Notes to the financial statements”.
Exhibit 1: Balance Sheet (VND billion) Exhibit 2: Income Statement 31/12/20 (VND bil)
st
Dec. 31 2020 2019 1. Sales 4015
Total Assets 4322 3335 2. Cost of sales 2769
A. Current Assets 2882 2077 3. Gross profit 1246
1. Cash 315 256 4. Selling and administrative expenses 223
2. Receivables 980 749 5. Depreciation expenses 182
3. Inventories 821 631 6. Operating profit 841
4. Other current assets 766 441 7. Other expenses 135
B. Non-Current Assets 1440 1258 8. Earnings before interest and tax 706
5. Fixed assets, net 1120 995 9. Interest expenses 215
5.1. Gross fixed assets 1450 1250 10. Earnings before tax 491
5.2. Accumulated depreciation (330) (255) 11. Taxes 86
6. Real estate investment 105 90 12. Net Income 405
7. Other non-current assets 215 173 Notes to the financial statements:
Liabilities 2016 1810
- Industry: electronic equipment.
C. Current liabilities 445 301
8. Trade payables 410 281 - There are 90 million shares outstanding on Jan. 1,
9. Short-term debt 35 20 2020. On Jul. 1, 2020, issues 60 million more shares at
D. Non-current liabilities 1571 1509
VND18000 per share.
10. Long-term debt 610 626
11. Other non-current liabilities 961 883 - Closing price per share as of Dec 31, 2020: 30000đ.
Equity 2306 1525 - Corporate income tax rate 20%.
12. Contributed Capital 1500 900
- No stock dividend or share repurchase in 2020.
13. Retained Earnings 806 625
Total liabilities and equity 4322 3335

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Question 21: The electronic industry average for asset turnover, net profit margin, and financial leverage are
0.8; 0.10; 2.0 respectively. Compared to the industry's average, Tuba’s return on equity is low or high and
why? Explain your answer using basic Dupont analysis, with detailed calculations and explanation. (0.75
points)
Question 22: Calculate Tuba’s inventory turnover, receivables turnover, payables turnover, and cash
conversion cycle. (0.75 points)
Question 23: Calculate Tuba’s current ratio, quick ratio, and cash ratio for 2020. (0.5 points)
Question 24: Calculate Tuba’s dividend paid in 2020. (0.25 points)
Question 25: Calculate Tuba’s EPS, P/E, Market-to-Book ratio for 2020. (0.5 points)

Use the information in Exhibit 3 to answer Question 26.

In order to better understand the change in accounts receivables of Tuba Electronat, Mai Linh has collected
the information in Exhibit 3 from the Notes to the financial statements.
Exhibit 3 2020 2019
VND bil % VND bil %
Receivables aging report
0-30 days
754 74% 680 90%
31-60 days
36 4% 27 4%
61-90 days
53 5% 32 4%
Over 90 days
169 17% 18 2%
Total
1012 757
Provision for doubtful accounts (32) (8)
Net receivables 980 749
Sales 4,015 3,824

Question 26: How sales policy has changed over the past year and what were its consequences? (0.25 points)

End of Part 2-1.

Exam continued on the next page.

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PART 2-2: TUBA SPORTY (3.25 points)
Write your answer with detailed calculations and explanation.

Use the following information to answer Question 27 and 28.

Now is January 1, 2021. Mai Linh, CFO of Mai Linh Packing Ltd., is evaluating a project to replace an existing
packing machine with a new high-speed, automated machine.
The existing machine was purchased and installed on January 1, 2016 (five years ago) at the cost of VND10
billion. It is planned to be fully depreciated using straight-line method in 10 years. As of today, book value of
this machine is VND5 billion. Mai Linh has estimated that if a new machine is purchased, the existing machine
can be sold for VND2 billion.
The new machine costs VND15 billion, and has an economic life of 10 years. Mai Linh is considering
depreciating the new machine using double-declining balance method. After five years, Mai Linh plans to
outsource the packaging activity, and the new machine can be sold for VND3 billion.
Using the new machine will reduce labor costs and material costs by VND5 billion each year. Working capital
is expected to remain unchanged.
The tax rate is 20%. The cost of debt is 12%. Risk free rate is 5%. Beta is 0.8. Market return is 15%. Debt-to-
equity ratio is 1:2.
Mai Linh believes that this project is of lower risk than the company's average risk level. She decides that the
cost of capital for this project should be WACC minus 1%.

Question 27: Help Mai Linh evaluate this project. Estimate the project's cash flows, calculate its cost of
capital, and calculate its NPV, IRR, profitability index, and discounted payback period. (3 points)
Question 28: Should Mai Linh use straight-line depreciation method for the new machine, project's NPV
will be higher or lower? Explain why. (0.25 points)

End of Part 2-2 and End of Part 2.

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