Section A

Comments and/or
Type/Write/Insert pictures in this column only Mark (Examiner
only)
Q1.
(a)The organisation dilemma occurs where the principals (stockholders) and
the agents have a conflict of interest (managers). The division of possession
and power is the cause for this. Instead of maximising the prosperity of the
principals, the agents might use their power to increase their own welfare,
such as job stability or higher earnings.It depends on how closely
management and shareholders' interests are related. It also depends on how
simple it is for shareholders to fire managers if they do not behave in the best
interests of the shareholders.To tackle this problem, the company's board of
directors must closely track the management's every business operation. A
majority of the board should be made up of independent directors with no
possible conflicts of interest with the firm.They have the right to recruit and
fire managers, but they can prohibit management from approving acts that
are not in the best interests of shareholders, such as stock market
manipulation by incorrect financial records.

Q1.(b)Operating Expenses = 28,000 + 7,000 + 2,500 + 13,000 + 8,000

=RM58,500

Interest Expenses = 0.05 x 190,000 = RM9,500

Tax = 0.25 x 272,000 = RM68,000
Dividends = 4 x 3,000 = RM12,000

Panda Sdn. Bhd.

Statement of Comprehensive Income

RM

Sales 520,000

(-) Cost of Goods Sold 180,000

Gross Profit 340,000

(-) Operating Expenses 58,500

Operating Profit / EBIT 281,500

(-) Interest Expenses 9,500

Earnings Before Tax 272,000

 (-) Tax (25% * EBT) 68,000

Earnings After Tax / Net Profit 204,000

(-) Dividends 12,000

Addition to Retained Earnings 192,000

Section A
Q2.
(a)
Bank A: 5% per annum compounded annually
Compounded Interest = p x [(1+i)n - 1]
= 10,000 x [(1 + 0.05)1 – 1]
= RM500
Bank B: 5% per annum compounded semi-annually
Compounded Interest = p x [(1+i)n - 1]
= 10,000 x [(1 + 0.05/2)(1*2) – 1]
= RM506.25
Bank C: 5% per annum simple interest
Simple interest = pxnxi
= 10,000 x 1 x 0.05
= RM500

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Q2.(b)Compound interest is the interest paid on the principal and all
previous periods' interest. Simple interest is interest paid only on the original
loan number, not on previous interest.Since they both have the same interest
rate and the interest is paid at the same time at the end of the term, which is
one year, the interest amounts for Bank A and Bank C are the same at
RM500 as of Q2(a).

Even if the interest rate and period are the same, Bank B's interest is paid
semi-annually and compounded semi-annually, resulting in a higher interest
sum of RM506.25 than Banks A and C. This means that, despite the fact that
the loan term is the same, each time is half the length of the loans from
Banks A and C.After six months, Bank B paid RM250 in interest, which was
added to the initial principal (RM10000 + RM250) to raise more interest for
the next six months.

Bank C will charge less interest overall on longer-term loans than Bank A.
This is due to Bank C's basic interest rate. This ensures that no extra interest
can be paid on top of the interest charged over the periods.For Bank A,
however, since interest is accrued periodically, the accrued interest paid for
previous periods will be continuously charged for interest in the current
period on loans of more than one year.

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Section B
Q1 .

(a)(i)

Remaining balance = 500,000 – 150,000 = RM350,000

FV = PV x (1+i)n

= 350,000 x (1+0.08)5

= RM514,264.83

Q1.(a)(ii)

Annuity per year = 350,000 / 5 = RM70,000

FVAN = PMT x
[ ( 1+i )n−1 ]
i

= 70,000 x
[ ( 1+ 0.08 )5−1 ]
= RM410,662.07
0.08

Q1.(a)(iii) Investing in (a)(i) would produce a higher profit. This is because,

while both investments have the same overall resources spent, (a)(i) has
more funds invested over a longer period of time than (a)(i) (ii). Because of
time value of capital and investment costs, this is the case. By injecting the
entire remaining balance into the fund at once, the entire remaining balance
would generate dividends for the entire 5-year term. In a(ii), only RM70,000
is generating returns for 5 years, RM70,000 for 4 years, RM70,000 for 3
years and so on. The uninvested amount of money is just idling without
generating any return.

Q1.(a)(iv)
FV = PV x (1+i)n
1,000,000 = 350,000 x (1+0.08)n
2.857 = 1.08n
log 2.857 = n log 1.08
n = 13.64 years

-If Lisa plans to make a lump-sum deposit, she will take 13.64 years..

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Q1.(b)(i)

Stock H

Expected return = (0.15 x -4.5%) + (0.5 x 3%) + (0.35 x 15%)

= 6.075%

Stock Q

Expected return = (0.15 x 3.3%) + (0.5 x 20%) + (0.35 x 32%)

= 21.695%

Q1.(b)(ii)

Stock H

Standard deviation

¿ √ 0.15 (−4.5−6.075 ) + 0.5 ( 3−6.075 ) +0.35 ( 15−6.075 )

2 2 2

= 7.03%

Stock Q

Standard deviation
¿ √ 0.15 ( 3.3−21.695 ) +0.5 ( 20−21.695 ) + 0.35 ( 32−21.695 )
2 2 2

= 9.45%

Q1.(c) Desmond is a more daring person. To get a better return on his

savings, he is more likely to invest in higher-risk investments. He should go
with Stock Q because it has a greater chance than Stock H due to its higher
standard deviation. Stock Q's estimated return is also better than Stock
H's.However, if he prefers a portfolio that includes both Stock H and Stock
Q, he will reduce his risk. By diversifying his portfolio, he will benefit from
better return than a portfolio of only low-risk stocks while avoiding any of
the risks associated with a portfolio of only high-risk stocks.The portfolio's
proportion of Stocks H and Q can be balanced to fit both his and her risk
perception.

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Section B

Q3 .(a)(i)

Project X

7,000 8,000 9,000 10,000 5,000 2,000

NPV = + + + + + −35,000
( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 )6
1 2 3 4 5

NPV = –RM4,996.14

Project Y

10,000 5,000 4,000 2,000 −1,000 3,000

NPV = + + + + + −14,000
( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 ) ( 1+0.11 )6
1 2 3 4 5

NPV = RM4,319.82

Project X

Payback Period = 4 + 1,000/5,000 = 4.2 years

Project Y

Payback Period = 1 + 4,000/5,000 = 1.8 years

Q3.(a)(ii) The Net Present Value (NPV) approach is used to access a project
expenditure because it acknowledges the time value of assets, the required
rate of return, and all project cashflows, which the Payback Period method
does not.If all proposals have the same NPV and are mutually incompatible,
Project Y should be allowed since it has the higher NPV. This assumes that
even after taking into account the time value of funds and the required rate of
return, the investment can only make money if all potential cash flows are
reduced to the present value.

Q3.(b)

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We = 0.40
Wp = 0.25
Wi = 0.35

Ke = rf + (rm–rf) x beta
= 5 + (8 x 1.5)
= 17%

Kp = 5/25
= 20%

Ki = 7% x (1-0.20)
= 5.6%

WACC =WeKe + WpKp + WiKi

= (0.40 x 17%) + (0.25 x 20%) + (0.35 x 5.6%)
= 13.76%

Q3.(c) Companies will keep their debt-to-equity ratio down while also
raising money to finance their company by selling preferred securities
instead of bonds. This will make it easier for the company to handle its
obligations in the long run.Firms can collect funds without changing their
current control system by selling preferred stock instead of common stock.
This is due to the fact that preferred stockholders do not have the same
voting and preemptive powers as common stockholders.

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