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    Maf605 - Final Exam 24.09.2022

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    sanjuladasan
    The document provides instructions for a final examination for a Master's level course in Accounting and Finance for Managers. It outlines that the exam will be 3 hours in duration and consists of two sections - Part A with 4 questions worth 40 marks total, and Part B with 4 questions worth 60 marks total. The questions cover topics like the use of past financial statements to make future decisions, opportunity cost of investment, relationship between sales and other budgets, weighted average cost of capital, capital budgeting techniques, cash budgeting, financial ratio calculations, and share valuation.

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    Maf605 - Final Exam 24.09.2022

    Uploaded by

    sanjuladasan
    74 views6 pages
    The document provides instructions for a final examination for a Master's level course in Accounting and Finance for Managers. It outlines that the exam will be 3 hours in duration and consists of two sections - Part A with 4 questions worth 40 marks total, and Part B with 4 questions worth 60 marks total. The questions cover topics like the use of past financial statements to make future decisions, opportunity cost of investment, relationship between sales and other budgets, weighted average cost of capital, capital budgeting techniques, cash budgeting, financial ratio calculations, and share valuation.

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    MAF605 - FINAL EXAM 24.09.2022

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    The document provides instructions for a final examination for a Master's level course in Accounting and Finance for Managers. It outlines that the exam will be 3 hours in duration and consists of two sections - Part A with 4 questions worth 40 marks total, and Part B with 4 questions worth 60 marks total. The questions cover topics like the use of past financial statements to make future decisions, opportunity cost of investment, relationship between sales and other budgets, weighted average cost of capital, capital budgeting techniques, cash budgeting, financial ratio calculations, and share valuation.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    74 views6 pages

    Maf605 - Final Exam 24.09.2022

    Uploaded by

    sanjuladasan
    The document provides instructions for a final examination for a Master's level course in Accounting and Finance for Managers. It outlines that the exam will be 3 hours in duration and consists of two sections - Part A with 4 questions worth 40 marks total, and Part B with 4 questions worth 60 marks total. The questions cover topics like the use of past financial statements to make future decisions, opportunity cost of investment, relationship between sales and other budgets, weighted average cost of capital, capital budgeting techniques, cash budgeting, financial ratio calculations, and share valuation.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    FINAL EXAMINATION

    September 2022

    SUBJECT CODE : MAF605

    SUBJECT TITLE : ACCOUNTING AND FINANCE FOR MANAGERS

    LEVEL : MASTER

    TIME / DURATION : 3 HOURS + 15mins reading time


    (Released: 10.00AM – Submission 11.59PM midnight)

    DATE : 24th September 2022

    INSTRUCTIONS TO CANDIDATES

    1. Please read the instructions given in the question paper CAREFULLY.

    2. This question paper consists of TWO (2) Section.

    3. Answer FIVE (5) questions ONLY.

    4. Hand written answer.


    PART A: 40 MARKS
    INSTRUCTIONS: ANSWER TWO (2) QUESTIONS ONLY

    QUESTION 1
    Financial accounting statements tend to reflect past events. Given this, how can they be of any assistance
    to a user in making a decision that can only be made about future actions? Explain briefly.
    (20 marks)

    QUESTION 2
    What is meant by the opportunity cost of investment? What role does it play in capital investment
    decisions?
    (20 marks)

    QUESTION 3
    A budget is a financial plan for implementing management decisions. “All budgets depend on the sales
    budget” Do you agree? Explain your thoughts on this.
    (20 marks)

    QUESTION 4
    On the most basic level, if a firm’s Weighted Average Cost of Capital (WACC) is 10%, what does this mean?
    Why do we use an after-tax figure for the cost of debt but not for the cost of equity?
    (20 marks)
    [Total: 40 marks]
    PART B: 60 MARKS
    INSTRUCTIONS: ANSWER THREE (3) QUESTIONS ONLY

    QUESTION 1
    Consider the following two mutually exclusive projects:

    Year Net Cash Flow Net Cash Flow


    Project A - ($) Project B - ($)
    0 (400,000) (50,000)
    1 20,000 19,000
    2 50,000 12,000
    3 50,000 18,000
    4 500,000 15,000

    Whichever project you choose, if any, you require a 10% return on your investment.
    1. If you apply the payback criterion, which investment will you choose?
    2. If you apply the discounted payback criterion, which investment will you choose?
    3. If you apply the NPV criterion, which investment will you choose?
    4. If you apply the IRR criterion, which investment will you choose?
    5. If you apply the profitability index criterion, which investment will you choose?
    6. Based on your answers in (1) through (5), which project will you finally choose? Why?
    (20 marks)

