MULTIMEDIA UNIVERSITY

Size: px

Start display at page:

Download "MULTIMEDIA UNIVERSITY"

Lorraine Newton
6 years ago
Views:

1 STUDENT ID NO MULTIMEDIA UNIVERSITY FINAL EXAMINATION TRIMESTER 1, 2014/2015 DBM5028 BUSINESS FINANCE (For Diploma Students Only) 24 SEPTEMBER p.m p.m (2 Hours) INSTRUCTIONS TO STUDENT 1. This question paper consists of NINE (9) pages only excluding the cover page. 2. Answer ALL questions. 3. Answers for Section A and B should be shaded on the OMR sheet provided. 4. For Section C, please write your answer in the answer booklet provided. 5. The formula tables are given in the Appendix.

2 SECTION A: MULTIPLE CHOICE QUESTIONS (30 marks) Instruction: Please shade your answers on the OMR sheet provided. 1. If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas? A. Investments. B. International finance. C. Corporate finance D. Capital management. 2. Which ONE of the following is a capital structure decision? A. Setting the terms of sale for credit sales. B. Selecting new equipment to purchase. C. Establishing the preferred debt-equity level. D. Determining the optimal inventory level. 3. Which ONE of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? A. Corporation. B. Limited liability company. C. Limited partnership. D. General partnership. 4. The primary goal of financial management is to maximize which one of the following for a corporation? A. Market share B. Current profits. C. Market value of existing stock. D. Number of shares outstanding. 5. Which ONE of the following is an intangible fixed asset? A. Machinery. B. Copyright. C. Building. D. Inventory. 6. Which ONE of the following statements concerning the balance sheet is CORRECT? A. Net working capital is equal total assets minus total liabilities. B. Total assets equal total liabilities minus total equity. C. Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt. D. Assets are listed in descending order of liquidity. UUMY/DS 1/9

3 7. Fahmi earned RM100 in interest on his savings account last year. Fahmi has decided to leave the RM120 in his account so that he can earn interest on the RM100 this year. This process of earning interest on prior interest earnings is called A. compounding. B. discounting. C. indexing. D. multiplying. 8. Jay needs to borrow RM8,000 for 8 years. The loan will be repaid in one lump sum at the end of the loan term. Which ONE of the following interest rates is best for Jay? A. 8 percent interest, compounded annually. B. 8 percent simple interest. C. 8.5 percent simple interest. D. 9 percent interest, compounded annually. 9. KLP Bank pays 3 percent interest, compounded annually, on its savings accounts. BVN Bank pays 3 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have RM1,800 in your account 3 years from today. The amount you must deposit today A. will be greater if you invest with KLP Bank. B. will be greater if you invest with BVN Bank. C. is the same regardless of which bank you choose because they both pay compound interest. D. is the same regardless of which bank you choose because the time period is the same for both banks. 10. A+ Sdn. Bhd. invested RM110,000 at 6.5 percent interest, compounded annually for 4 years. How much interest on interest did the company earn over this period of time? A. RM2, B. RM3, C. RM3, D. RM2, Which ONE of the following will decrease the present value of an annuity? A. Decrease in the annuity payment. B. Decrease in the discount rate. C. Increase in the time period. D. Increase in the payment amount. UUMY/DS 2/9

4 12. Which of the following characteristics apply to a perpetuity? I. Constant cash flow dollar amount. II. Unequal cash flow dollar amount. III. Limited time period. IV. Infinite time period. A. I and IV only. B. I and III only. C. II and IV only. D. II and III only. 13. The annual interest divided by the face value of a bond is referred to as the: A. coupon rate. B. market rate. C. call rate. D. current yield. 14. Which of the following ratings indicate that a bond is low-quality? I. Baa. II. BB. III. B. IV. Ba. A. I, II, and III only. B. II, III, and IV only. C. II and III only. D. II only. 15. Newly issued securities are sold to investors in which ONE of the following markets? A. Proxy. B. Secondary. C. Inside. D. Primary. 16. KLK common stock is selling for RM36 a share and has a dividend yield of 3.2 percent. What is the dividend amount? A. RM11.25 B. RM1.15 C. RM0.32 D. RM3.49 UUMY/DS 3/9

