[PDF] Financial Management This question paper must not

8CARGML . W .44 %( OSCQRGMLQ ;PC AMKNSIQMPV ;LB 5:89 ?C ;RRCKNRCB

8CARGML / W .44 %( OSCQRGMLQ ;PC AMKNSIQMPV ;LB 5:89 ?C ;RRCKNRCB

8CARGML 0 W /693 OSCQRGMLQ ;PC AMKNSIQMPV ;LB 5:89 ?C ;RRCKNRCB

EPocr(93

9hmPmahPk(CPmPeclcmt

Focahlcm(8wPl(PookhaPSkc(drnl(

FcotclScr(0),2

u31B7=<(a(Hamm(8C(?C3AB7=C:A=@G(/<2(nwuv(03(/BB3;>B32CTNI[N a[N 'QN PZRM XZWbRMNM WV XIPN 'cW WO 'QN 5IVMRMI'N 3V[cNZ 4WWSTN' 'W ZNLWZM dWaZ IV[cNZ[ 'W NILQ UaT'RXTNLQWRLN YaN['RWV) 6W VW' cZR'N Wa' 'QN IV[cNZ[ 'W 'QN A5D[ WV 'QN TRVNM XIPN[ WO 'QN IV[cNZ KWWSTN')7ILQ YaN['RWV R[ cWZ'Q . UIZS[)1l6- 6=;- wC@@-u

7A B6- Q7 :WUN LWaV'Zd8WZNRPV LWaV'Zd k>=B @uB-64J44 Q7-@ $ a-@ G-u@E" >-@ G-u@ a<4:uB7=< @uB-6" >-@ G-u@C" >-@ G-u@

What is the six-month forward exchange rate?

A64JAG Q7-@ $

B64JA4 Q7-@ $

C64JCG Q7-@ $

D64JEF Q7-@ $

2l6- 4=::=E7<5 47@=8-wBH

g@-A--@uB7<5 7@-A-What is the sensitivity of the net present value of the investment project to a change in sales volume?

AEJ5" B6JD" CCJ5" DCJA"

3YC@y7> >:=BA B6- 67AB=@7w ;=D-;-@7w-A u f:7D-@ v-:7-D-A B6uB A6u@- >@7w-A @-4:-wB u:: @-:-Du9aZMRXBTRbNZ

Ae=B -447w7-

Bo-u9 4=@; -447w7-

Ce=B -447w7-

DkB@=<5 4=@; -447w7- 8 B-67 16(=4(B63(4=::=E7<5(AB/B3;37B/:(AB@C1BC@3(B63=@G(7A(1=@@31BS

aIn the traditional view, there is a linear relationship between the cost of equity and financial risk

B Modigliani and Miller said that, in the absence of tax, the cost of equity would remain constant

CPecking order theory indicates that preference shares are preferred to convertible debt as a source of finance

DBusiness risk is assumed to be constant as the capital structure changes

5Whi ch of the following actions is LEAST likely to increase shareholder wealth?

AThe weighted average cost of capital is decreased by a recent financing decision BThe financial rewards of directors are linked to increasing earnings per share CThe board of directors decides to invest in a project with a positive NPV DThe annual report declares full compliance with the corporate governance code

6Whi ch of the following statements are features of money market instruments?

(1)A nego tiable security can be sold before maturity (2)The yi eld on commercial paper is usually lower than that on treasury bills (3)Discou nt instruments trade at less than face value

A2 only

B1 and 3 only

C2 and 3 only

D1, 2 and 3

7The following are extracts from the statement of profit or loss of CQB Co:

$"000

Sales income60,000

Cost of sales50,000-------

Profit before interest and tax10,000

Interest4,000-------

Profit before tax6,000

Tax4,500-------

Profit after tax1,500-------

60% of the cost of sales is variables costs.

What is the operational gearing of CQB Co?

A5·0 times

B2·0 times

C0·5 times

D3·0 times

9-m4r4l4

FThe management of XYZ Co has annual credit sales of $20 million and accounts receivable of $4 million. Working

capital is financed by an overdraft at 12% interest per year. Assume 365 days in a year. What is the annual finance cost saving if the management reduces the collection period to 60 days?

A$85,479

B$394,521

C$78,904

D $68,384

9Whi ch of the following statements concerning financial management are correct?

(1)It is concerned with investment decisions, financing decisions and dividend decisions (2)It is concerned with financial planning and financial control (3)It con siders the management of risk

A1 and 2 only

B1 and 3 only

C2 and 3 only

D1, 2 and 3

10SKV Co has paid the following dividends per share in recent years:Year20X420X320X2 20X1

Dividend ($ per share)0·3600·3380·328 0·311 The dividend for 20X4 has just been paid and SKV Co has a cost of equity of 12%.