    QUESTION 2
    Here are some important figures ($) from the budget of Alpha Inc., for the second quarter of 2022:

    Description April May June


    Credit sales 390,000 364,000 438,000
    Credit purchases 147,800 176,300 208,500
    Cash disbursements:
    Wages, taxes, and expenses 53,800 51,000 78,300
    Interest 13,100 13,100 13,100
    Equipment purchases 87,000 147,000 0

    The company predicts that 5% of its credit sales will never be collected, 35% of its sales will be collected
    in the month of the sale, and the remaining 60% will be collected in the following month. Credit purchases
    will be paid in the month following the purchase. In March 2022, credit sales were $245,000, and credit
    purchases were $168,000. The cash balance at the end of March 2022 was $140,000.
    Using the above information, prepare the cash budget of Alpha Inc., for the quarter ended 30th June 2022.
    (Assume today as 1st April 2022)
    (20 marks)
    QUESTION 3
    Some recent financial statements for Paradise Golf Corp. are as follows;

    PARADISE GOLF CORP.,


    Statement of Financial Position as of 31st March
    Equity & Liabilities 2021 – ($) 2022 – ($) Assets 2021 – ($) 2022 – ($)
    Owner’s equity - 25,000 25,000 Fixed assets
    Common stock and paid-
    in surplus
    Retained earnings 151,365 167,840 Net plant and 234,068 260,525
    equipment
    Total equity 176,365 192,840
    Long-term debt 75,000 85,000 Current Assets
    Current liabilities Inventory 23,084 24,650
    Notes payable 10,000 9,000 Accounts receivable 11,316 13,850
    Accounts payable 19,320 22,850 Cash 21,860 22,050
    Other 9,643 11,385 Total current assets 56,260 60,550
    Total current liabilities 38,963 43,235

    Total liabilities & equity 290,328 321,075 Total Assets 290,328 321,075

    PARADISE GOLF CORP.,


    Statement of Profit or Loss for the year ended 31st March 2022
    Sales $ 305,830
    Cost of goods sold $ 210,935
    Depreciation $ 26,850
    Earnings before interest and taxes $ 68,045
    Interest paid $ 11,930
    Taxable income $ 56,115
    Taxes (35%) $ 19,640
    Net income $ 36,475

    Dividends $ 20,000
    Retained earnings $ 16,475

    Calculate the following financial ratios for Paradise Golf Corp. (use year-end figures rather than average
    values where appropriate):
    Short-term solvency ratios:
    1. Current ratio
    2. Quick ratio
    Asset utilization ratios:
    3. Total asset turnover
    4. Inventory turnover
    5. Receivables turnover
    Long-term solvency ratios:
    6. Total debt ratio
    7. Times interest earned ratio
    Profitability ratios:
    8. Profit margin
    9. Return on assets
    10. Paradise Golf Corp. has 25,000 shares of common stock outstanding, and the market price for a
    share of stock at the end of the financial year 2022 was $43. What are the dividends per share?
    (20 marks)

    QUESTION 4
    (a) Unicom Co. has just paid a cash dividend of $2 per share. Investors require a 16% return from
    investments such as this. If the dividend is expected to grow at a steady 8% per year;
    1. What is the current value of the stock?
    2. What will the stock be worth in five years?

    (b) Suppose stock in WXB Corporation has a beta of 0.80. The market risk premium is 6%, and the
    risk-free rate is also 6%. WXB’s last dividend was $1.20 per share, and the dividend is expected to
    grow at 8% indefinitely. The stock currently sells for $45 per share. What is WXB’s cost of equity
    capital?

    (c) In addition to the information given in section (b) above, suppose WXB has a target debt-equity
    ratio of 50%. Its cost of debt is 9% before taxes. If the tax rate is 35%, what is the Weighted
    Average Cost of Capital?

    (20 marks)
    [Total: 60 marks]
    Appendix
    Present value interest factor of $1 per period at i% for n periods, PVIF(i,n).
    Period 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
    1 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333
    2 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.7182 0.7062 0.6944
    3 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787
    4 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0.6355 0.6133 0.5921 0.5718 0.5523 0.5337 0.5158 0.4987 0.4823
    5 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019
    6 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 0.4104 0.3898 0.3704 0.3521 0.3349
    7 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.3538 0.3332 0.3139 0.2959 0.2791
    8 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.3050 0.2848 0.2660 0.2487 0.2326
    9 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938
    10 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220 0.2946 0.2697 0.2472 0.2267 0.2080 0.1911 0.1756 0.1615

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