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Maf253 Fa Q Aug 2020
Maf253 Fa Q Aug 2020
Maf253 Fa Q Aug 2020
INSTRUCTIONS TO CANDIDATES
QUESTION 1 (5 marks)
The following is the Statement of Financial Position (extract) of Black Sea Bhd as at 31
December 2019.
RM
Non-current assets 600,000
Inventories 200,000
Accounts receivable 250,000
Bank 450,000
1,500,000
The financial manager identified that 40% of the current assets were permanent.
Required:
a. Discuss the financing strategies adopted by Black Sea Bhd by showing clearly the
permanent current assets and temporary current assets.
(3 marks)
b. Briefly explain the risk and return trade-off of the financing strategies adopted by Black
Sea Bhd
(2 marks)
QUESTION 2 (7 marks)
Semangat Waja Bhd is facing cash flows difficulties during the year, but the financial manager
is trying to manage their cash more efficiently. The company’s annual operating cycle
investment is RM900,000. Inventories turnover is 12 times a year and receivables are
collected in 90 days. Suppliers are paid approximately 35 days after they arise.
(Assume a 360-day year)
Required:
b. Calculate the amount of financing required by Semangat Waja Bhd to support its cash
conversion cycle.
(2 marks)
c. The financial manager of Semangat Waja Bhd has come up with a new cash
management plan to reduce its current cash conversion cycle to 65 days. Calculate
the annual interest savings of 12% interest charge on resources obtained.
(2 marks)
d. Advise whether the company should proceed with the new plan if it requires RM5,000
to implement the new cash management plan.
(1 mark)
QUESTION 3 (9 marks)
Magic Colour Bhd has been offered a new credit terms of 2/15 net 30 by its existing supplier.
Due to cash flow problem, Magic Colour can only pay on day 60 and is agreeable with the
supplier. The company needs RM285,000 to pay within the discount period to its supplier. The
following alternatives was identified to raise the needed funds.
Alternative 1
Blue Bank is willing to provide a loan for six months at 12% interest with 10% compensating
balance.
Alternative 2
Red Bank has a new promotion and is willing provide a loan for six months at 10% interest
paid in advance.
Required:
b. Advise Magic Colour Bhd on the best option for the company.
(7 marks)
QUESTION 1 (6 marks)
Shahriman has just graduated from a local university. He is planning to buy his dream house
in five years. Currently, the price of the house is RM500,000 and the price is expected to
increase by 10% in value every year. He plans to pay 20% deposit on the house by making
savings at the end of each year for the next 5 years and expects to earn 15% interest per year.
Required:
Calculate the annual savings Shahriman should make at the end of each year for the next 5
years as to have enough money to pay for the house deposit.
(6 marks)
QUESTION 2 (6 marks)
Ikleama plans to purchase a new car for RM100,000 and pay RM10,000 as a deposit. He
agrees to pay the balance using a loan, where installment is paid at the end of each year for
the next 7 years. Interest is charged at 4% per year on unpaid amount.
Required:
QUESTION 3 (5 marks)
Nazirah has RM10,000 and is given the following options for her investment:
Option 1
Invest in Classical Bank for 10 years at 10% return per year compounded annually.
Option 2
Invest in Unique Bank for 10 years at 8% return per year compounded semi-annually.
Required:
Decide on the best option for Nazirah to invest. Justify your answer.
(5 marks)
QUESTION 1 (2 marks)
Identify the required rate of return of Nona Bhd, given that the beta is 1.5 and the expected
return is 12% per annum. Assuming risk-free rate is 7%.
(2 marks)
QUESTION 2 (8 marks)
Kenanga is considering investing her money either in Belalang Bhd or Coconut Bhd. The
information for both companies is as follows:
Required:
Ramadhan Bhd is considering investing RM40 million in a new project. The optimum capital
structure of the company as at 31 December 2019 is as follows:
RM
Debentures 80,000,000
Preference shares 20,000,000
Ordinary shares 80,000,000
Retained earnings 20,000,000
200,000,000
2. Preference shares can be issued at RM110 and dividend is paid at RM12 per share.
The associated cost of issuance for the preference shares is estimated at 5% on the
issue price.