5 17. The Dlady Company stock is selling for RM32.60 a share based on a 14 percent rate of return. What is the amount of the next annual dividend if the dividends are increasing by 2.5 percent annually? A. RM3.52 B. RM3.57 C. RM3.48 D. RM The BT pays an annual dividend of RM2.40 per share and sells for RM46.60 a share based on a market rate of return of 15 percent. What is the capital gains yield? A percent. B percent. C percent. D percent. 19. Which ONE of the following defines the internal rate of return for a project? A. Discount rate which results in a net present value equal to the project's initial cost. B. Discount rate that creates a zero cash flow from assets. C. Rate of return required by the project's investors. D. Discount rate which results in a zero net present value for the project. 20. Which ONE of the following statements is CORRECT? A. The payback period ignores the time value of money. B. A longer payback period is preferred over a shorter payback period. C. The payback rule is biased in favour of long-term projects. D. The payback rule states that you should accept a project if the payback period is less than one year. 21. You were recently hired by a firm as a project analyst. The owner of the firm is unfamiliar with financial analysis and only wants to know what the expected dollar return is per dollar spent on a given project. Which financial method of analysis will provide the information that the owner requests? A. Payback. B. Net present value. C. Profitability index. D. Internal rate of return. UUMY/DS 4/9

6 22. Which ONE of the following is the length of time that a retailer owes its supplier for an inventory purchase? A. Accounts receivable period. B. Accounts payable period. C. Operating cycle. D. Inventory period. 23. Which of the following are sources of cash? I. Decreasing accounts receivable II. Increasing inventory. III. Increasing accounts payable. IV. Increasing common stock. A. II and III only. B. I and IV only. C. I and III only. D. I, III, and IV only. 24. Which ONE of the following actions will decrease the operating cycle? A. Increasing inventory. B. Buying more inventory with cash rather than with credit. C. Paying suppliers faster. D. Lessening the production time needed to manufacture a good for sale. 25. Tan Chong Sdn. Bhd. has sales for the year of RM46,300 and cost of goods sold of RM21,700. The firm carries an average inventory of RM4,800 and has an average accounts payable balance of RM4,400. What is the inventory period? A days. B days. C days. D days. 26. The local toy store has to restock a popular video game every 4 days as it completely sells out in that period of time. What is the inventory turnover rate for this game? A times. B times. C times. D times. UUMY/DS 5/9

7 27. Which ONE of the following BEST defines the term collection policy'? A. Set of procedures a firm follows in collecting accounts receivable. B. Daily process of handling cash inflows and outflows of cash. C. Set of guidelines used by a firm to determine the cost of offering credit to its customers. D. Process of determining the probability customers will not pay. 28. Which ONE of the following BEST defines the term credit scoring'? A. Tracking of both the number and the size of customer orders over a period of time. B. Categorizing customers into groups depending upon the length of time it takes each customer to pay for purchases C. Process of quantifying the probability of default when granting credit to customers. D. Evaluating the opportunity costs of a credit policy. 29. Aqil keeps an extra RM1,500 in its checking account simply in case an emergency arises. Which type of motive for holding cash does this represent? A. Transaction. B. Precautionary. C. Availability. D. Float requirement. 30. Which ONE of the following is a primary benefit of implementing zerobalance accounts into a cash management system? A. Additional cash availability. B. Increased disbursements float. C. Total elimination of all safety stocks. D. Decreased collection float. UUMY/DS 6/9

8 SECTION B: TRUE/FALSE QUESTIONS (10 marks). Instruction: Please shade your answers on the OMR sheet provided. Mark A for TRUE statements and B for FALSE statements. 31. Agency problem refers to conflict of interest between principal and agent. 32. Balance sheet measures a company performance over a specified period of time example per year. 33. The present value of a lump sum future amount decreases as the time period decreases. 34. When comparing savings accounts, you should select the account that has the highest effective annual rate. 35. When a bond's yield to maturity is less than the bond's coupon rate, the bond is selling at a premium. 36. Dividends of common stock must be paid before dividends can be paid to preferred stockholders. 37. Internal rate of return that exceeds the required return indicates that an investment is acceptable. 38. Net working capital = (Cash Other current assets) Current liabilities 39. As of this morning, your firm had a ledger balance of RM740 with no outstanding deposits or checks. Today, your firm deposited 5 checks in the amount of RM89 each and wrote a check in the amount of RM330. The amount of the collection float as of the end of the day is equal to RM JIT system is a modern approach to managing demand-dependent inventories that minimizes inventory holdings. UUMY/DS 7/9

