FINAL

(SESSION SEPTEMBER 2021)

Financial Management
AFN20103

LECTURER :

SEPTEMBER 2021 TIME : 3 HOURS

Instructions :
1. Candidates must read all questions carefully.
2. The examination script consists of the followings:

 Types of Questions  Instruction  Duration

 ESSAY (Option)  Answer 4 out of 6 questions.  3 Hours
Financial Management

(ESSAY Option)
(100 Marks)

 Duration : 3 Hours

INSTRUCTION

INSTRUCTION

This examination consists of SIX (6) questions. Answer FOUR (4) questions only.

(Question 1)

(a)    Mr. Rafique Azizan had been appointed as finance director of Extreme Broadband Berhad. He is required to advise the
board of management on the investment plan to be taken. The choices are either in Asia Media Group Berhad or Astro Malaysia
Holdings Berhad. The annual historical share prices for both companies are as follows:

Date ASIA MEDIA (0159) ASTRO

(6399)

31/12/2020 6.75 4.48

31/12/2019 6.55 4.21

31/12/2018 6.68 4.39

31/12/2017 6.94 4.22

 31/12/2016 6.63 4.15

31/12/2015 6.56 4.41

Based on the coefficient of variation for Asia Media Group Berhad and Astro Malaysia Holdings Berhad, determine the preferable
company that Mr Rafique Azizan should suggest to Extreme Broadband Berhad.

(20 marks)

(b)   Differentiate between vertical and horizontal merger, and give ONE (1) an example of each types of merger.

(5 marks)
25 marks
(Question 2)

(a)   The Efficient Market Hypothesis (EMH) is a theory that explores the relationship between the availability of information and
asset prices. It argues that all available information is already reflected in the price of share and therefore, it is impossible to beat
the market over the long-term. Briefly explain the sub-hypotheses in EMH.

(9 marks)

(b)   Integrity Logistic Berhad attempts to penetrate a wide logistic market segment. Therefore, it proposes to acquire an access
to large customer base. Integrity Logistic Berhad’s offer involves a total amount of RM27 million which is over the current market
value of Infinity Logistic Berhad for synergetic reason. Integrity Logistic Berhad currently has a total number of 8.25 million
shares outstanding valued at RM37.125 million, while Infinity Logistic Berhad has 5 million shares outstanding valued at
RM23.25 million respectively.

Based on the above information, calculate:

i.         Number of shares to be exchange for the merger of Infinity Logistic Berhad.

(6 marks) 

ii.         Share price of the merged firm.

(6 marks)
iii.        The synergy value created by this merger.

(4 marks)
25 marks
(Question 3)

(a)    Akmar buy a package of bond with warrant for RM1,200 at market price. Par value of this bond is RM1,000. She
would receive a package consisting of a 10 percent coupon payment, 20-year bond plus 20 warrants. If the interest rate is 12
percent, calculate the value of each warrant.

(5 marks)

(b)   Nazmi Shah Sdn Bhd wishes to expand its business by opening an additional two more stores and needs to apply a bank
loan. Therefore, there is needed to prepare an acceptable three-month financial plan for January until March. The following are
sales and purchase information:
               

Month Sales (RM) Purchase

(RM)

November 235,000 160,000

December 255,000 150,000

January 210,000 110,000

February 280,000 150,000

March 240,000 190,000

40 percent of the sales incurred are cash sales, while the balance are credit sales and will be collected equally for the second
and third month after the sales.  Nazmi Shah pays  50 percent of its purchase immediately and the balance will be paid in the
month after purchases.                
Additional information:       

i. Labor expenses are 10 percent of the current month’s sales.

ii. Overhead expenses are recorded at RM10,000 per month.

iii. Interest payments of RM8,000 are due in January and March.

iv. A cash dividend of RM40,000 is scheduled to be paid in February.

v. Depreciation expenses are RM10,000 per month.

vi. Tax payment of RM25,000 are due in January and April.

vii. Purchase a new asset of RM40,000 in January and February.

Nazmi Shah ending cash balance in December is RM50,000. The minimum desired cash balance is RM50,000 per month. Any
financing shortfall, Interest on accumulated loan is at 9 percent annual interest and paid in the following monthly.

