MMEJ3873 Corporate Finance Assignment – Professional Master in Business Administration

MMEJ3873 Question Paper

Professional Master's in Business Administration

Instruction\Arahan:

1. Answer ALL FIVE (5)

Jawab Semua LIMA (5) soalan.

2. Write your name, matric no., identity card no., course code, course name, section no., and lecturer’s name on the first page (in the upper left corner) and every page thereafter on the answer sheet.

Tulis nama anda, no. matrik, no. kad pengenalan, kod kursus, nama kursus, no. seksyen dan nama pensyarah pada muka surat pertama (penjuru kiri atas )kertas jawapan dan pada setiap muka surat jawapan.

3. Each answer sheet must have a page number written at the bottom right corner.

Setiap helai kertas jawapan mesti ditulis nombor muka surat pada bahagian bawah penjuru kanan.

Waring\Amaran

Students caught copying/cheating during the examination will be liable for disciplinary actions and may recommend the student to be expelled from sitting for the exam.

Pelajar yang ditangkap meniru / menipu semasa peperiksaan akan dikenakan tindakan disiplin dan boleh mengesyorkan pelajar diusir dari menduduki peperiksaan.

This examination paper consists of 4 pages, including the cover.

Kertas soalan ini mengandungi 4 muka surat termasuk kulit hadapan.

Question 1

(a) A fixed deposit account with an initial amount of $50,000 earns interest quarterly with compound interest of 4% pa. What is the balance in this account after 3 years? (4 marks)

(b) If you need $50,000 after 7 years at 9%, what amount should you invest today? (4 marks)

(c) An amount of $5,000 deposited today. 7 years later, the balance becomes $7,000. What is the interest rate? (4 marks) 

(Total 12 marks)

Question 2

(a) The current market price of a share is $150. An investor buys 100 shares. After one year, he sells these shares at $180 and also receives the dividend of $7.50 per share. Find out his total return ($), dividend yield (%), and capital gains in both $ and %. (10 marks)

(b) IOI Bhd’s bonds have a par value of $1,000. The bond pays an annual interest of $40 and matures in five years.

i. How much would you pay for the bonds if your required rate of return is 10%? (5 marks)

ii. How much would you pay if your required rate of return is 3%? (5 marks)

(Total 20 marks)

Question 3

(a) Mars Ltd, which is expected to pay a dividend of $0.60 at the end of year 1. Now assume that this dividend is expected to grow at a rate of 10% per annum in perpetuity. If the required rate of return on the share is 20%, compute the market value of one share. (6 marks)

(b) Market average return = 13%
Return on Treasury bill = 5%
Beta value of Share A = 1.4
What is the expected return from Share A by using CAPM? (5 marks)

(c) ABC Co. has a target capital structure of 40% debt and 60% common equity. The yield to maturity on the company’s outstanding bonds is 9%, and its tax rate is 40%. The cost of equity of the company is 13%. What is the company’s WACC? (7 marks)

(d) A company has earnings per share of $5. The P/E of the industry is 6. What is the share price of the company using the P/E multiple? (5 marks)

(Total 23 marks)

Question 4

Save Bhd is considering either buying or renting a machine that can be used for 4 years and will generate annual operating net cash inflows of RM50,000. The purchase cost of the machine is RM100,000, and Save Bhd is to be responsible for the annual maintenance cost of RM15,000. At the end of the 4 years, the machine can be scrapped for RM10,000. However, if the machine has been rented, it will involve an annual rental of RM42,000 payable in arrears for 4 years, and Save Bhd WILL NOT be responsible for any maintenance costs. The cost of capital of the company is 10%.

Required:

(a) Determine the Net Present Value for buying and renting the machine. (20 marks)

(b) Comment on the result of Part (a). (5 marks)

(Total 25 marks)

Question 5

(a) Suggest reasons why a company might buy back its own shares. (10 marks)

(b) Suggest the advantages of mergers and acquisitions. (10 marks)

(Total 20 marks)

MMEJ3873 Question Paper

PROFESSIONAL MASTER IN BUSINESS ADMINISTRATION

Question 1

You are a business consultant and one of your clients is seeking your advice as to whether to fund a major business project by equity capital, debt capital, or a combination of both. Advise your client as to the differences between equity and debt capital and their implications in financing decisions.

(Total 20 marks)

Question 2

(a) Explain any three determinants of dividend policy and how to justify whether a company should pursuit a high dividend or low dividend payout policy. (15 marks)

(b) List and explain any three ways of financing the decision of a merger or acquisition. (15 marks)

(Total 30 marks)

Question 3

Bow Berhad is evaluating a new capital expenditure project. The details are as follows:

• The project requires an immediate cost of RM2,100,000 and a residual value of RM15,000.
• Sales are expected to be RM1,550,000 per annum for years 1 to 3, falling to RM650,000 per annum for the two years after that. No further sales of the product are expected after the end of these five years.
• Cost of sales is 40% of sales.
• Distribution costs represent 10% of sales.
• Administrative costs are 5% of sales.
• The company’s cost of capital is 10%.

Discount factors:        Year                10%               12%

• 909 0.893
• 826 0.797
• 751 0.712
• 683 0.636
• 621 0.567

Required:

Calculate, in relation to the investment project, the:

(i) Net Present Value (NPV) @ 10% (15 marks) (ii) Internal Rate of Return (IRR) to the nearest percent. (10 marks) (iii) Comment on the financial viability of this capital expenditure project ( 5 marks)

(Total 30 marks)

Question 4

The following data relates to Rasa Sayang Bhd :

The Balance Sheet extract of the company as at 31 December 2021:

Capital and Reserve

Ordinary Shares at RM1.00 per share 8% Preference Shares at RM1.00 per share, Reserves

600,000
200,000
800,000
1,600,000

Non Current Liabilities

6% Loan Stock (matures on 31 December 2023)

500,000
2,100,000

Notes:

Current ordinary share price (ex-div) RM1.50.

The current ordinary dividend per share just paid is RM0.10.

The expected annual ordinary dividend growth rate is 3%.

Current preference share price (cum div) RM1.10.

Loan stock is quoted at RM80 per RM100.

Corporate tax rate at 30%

(b)Calculate the WACC for Rasa Sayang Bhd (You may use the market value for weighting)  (5 marks)

(Total 20 marks)