Using the geometric average historical dividend growth rate and the dividend growth model, what is the market

price of SKV Co shares on an ex dividend basis?

A$4·67

B$5·14

C$5·40

D$6·97

11'There is a risk that the value of our foreign currency-denominated assets and liabilities will change when we prepareour accounts"To which risk does the above statement refer?ATranslation risk

BEconomic risk

CTransaction risk

DInterest rate risk

A

89The following information has been calculated for A Co: Trade receivables collection period:52 days

Raw material inventory turnover period:

42 days

Work in progress inventory turnover period:30 days

Trade payables payment period:66 days

Finished goods inventory turnover period:45 days

What is the length of the working capital cycle?

A103 days

B131 days

C235 days

D31 days

13Which of the following is/are usually seen as benefits of financial intermediation?

(1)Intere st rate fixing (2)Risk p ooling (3)Maturi ty transformation

A1 only

B1 and 3 only

C2 and 3 only

D1, 2 and 3

14Which of the following statements concerning working capital management are correct?

(1)The tw in objectives of working capital management are profitability and liquidity (2)A cons ervative approach to working capital investment will increase profitability (3)Workin g capital management is a key factor in a company"s long-term success

A1 and 2 only

B1 and 3 only

C2 and 3 only

D1, 2 and 3

15Governments have a number of economic targets as part of their monetary policy.

Which of the following targets relate predominantly to monetary policy? (1)Increa sing tax revenue (2)Contro lling the growth in the size of the money supply (3)Reduci ng public expenditure (4)Keepin g interest rates low

A1 only

B1 and 3

C2 and 4 only

D2, 3 and 4

(30 marks)

B-m4r4l4

u31B7=<(b(H(amm(8C(?C3AB7=C:A=@G(/<2(nwuv(03(/BB3;>B32CTNI[N a[N 'QN PZRM XZWbRMNM WV XIPN 'cW WO 'QN 5IVMRMI'N 3V[cNZ 4WWSTN' 'W ZNLWZM dWaZ IV[cNZ[ 'W NILQ UaT'RXTNLQWRLN YaN['RWV) 6W VW' cZR'N Wa' 'QN IV[cNZ[ 'W 'QN A5D[ WV 'QN TRVNM XIPN[ WO 'QN IV[cNZ KWWSTN')7ILQ YaN['RWV R[ cWZ'Q . UIZS[)EQN OWTTWcRVP [LNVIZRW ZNTI'N[ 'W YaN['RWV[ -2e.,)gu@ P= wC@@-7Bu: AB@CwBC@-H

$U$U

T?C7BG 47 f@y7Ou<9 :=u

F" w=

C" @-y--;uv:- >@-4-@-

E4J4IIIIII

l=Bu: -?C7BG ul6- F" :=u< <=B-A u@- w=-@ :=u< <=B- 7< A-D-< G-u@A( B7;-2 a4 <=B w=

<=B-A wu< v- @-y--;-y =< B6- Au;- 4CBC@- yuB- uB B6-7@ <=;7-@ G-u@2

l6- =@y7-@ A6u@-2 l6- wC@@-@7w- =4 B6- w=;>u

7A $54JG4 >-@ A6u@- u@7w-A u@- -F>-wB-y B= 5@=E vG D" >-@ G-u@ 4=@ B6- 4=@-A--uv:- 4CBC@-2 l6- -?C7BG v-Bu =4

gu@ P= 7A 5J62

16l6- :=u< <=B-A u@- A-wC@-y =< <=<1wC@@- wC@@-uWhich of the following shows the sources of finance of Par Co in order of the risk to the investor with the riskiest

first? Ai-y--;uv:- >@-4-@-@-4-@-@-4-@-@-4-@-17Wha t is the conversion value of the 8% loan notes of Par Co after seven years?

A$5DJAG

B$555JGF

C$5A5J56

D$E5JE6

C

8FaAAC ;7<5(B63(1= <=B3A(=4(r/@(c=S a $115·20

B$109·26

C$94·93

D$69·00

19Which of the following statements relating to the capital asset pricing model is correct?

AThe equity beta of Par Co considers only business risk BThe capital asset pricing model considers systematic risk and unsystematic risk CThe equity beta of Par Co indicates that the company is more risky than the market as a whole

DThe debt beta of Par Co is zero

20Which of the following statements are problems in using the price/earnings ratio method to value a company?

(1)It is the reciprocal of the earnings yield (2)It com bines stock market information and corporate information (3)It is difficult to select a suitable price/earnings ratio (4)The ra tio is more suited to valuing the shares of listed companies

A1 and 2 only

B3 and 4 only

C1, 3 and 4 only

D1, 2, 3 and 4

D-m4r4l4

bnk lurru1otm -hktexou xkre.k- .u w/k-.out- 43347ZPS Co, whose home currency is the dollar, took out a fixed-interest peso bank loan several years ago when peso interest

rates were relatively cheap compared to dollar interest rates. ZPS Co does not have any income in pesos. Economic

difficulties have now increased peso interest rates while dollar interest rates have remained relatively stable.