3. Ordinary shares are currently selling at RM5 per share with a flotation cost of 5% on
market value. The dividend was RM0.50 per share and is expected to grow at a
constant rate of 8% per annum for the foreseeable future. The company must fully
utilize the retained earnings before issuing new ordinary shares.
4. The current retained earnings available for reinvestment is RM5 million and corporate
tax rate is 25%.
Required:
b. Calculate the maximum capital expenditure that can be undertaken by the company
without issuing new shares.
(1 mark)
c. Calculate the weighted average cost of capital of the company in order to undertake
the project.
(4 marks)
1. Enhancing the wealth of the _______ is the ultimate goal of wealth maximization.
A. employees
B. financial managers
C. customers
D. shareholders
(1 mark)
A. Financial managers
B. Employees
C. Financial institutions
D. Investors
(1 mark)
A. Preferred stock
B. Commercial paper
C. Debentures
D. Long-term notes payable
(1 mark)
A. Specialty
B. Security
C. Marketability
D. Comparability
(1 mark)
A. Discount rate
B. Federal interest rate
C. Risk-free rate
D. Prime rate
(1 mark)
10. Which of the following value is NOT important in calculating the cost of irredeemable
debt?
A. maturity period
B. market price of debt
C. flotation cost
D. tax rate
(1 mark)
11. Interest earned on both the original principal and on previous interest earned is often
referred to as _______.
A. simple interest
B. double interest
C. compound interest
D. present interest
(1 mark)
A. Matching approach
B. Conservative approach
C. Aggressive approach
D. Hedging approach
(1 mark)
A. Wages payable
B. Accounts payable
C. Accrued taxes
D. Unsecured bank loan
(1 mark)
A. Capital markets are markets that deals with loans that is backed by inventories.
B. Money markets are markets that deals with unsecured loan.
C. Primary markets are market that deals with new securities being bought and
sold for the first time.
D. Secondary markets are market that deals with loans that is backed by accounts
receivable.
(1 mark)
A. investor
B. financial market
C. financial manager
D. regulator
(1 mark)
20. Drawbacks of profit maximization as a goal of the firm includes the following EXCEPT
21. Working capital level will increases when the cash conversion cycle increase.
TRUE
FALSE
(1 mark)
22. A computer software company holds RM1 million of cash balances to accommodate
the rapid increase in the rate of software subscription. This is a transaction motives of
holding cash.
TRUE
FALSE
(1 mark)
23. If the discount rate decreases, the present value of a given future amount decreases.
TRUE
FALSE
(1 mark)
24. Inventory may also be used as collateral for loans besides account receivables.
TRUE
FALSE
(1 mark)
25. If a firm’s shares are very liquid and marketable, the investors will require a lower rate
of return from these shares.
TRUE
FALSE
(1 mark)
26. Annuities with payments that occur at the beginning of each period are called ordinary
annuities.
TRUE
FALSE
(1 mark)
27. Shareholders’ wealth maximization can be achieved by considering the present and
potential future earnings per share that affect the market price of the firm’s stock.
TRUE
FALSE
(1 mark)
28. The firm’s optimal capital structure is determined by finding the capital structure that
maximise the firm’s cost of capital.
TRUE
FALSE
(1 mark)
29. Financial institutions serve as intermediaries that channel the savings of individuals,
businesses and governments into loans or investments.
TRUE
FALSE
(1 mark)
30. Working capital investment decision will be made according to the seasonal
requirement needs of the firm.
TRUE
FALSE
(1 mark)
31. Awesome Bhd is unable to pay interest on debenture due to the reduction of revenues
during the nationwide movement control order. This is an example of
SYSTEMATIC RISK
UNSYSTEMATIC RISK
(1 mark)
32. The CEO of Murni Bhd was brought to court for embezzling the company’s fund. The
day after the jury reached a guilty verdict, the share price dropped by 20%. This is an
example of
SYSTEMATIC RISK
UNSYSTEMATIC RISK
(1 mark)
33. Bright Bhd is experiencing financial difficulties and is having problem liquidating some
of its assets. This is an example of
SYSTEMATIC RISK
UNSYSTEMATIC RISK
(1 mark)
34. Businesses located in close vicinity of Mount Sinabung that erupted on August 10,
2020 had to be closed and some may not be able to continue operating. This is an
example of
SYSTEMATIC RISK
UNSYSTEMATIC RISK
(1 mark)