ANSWER BOOKLET

Fill in the information required below.

MATRIC NO MC201012517
PROGRAMME Bachelor of Business Administration (BBA) HONS OL
COURSE CODE BAFB3013
INSTRUCTIONS
COURSE TITLE Finance Management TO
SEMESTER Semester 7 CANDIDATES:
SECTION MCO31
DATE 18 December 2022 1. Your
answer can be type-written directly onto the ANSWER SHEET provided.
2. If you choose to handwrite, use only blue or black pens. Write legibly and clearly. Scan your completed answer and
insert only ONE (1) image per page onto the ANSWER SHEET provided.
3. You have the responsibility to make sure that what you submitted is the complete FINAL version of your answer
as no resubmission or correction is allowed. Follow the instructions given on the cover page when submitting your
answer.
4. Submit your answers in ONE (1) file. Do NOT submit multiple files. If you have many files, kindly ZIP your files.
Submission must ONLY be in Microsoft Word / Excel / PDF format.
5. Begin each question on a fresh page. Write your matric number on top of every page.
6. If you wish to type-write your answers, kindly use ARIAL font and size 10.

Write down in the boxes below the questions attempted in sequence.

Compulsory to For examiner’s use For external

be filled up by only examiner’s use
student only
Section/Question Marks Marks
Number Total Obtained Obtained

Grand
Total

Type or insert your scanned answer on this answer booklet.

-------------------------------------------------------------------------------------------------------------------------------
 1.) Which of the following should be included in the initial outlay?

A. Purchase price of new equipment

B. Increased working capital requirements
C. Pre-existing firm overhead reallocated to the new project
D. A and B above

2. Which of the following is NOT included in the calculation of the initial outlay for a capital
budget?

A. Additional working-capital investments

B. Training expenses
C. Installation
D. All is included in the initial outlay

3. Dividend policy is influenced by:

A. a firm's capital structure mix.

B. a company's investment opportunities.
C. a company's availability of internally generated funds.
D. all of the above.

4. Which of the following dividend policies will cause dividends per share to fluctuate the most?

A. Stable dollar dividend

B. Constant dividend payout ratio
C. Small, low, regular dividend plus a year-end extra
D. No difference between the various dividend policies

5. Which of the following statements would be consistent with the bird-in-the-hand dividend
theory?

A. Dividends are less certain than capital gains

B. Dividends are more certain than capital gains income
C. Investors are indifferent whether stock returns come from dividend income or capital gains
income
D. Wealthy investors prefer corporations to defer dividend payments because capital
gains produce greater after-tax income
6. Which of the following is the most valid reason to split a stock that has a market price of RM110
per share?

A. Conserve cash
B. Obtain additional capital
C. Increase investor's net worth
D. Reduce the market price to a more popular trading range

7. A firm following an aggressive financing policy is:

A. not subject to any increased risks regarding cash shortfall.

B. subject to a negligible increased risk of a cash shortfall.
C. subject to increased risks of a cash shortfall.
D. none of the above.

8. The risk-return trade-off in managing a firm's working capital involves which of the following?

A. A trade-off between debt and equity

B. A trade-off between liquidity and activity
C. A trade-off between the firm's liquidity and its profitability
D. None of the above

9. Which of the following statements about factoring is TRUE?

A. The borrowing firm can obtain a greater advance against inventory in a factoring
arrangement than in a typical line of credit secured by accounts receivable
B. The firm, not the factor, bears the risk of collecting bad receivables in a factoring
arrangement
C. Factoring involves the outright sale of a firm's accounts receivable to the factor
D. Factoring firms sell the receivables of other firms

10. A company is technically insolvent when:

A. current ratio is less than 1.0.

B. cash outflows in a given period are greater than cash inflows.
C. earnings before interest payments are less than the interest payments.
D. it lacks the necessary liquidity to promptly pay its current debt obligations.

11. Queen's Fabrication Shop is purchasing a new rivet machine to replace an existing one. The new
machine costs RM8,000 and will require an additional cost of RM1,000 for modification. It will be
depreciated using simplified straight-line depreciation over five years. The new machine operates
much faster than the old machine and with better quality. Consequently, sales are expected to
increase by RM2,100 per year for the next five years. While it is faster, it is fully automated and
will result in increased electricity costs for the firm by RM700 per year. It will, however, save about
RM850 per year in labor costs. The old machine is 20 years old and has already been fully
depreciated. If the firm's marginal tax rate is 28%, compute the after-tax incremental cash flows
for the new machine for year 1.
 A. RM450
B. RM2,698
C. RM2,124
D. RM1,620

12. Prince Industries is considering purchasing a new machine. It will replace an existing but obsolete
machine that will be sold for RM40,000. The existing machine is 8 years old, cost RM150,000, had
a 10-year useful life, and is being depreciated to zero using the straight-line method. Prince's
income tax rate is 40%. What is the after-tax salvage value of the old machine?

A. RM6,000
B. RM24,000
C. RM36,000
D. RM40,000

13. Princess Berhad is considering the acquisition of a new processing line. The processor can be
purchased for RM3,750,000; it will have a 10-year useful life. It will cost RM165,000 to ship and
RM85,250 to install the processor. A recently completed feasibility study that was performed at a
cost of RM65,000 indicated that the processor would produce a positive NPV. The processor will
be depreciated using the straight-line method to zero expected salvage value. Studies have shown
that employee-training expenses will be RM125,000. What will be the annual depreciation
expense of the processing line for capital budgeting purposes?