ZPS Co must pay interest on the dates set by the bank. A payment of 5,000,000 pesos is due in six months" time. The

following information is available:

Spot rate12·500-12·582 pesos per $

Six-month forward rate 12·805-12·889 pesos per $

Interest rates which can be used by ZPS Co:

3SVVSc5ITSWNZ

Peso interest rates10·0% per year7·5% per year Dollar interest rates4·5% per year3·5% per year A6s6uB$ 7A$B6-$y=::u@$w=AB$=4$u$4=@Eu@y$;u@9-B$6-y5-P

Q$390,472

T$387,928

X$400,000

Y$397,393

AAs67w6$ =4$B6-$4=::=E7<5$7A4u@-$w=@@-wB$4=@$v=B6$>C@w6uA7<5$>=E-@$>u@7BG$B6-=@G$uu@7BG$B6-=@GP

(1)The th eory holds in the long term rather than the short term (2)The ex change rate reflects the different cost of living in two countries

(3)The cu rrency of the country with the higher inflation rate will weaken against the other currency

Q2 and 3

T1 and 2

X1 and 3

Y1 only

ABs6uB$ u@-$B6-$u>>@=>@7uB-$A7F2;=u-A=$>uG;-

CA7<5$u$;=<-G$;u@9-B$6-y5-P

5ITSWNZVEZI3SVVScNRLVEZI

Q7·5%4·5%

T1·75%5·0%

X3·75%2·25%

Y3·5%10·0%

ACs67 w6$=4$B6-$4=::=E7<5$;-B6=yA$u@-$>=AA7v:-$EuGA$4=@$tlo$X=$B=$6-y5-$7BA$-F7AB7<5$4=@-75<$wC@@- (1)Matchi ng receipts and payments (2)Curren cy swaps (3)Leadin g or lagging (4)Curren cy futures

Q1, 2, 3 and 4

T1 and 3 only

X2 and 4 only

Y2, 3 and 4 only

E

9CZPS Co also trades with companies in Europe which use the Euro as their home currency. In three months" time ZPS

Co will receive 300,000 from a customer.

Which of the following is the correct procedure for hedging this receipt using a money market hedge?

AStep 1Borrow an ap propriate amount in Euro nowStep 2Convert the Euro amount into dollarsStep 3Place the do llars on depositStep 4Use the cust omer payment to repay the loan

BStep 1Borrow an ap propriate amount in dollars nowStep 2Place the do llars on deposit nowStep 3Convert the dollars into Euro in three months" time Step 4Use the cust omer payment to repay the loan

CStep 1Borrow an ap propriate amount in dollars nowStep 2Convert the dollar amount into EuroStep 3Place the Eur o on depositStep 4Use the cust omer payment to repay the loan

DStep 1Borrow an ap propriate amount in Euro nowStep 2Place the Eur o on deposit nowStep 3Convert the Euro into dollars in three months" time Step 4Use the cust omer payment to repay the loan

F-m4r4l4

bnk lurru1otm -hktexou xkre.k- .u w/k-.out- 48352Ridag Co operates in an industry which has recently been deregulated as the government seeks to increase competition

in the industry.

Ridag Co plans to replace an existing machine and must choose between two machines. Machine 1 has an initial cost of

$200,000 and will have a scrap value of $25,000 after four years. Machine 2 has an initial cost of $225,000 and will

have a scrap value of $50,000 after three years. Annual maintenance costs of the two machines are as follows:

DIEV,-./

Machine 1 ($ per year) 25,00029,00032,00035,000

Machine 2 ($ per year)15,00020,00025,000

Where relevant, all information relating to this project has already been adjusted to include expected future inflation.

Taxation and tax allowable depreciation must be ignored in relation to Machine 1 and Machine 2.

Ridag Co has a nominal before-tax weighted average cost of capital of 12% and a nominal after-tax weighted average cost

of capital of 7%.

AEe<$@ -:uB7=<$B=$n7yu5$X=1$E67w6$=4$B6-$4=::=E7<5$ABuB-;--B7B7=<$u (1)Increa sed competition should encourage Ridag Co to reduce costs (2)Deregu lation will lead to an increase in administrative and compliance costs for Ridag Co (3)Deregu lation should mean an increase in economies of scale for Ridag Co (4)Deregu lation could lead to a decrease in the quality of Ridag Co"s products

Q1 and 4

T2 and 3

X1 and 3

Y2 and 4

AFs6uB$ 7A$B6-$-?C7Du:-Q$90,412

T$68,646

X$83,388

quotesdbs_dbs4.pdfusesText_8