Based on the information given, prepare a cash budget for the months of January, February and March.

(20 marks)

25 marks
(Question 4)

(a)   A share priced at RM65 has a standard deviation of 30 percent. Three month calls and puts with an exercise price of RM62
are available with the risk-free rate is 5 percent. Calculate the value of the call and put option.

(15 marks)

(b)   The owners’ equity account for Rantuil Utilities Berhad are shown below:

Common Share (RM2 par) RM30,000

Capital Surplus RM285,000

Retained earnings RM648,100

 Total shareholder’s equity RM963,100

If Rantuil Utilities Berhad currently sells for RM30 per share and a 10 percent share dividend is declared,

i.       Determine the number of new shares that will be distributed.

(3 marks)

ii.      Reconstruct new owners’ equity account for Rantuil Utilities Berhad.

(7 marks)
4 marks
(Question 5)

(a)   Anusha Berhad’s sales pattern for the first quarter 2021 and projected revenues are as follows:

Month Jan Feb Mar Apr May

Sales (RM) 120,000 160,000 170,000 210,000 200,000

Additional information:

i.     Historically, Anusha Berhad’s sales were on cash basis.

ii.   Anusha purchase raw material two month before the sales month and paid in cash equal to 60 percent of its sales.

iii.    Fixed monthly rent of RM11,000.

iv.     A depreciation expense is RM400 per month.

v.     Dividend of RM3,000 will be received at the end of each quarter.

vi.    Wages and salaries are estimated RM15,000 per month.

vii.    Anusha decide to repay RM40,000 of their loan on April.

viii.    Interest on accumulated loan is at 9 percent annual interest and paid in the following month.
ix.      Ending cash balance for the budget period is RM20,000 and it would like to maintain minimum desired balance of
RM20,000 per month.

Prepare a monthly cash budget for the first quarter 2021 for Anusha Berhad.

(10 marks)

(b)   Friday, April 16th, 2021, Top Glove Spends RM1.42b on Shares Buyback. The world’s largest rubber glove maker, Top
Glove Corp Bhd, has spent RM1.42 billion since September last year on buybacks after it proposed a bonus issue of up to 5.48
billion new shares on July 2020, on the basis of two bonus shares for one existing share in the rubber glove manufacturer, to
reward its shareholders and enhance trading liquidity of its shares. This year alone, Top Glove has bought back 23.79 million
shares with prices ranging between RM5.78 and RM6.15. In total, the glove maker has paid RM141.8 million for the buybacks,
retaining 23.79 million units of shares. (Excerpt from https://themalaysianreserve.com/.)

Based on the situation above:

i.      Explain the type of dividend payment implemented by top glove and the advantages of the action taken.

                 (9 marks)

ii.     Discuss any other THREE (3) types of dividend payment method that can be implemented by Top Glove.

(6 marks)

25 marks
(Question 6)

(a)    Liliac Berhad is a unlevered firm with the cost of equity 20 percent per year. Based on the current evaluation made by
financial manager, Liliac Berhad expected to earn Earnings before Interest and tax amounted RM600,000 in perpetuity. Liliac
Berhad is a company approved with a pioneer status certificate issued by Malaysian Development Investment Authority (MIDA).

Required:

i.      Compute the value of Liliac Berhad.

(3 marks)

ii.      Calculate the weightage average cost of capital for Liliac Berhad if the company decided to change its capital structure by
issuing additional debt of RM1,200,000 from RCB Bank to finance new project. The bank charged interest rate 10 percent per
annum. Assume that the pioneer status is expired and the corporate tax charged is 24 percent.
 (12 marks)

(b)   Eclip Berhad has 300,000 common share outstanding, a price per earnings ratio of 6, and RM750,000 available for common
shareholders. The company has decided on a 5 for 3 splits.

i.      If Sebonia Berhad holds 600 units of shares of Eclip before the split, calculate the number of shares that Sebonia will have
after the split.

(4 marks)

ii.     Compute the total value of Sebonia Berhad’s investment in Eclips Berhad share before and after Eclip Berhad’s the split.

(6 marks)

25 marks
END OF QUESTION