A. RM375,000
B. RM419,025
C. RM390,000
D. RM400,025

14. King Shade Berhad will use an estimated 50,000 gumbands in its manufacturing process next year.
The carrying cost of gumband inventory is RM.04 per unit and the cost of reordering gumbands is
RM50 per order. What is King Shade's economic ordering quantity for gumbands (round to the
nearest 100 gumbands)?

A. 11,200
B. 10,200
C. 10,700
D. 12,100

15. Sisters Berhad collects its accounts receivable in 48 days. The firm has a net profit margin of 8.6%.
On average, Sisters Berhad has about 113 days' worth of inventory on hand. The firm's times
interest earned is 6.33 and accounts payable are paid in about 38 days. What is the firm's "cash
conversion cycle"?

A. 15
B. 214
C. 161
D. 123
Section B

Question 1

Mee Kolok Berhad had developed the following income statement for its operations ended 30
June 2022.
RM
Sales 384,000
(-) Variable Cost 230,400
(-) Fixed Costs 96,000
Earnings Before Interest and Taxes 57,600
Interest Expense 19,200
Earnings Before Tax 38,400
Taxes@ 28% 10,752
Net Income 27,648

Required:
a) At the sales level of 19,200 units, calculate the break-even point in unit and in RM.
(6 Marks)

Break-even point Unit= Fixed Costs/ Contribution Margin per unit, or

Break-even Point (BEP)in RM = Fixed Costs/ Contribution Margin ratio

Contribution per unit = selling price – variable cost

= 20-6=14

Fixed cost = RM9000000

Break-even point Unit= 9000000/14= 642857.1429units

Break-even point in RM= 642.857 x 20= RM12857140

b) Calculate the degree of operating leverage (DOL), the degree of financial leverage (DFL) and the
degree of total leverage (DTL}.
(6 Marks)

c) If sales should increase by 10%, by what percent would EBIT increase?

(2 Marks)

If sales increase by 20% the volume of sales in units = 120*1000000/100 = 12000000

Contribution in value. number of units sold

Less fixed cost = 9000000

EBIT = 16800000-9000000 = 7800000

 Interest expenses = 900000

Earnings before taxes = 7800000 – 900000 = 6900000

Taxes 35% = 2415,000 = 4,485000

Number of shares = 2000000

Earnings per share = Total net income/number of shares = 4,485000/2,000000= 2.2425

d) Current Earning per Share (EPS) is RM3.60. Calculate the new EPS for Mee Kolok Berhad Berhad
next year if sales increase by 15%.
(6 Marks)

EBIT at sales of 1000000= 5000000

EBIT after-sales increase by 20% (calculated above) = 7800000

Percentage increase in EBIT = increase EBIT at sales of 1200000*100/ EBIT at sales of

1000000 = 2800000*100/5000000 = 56%
(Total: 20 Marks)

Question 2

YeeMee Berhad, a producer of instant noodles, is in this situation.

EBIT = RM4.0 million

Tax Rate = 25%
Debt outstanding = RM2.0 million
Kd = 10%
Ks = 15%
Share Outstanding = 600000
Book value per share = RM10.00.

The company expects no growth, all earnings are paid out as dividends. The debt consists of
perpetual bonds.
Required:

a) What are YeeMee's earnings per share (EPS) and its price per share (Po)? (6 Marks)

EPS = RM4 million – RM 60000 = RM3940000

RM3940000 / RM60000 = RM65.67

(4 Marks)

b) What is YeeMee's weighted average cost of capital (WACC)?

0.10 x 15% 0.015

RM4 Million / RM2 Million

= RM2 Million
 c) YeeMee can increase it debt by RM8.0 million, to a total of RM10.0 million, using
the new debt to buy back and retire some of the shares at the current price. Its
interest rate on debt will be 12% (it will have to call and refund the old debt), and
its costs of new equity will rise from 15% to 17%. EBIT will remain constant. Should
YeeMee change its capital structure? (10
Marks)

(Total: 20 Marks)

Question 3

CurryMee Berhad projected sales and purchases for the month of September
to December 2022 as below:

2022 Purchases (RM) Sales (RM)

Seotember 12,000 17,000
October 14,000 22,000
November 13,000 18,000
December 14,000 14,000

Wages of RM1,500 are paid in the month that they are incurred. Overhead
expenses of RM1,200 is due each month and these are paid one month in
arrears. On 1 November 2022, the company plan to buy a second-hand van for
RM18,000.

Sales are all on credit and the company policy is to allow a 30-day credit period.
Half of the purchases are on credit and the length of credit period allowed is a
month. The other half of the purchases are for immediate settlement. The
balance at the bank as of 1 October 2022 is RM25,000.

Required:

Produce a cash budget for the 3-month period ending 31 December 2022. (20
Marks)

2022 Purchases(RM) Sales Balance

September 12000 17000 5000

October 14000 22000 8000

November 13000 18000 5000

December 14000 14000 0

Financial Management (BAFB3013) CONFIDENTIAL
Final Examination September 2022

Matric No:MC201012517

*** END OF ANSWER SHEET ***

Page 2 of 9