CONFIDENTIAL 1 FEB 2022/FIN420 UNIVERSITI TEKNOLOGI MARA FINAL TEST COURSE : FINANCIAL MANAGEMENT COURSE CODE : FIN420 EXAMINATION : FEB 2022 TIME : 3 HOURS INSTRUCTIONS TO CANDIDATES 1. This question paper consists of four (4) questions. 2. Answer ALL questions. Start each answer on a new page. 3. Do not bring any material into the examination room unless permission is given by the invigilator. 4. A four-page interest factor table is attached as appendices. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 7 printed pages © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL This study source was downloaded by 100000864154314 from CourseHero.com on 01-17-2024 00:50:33 GMT -06:00 https://www.coursehero.com/file/147934766/FINAL-TEST-FIN420-Feb-2022doc/
CONFIDENTIAL 2 FEB 2022/FIN420 QUESTION 1 Al-Ikhlas Sport World, a chain of sporting goods stores, sells 30,000 dozen tennis balls per year. The tennis balls cost Al-Ikhlas Sport World RM15 for 1 dozen. Annual inventory carrying cost are 20 percent of inventory price. The costs of placing and receiving an order are RM72. Assume the inventory replenishment occurs virtually instantaneously. Al-Ikhlas Sport World usually carries 2 percent from sales level for desired safety stock. Based on the recent experience, Al-Ikhlas Sport World uses 7 days delivery time for planning purposes. (Assume 360 days in a year) a) Calculate the Economic Order Quantity (4 marks) b) Calculate the number of orders to be placed (3 marks) c) What is the average inventory? (3 marks) d) Determine the reorder point? (4 marks) e) What are the company’s total inventory costs for the year? (6 marks) QUESTION 2 Calculate the annual effective interest rate (EIR) of the following financing agreements for 2021. a) Permai Bhd is trying to raise RM350,000 in six months. They decided to obtain a straight loan in which the OCD bank charges 11.5 percent interest rate. (5 marks) b) Sakura Bhd needs RM750,000 for five months for a diversification project. A RM2.5 million revolving credit agreement is offered by AxeY bank to borrow at the prime rate of 7.5 percent. The agreement requires the company to maintain a 10 percent compensating balance on funds borrowed under the agreement. In addition, there is a commitment fee of 2 percent on the unused fund. (6 marks) c) Appeton Bhd needs to acquire RM800,000 in six months for a new project. To fund the project the company issue commercial papers with a value of RM40,000 each paper at an interest of 8 percent per annum. The issuing cost is RM1,900 per paper. (5 marks) d) CintaMaya Bhd requires RM350,000 for a period of four months to acquire a new machine .RKB Bank has offered a loan facility at an interest rate of 15 percent per annum. This discounted loan requires a compensating balance of 9 percent. (4 marks) This study source was downloaded by 100000864154314 from CourseHero.com on 01-17-2024 00:50:33 GMT -06:00 https://www.coursehero.com/file/147934766/FINAL-TEST-FIN420-Feb-2022doc/
CONFIDENTIAL 3 FEB 2022/FIN420 QUESTION 3 BA Berhad is measuring its overall cost of capital. The firm is in the 30% tax bracket. Current information with regard to the choices of financing. a) The firm can raise debt by selling RM1,000 par value bond, 10% coupon interest rate, 15 years bonds on which annual interest payments will be made. The bond will be selling at a premium 10% of its par value. The firm will be paying floatation cost of RM80 per bond. (8 marks) b) The firm is going to issue a 10% (annual dividend) preferred stock with a par value of RM100. The selling price of the preferred stock is expected to be RM90 with a floatation fee of RM5 per share. (4 marks) c) The firm’s common stock is currently selling for RM45 per share in the stock market. The firm’s dividends have been growing at an annual rate of 10%, and this rate is expected to continue in the future. The floatation costs are expected to be RM5 per share. The last dividend declared was RM5 per share. (6 marks) d) Determine and justify which alternative should BA Bhd choose. (2 marks) QUESTION 4 As a financial manager you are to evaluate two mutually exclusive projects A and B for your company. The cashflows of each project are given below. Year Project A Project B 0 (50000) (60000) 1 30000 20000 2 15000 20000 3 8000 20000 4 8000 20000 5 8000 20000 a) Calculate the payback period for both projects. (6 marks) b) If the cost of capital is 12%, determine the net present value (NPV) for both projects. (12 arks) c) Using the NPV technique, which project would you choose if they are mutually exclusive. (2 marks) END OF QUESTION PAPER This study source was downloaded by 100000864154314 from CourseHero.com on 01-17-2024 00:50:33 GMT -06:00 https://www.coursehero.com/file/147934766/FINAL-TEST-FIN420-Feb-2022doc/
CONFIDENTIAL 4 This study source was downloaded by 100000864154314 from CourseHero.com on 01-17-2024 00:50:33 GMT -0
FEB 2022/FIN420 06:00
CONFIDENTIAL 5 This study source was downloaded by 100000864154314 from CourseHero.com on 01-17-2024 00:50:33 GMT -0
FEB 2022/FIN420 06:00
CONFIDENTIAL 6 This study source was downloaded by 100000864154314 from CourseHero.com on 01-17-2024 00:50:33 GMT -0
FEB 2022/FIN420 06:00
CONFIDENTIAL 7 This study source was downloaded by 100000864154314 from CourseHero.com on 01-17-2024 00:50:33 GMT -0Powered by TCPDF (www.tcpdf.org)
FEB 2022/FIN420 06:00