9 SECTION C: STRUCTURED QUESTIONS (60 marks) Instruction: Please write all your answers in the Answer Booklet provided. QUESTION 1 (15 Marks) a. Johari, the treasurer of Aman Budi Sdn. Bhd. has projected the cash flows for projects A, B, and C as follows. Year Project A (RM) Project B (RM) Project C (RM) 0-100, , , , ,000 75, , ,000 60,000 Suppose the relevant discount rate is 12 percent a year. i. Compute the Net Present Value for each of the three projects. (6 marks) ii. Compute the profitability index for each of the three projects. (3 marks) iii. Suppose these three projects are mutually exclusive. Which project(s) should Johari accept based on the profitability index and Net Present Value rule? (2 marks) b. The Delion Sdn. Bhd. requires an average accounting return (AAR) of at least 17 percent on all fixed asset purchases. Currently, it is considering some new equipment, which costs them RM168,000. This equipment will have a 4-year life over time, which it will be depreciated on a straight line basis to a zero book value. The annual net income from this equipment is estimated to be RM8,100, RM10,300, RM17,900, and RM19,600 for the four years. i. Should this purchase occur based on the accounting rate of return? Show your necessary workings. (3 marks) ii. Provide your reason based on your answer in (i) above. (1 mark) QUESTION 2 (15 Marks) Magnificent Three Berhad had the following operating results for 2012: Sales, RM 1,500,000; Cost of goods sold, RM462,000; Depreciation expense, RM380,100; Interest expense, RM128,400; Other cost, RM105,700. At the beginning of the year, Net fixed assets were RM110,080; Current assets were RM127,520 and Current liabilities were RM111,890. At the end of the year, Net fixed assets were RM100,580; Current assets were RM131,910 and Current liabilities were RM2,270. UUMY/DS 8/9

10 Based on the above situation of Magnificent Three Berhad, compute the following : a. Taxable income (5 marks) b. Tax liability (6 marks) c. The average tax rate (3 marks) d. Marginal tax rate (1 mark) QUESTION 3 (15 Marks) a. Camilla Pop Sdn. Bhd. is taking a RM80,000, three year loan at 8 percent per year, and it is to be paid by making a single, fixed payment every period. Find your total payment, and show your amortization table. (6 marks) b. Harper is planning to own RM100,000, so that he will be able to buy his own car. Therefore, Harper is prepared to make monthly payments of RM175, beginning at the end of this month. Harper intended to make the payments at GHJL Bank, which will offers him 10 percent interest, compounded monthly. How many payments will Harper need to make until his account reaches RM100,000? (5 marks) c. Dominic is planning to make an investment, in which he will have two choices. Investment GT offers him RM4,400 per year for 9 years while Investment DX offers him RM6,100 per year for 5 years. Which of these cash flow streams has the highest present value if the discount rate is 6 percent? (4 marks) QUESTION 4 (15 Marks) a. Ali Aryan is considering a bond, which is issued at par, with a coupon rate of 10 percent and coupons are paid semiannually. The yield to maturity is 13 percent. i. What is the value of the bond if it has 15 years to maturity? (5 marks) ii. Is the bond selling at par, discount or premium? (1 mark) b. List down the SIX (6) types of bonds available for the investors. (3 marks) c. Five years ago, the Freesia Berhad issued a 12 year bonds at par. The bond has a coupon rate of 8 percent and pays interest annually. Today, the market rate of this bond is 10 percent. What is the current yield for this bond? (6 marks) UUMY/DS 9/9 End of Page

Who of the following make a broader use of accounting information?

Who of the following make a broader use of accounting information? Accountants Financial Analysts Auditors Marketers Which of the following is NOT an internal use of financial statements information? Planning