Session Programme Course Date of Examination Time Duration Special Instructions INTI International University tumeare nreUTONAL LANES: aK FINAL Examination Paper (COVER PAGE) August 2012 Bachelor of Accountancy (Hons) Bachelor of Intemational Business (Hons) FINS201: ancial Management 7 07 December 2012 0900 - 1110 Reading Time : _10 minutes 2. Hours 10 minutes ‘This paper consists of TWO (2) sections. Answer all questions fiom SECTION A and any TWO (2) from SECTION B in the answer booklet, All questions carry equal marks. Materials permitted Materials provided Examiner(s) Moderator Financial Calculator 3-page formula sheet at the back of question paper Rebecea Yew Ming Yian Siti Nurbaayah This paper consists of T printed pages, including the cover page.FIN3201 (F) / Page 2 of 3 SECTION B: Answer any TWO (2) questions. Question 3 (@ Explain TWO Q) benefits and TWO (2) limitations of bond finance over equity finance. (12 marks) (b) Prime Corporation 20-year, $1,000 par value bonds pay 6% interest annually. The market price for the bond is $1,085 and your required rate of retum is 8%, (@ Caleulate the bond’s yield to maturity. (5 marks) Gi) Calculate the value of the bond using your required rate of return, (5 marks) Gi) Would you purchase the bond at the current market price? Explain. (@ marks) Question 4 te (a) Preferred stock is said to be a hybrid of common stock and bonds. Explain TWO (2) features where itis like common stock and TWO (2) features where itis like bonds. (12 marks) (b) Bubble Gum Company has outstanding preferred stock with a par value of $50 that pays a dividend of $4.00. The preferred stock is redeemable at the option of the stockholder in 10 years at a price equal to $50, The stock may be called for redemption by the company in 15 years at a price of $54.00. Any stock that is not redeemed at the end of 10 years can be expected to be called by the company in 15 years. If you require a 15% rate of return on this preferred stock, calculate the current market value of this preferred stock. (13 marks) Question 5 Sally Wong has decided to invest her wealth equally across the three following assets. States Probability Asset M Asset N Asset O Return Refurn Return Boom 30% 12% 19% 2% Normal 50% 8% 11% 8% Recession 20% 2% 2% 1% (@) Calculate the expected retums of the equally weighted portfolio in the three economic states. (6 marks) (b) Calculate the expected returs of asset M and the portfolio.FIN3201 Formula sheet / Page { of 3 oe ee “Acid-test (Quick) ratio = (Current assets — inventory)/Cumrent liabilities Sales/Net plant & equipment ns oe ‘Accounts receivable turnover Annual credit sales/Accounts receivable ‘Net operating income or EBIT/Sales > Operating return on assets Net operating income or EBIT/Total assets am ea rice Earnings ratio ‘Market price per share/EPS* “EPS = Fatnings per share ~ Net income/Common shares outstanding, 1 Value of Money FV=PV (iti) PV=PMTIi PV=FV [114i)") PV=PMT peal, BAR = [1+ inen/mn]” - 1 FV=PMT (Hi) — 1/4] PV =PMT [{l — U(14)"} A) PV =PMT (C44)? -14\(14i) PV= PMT (1- 1/(+)"Vi (i)FIN3201 Formula sheet / Page 3 of 3 Capital Budgeting NPV =CFi(IH)" + CP/U+K) +... 2 ACR)? + CB A(+K)" = CEo PI=CRY(+K)! + CR/M+k? + CFo IRR = CRV(L+K)! + CF )/(14K)? +... + CEW(+K)" = CFo PB = Intial Payments/Annual Cash Inflows