CONFIDENTIAL BA/FEB 2023/FIN544

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE ADVANCED CORPORATE FINANCE

COURSE CODE FIN544
EXAMINATION FEBRUARY 2023
TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

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

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty

5. Answer ALL questions in English.

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

This examination paper consists of 4 printed pages
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CONFIDENTIAL 2 BA/FEB 2023/FIN544

QUESTION 1

a) As the Chief Financial Officer (CFO) of Ronin Berhad, you are required to decide whether
to upgrade your company's existing machine to increase the production efficiency. The
machine can be upgraded for RM200.000 with five-year operating life and depreciated on
a straight-line basis. The annual after-tax cost savings for the first operating year is
estimated to be RM99,400. From the second operating year, the annual after-tax cost
savings will increase by six percent annually. The machine requires an initial investment
in net working capital of RM20,000 which will be recovered at the terminal year. The
machine can be sold at RM 12,000 at the end of its useful life. The company's tax rate is
30% and the discount rate required is 10%. Determine if the company should upgrade
the existing machine.
(15 marks)

b) Elaborate the stand-alone principle in project evaluation.

(5 marks)

QUESTION 2

a) Sasaie Clan Berhad is considering using a new machine for its business operation. The
new machine has a useful life of four years with zero salvage value. The total cost of
acquiring the new machine is RM50.000 and it will be depreciated based on the straight-
line method. Currently the company's corporate tax rate and discount rate are 30 percent
and 10 percent respectively.

Under an expected economic condition, the unit sales that can be produced using the
new machine is 400 units. The production will require a variable cost of RM40 per unit
and a fixed cost of RM1.400 per annum. Every product produced by the new machine
can be sold at RM70. Under a pessimistic economic condition, the variable cost and fixed
cost increased by 20% whereas the unit sales and price declined by 10%. Under an
optimistic economic condition, the variable cost and fixed cost decreased by 20%
whereas the unit sales and price increased by 10%.
As the financial analyst for Sasaie Clan Berhad, you are required to compute:
i) The upper bounds and lower bounds for this projection.
(2 marks)

ii) The best case accounting and cash break-even points.

(4 marks)

iii) The worst case Net Present Value (NPV) for the project.
(3 marks)

iv) Interpret the sensitivity of the base case operating cash flow (OCF) assuming the
fixed cost increases as upper bound's fixed costs.
(6 marks)
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CONFIDENTIAL 3 BA/FEB 2023/FIN544

b) Briefly explain the relationship between operating leverage and breakeven point.

(5 marks)

QUESTION 3

a) As the CFP of Morgane Berhad, you are trying to assess whether the company should
use all its cash to pay cash dividend or to repurchase stocks.

Cash RM210,000
EAT RM25.000
Equity RM800.000
Number of shares outstanding 80,000 units

Given the above information, compute:

i) Price Earnings Ratio (PER) if the company decide to use all its cash to repurchase
stock.
(5 marks)

ii) PER if the company decide to use all its cash to pay cash dividend.
(5 marks)
b) Illustrate with examples, any four (4) lessons of market efficiency.
(10 marks)

QUESTION 4
a) As the Financial Manager of Kayle Berhad, you are required to make decision on which
machine should your company purchase based on the equivalence annual cost (EAC).
Below are some important data related to Machine A and Machine B:

Machine A Machine B
Total Cost RM85,000 RM80.000
Annual Operating Cost Before Tax RM8.500 RM6.500
Useful Life 4 5
Selling Price at Terminal Year RM5.000 RM2.000
Tax Rate 30% 30%
Discount Rate 12% 10%

(15 marks)

b) Briefly explain two (2) types of cash dividend.

(5 marks)

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QUESTION 5

a) As the senior financial executive of Nacerel Berhad, you are required to perform the
acquisition feasibility analysis between your company and Merabel Berhad. Assume that
both companies have no debt outstanding. Currently, the number of share outstanding of
your company and Merabel Berhad are 280,000 and 220,000 units respectively. Your
company's share price is 10% higher than Merabel Berhad's, which is currently sold at
RM1.50 per share. The synergy projected from the acquisition of Merabel Berhad is
RM300,000. Additionally, it is estimated that Merabel Berhad can be acquired for RM1.80
a share in cash. Compute:

i) Value of Merabel Berhad to Nacerel Berhad.

(2 marks)

ii) The total merger premium.

(1 mark)

iii) Nacerel Berhad's share selling price after acquisition.

(4 marks)

iv) The price per share of the acquisition to Nacerel Berhad if it uses one of its shares
for every five of Merabel Berhad's shares to merge.
(4 marks)

v) The NPV under both cash and stock of the acquisitions,

(4 marks)

b) Discuss any two (2) merger motives.

(5 marks)

END OF QUESTION PAPER

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