FACULTY OF BUSINESS & ACCOUNTANCYFINAL EXAMINATION
FACULTY OF BUSINESS & ACCOUNTANCYFINAL EXAMINATION
COURSE TITLE: RECENT TRENDS IN FINANCIAL DECISION MAKING
COURSE CODE: DBS 7093
PROGRAMME(S): DOCTOR OF BUSINESS ADMINISTRATION
DATE / DAY: 10 SEPTEMBER 2022
TIME / DURATION: 10th-17th September 2022
right28067000INSTRUCTIONS:
Candidates must read all questions carefully.
2.The examination question paper consists of:
Part Types of Questions Instructions Answer sheets
A Short Questions Answer five Questions out of Seven given Answer sheets
B Financial Analysis Answer the question given Answer sheets
EXAMS ALLOW OPEN BOOK AND STUDENTS ARE ALLOWED TO DOWNLOAD EXAMINATION PAPER 30 MINUTES BEFORE EXAMINATION
PART A
(50 Marks)
INSTRUCTION
Answer any five questions out of the seven given. Ten (10) marks per question.
Question 1.
Barington Berhad is considering investing in a developmental research project. The investment opportunities are Project A and Project B, which are mutually exclusive and have the following estimated cash flows:
Year Project A Project B
0 -RM125,000-RM125,000
1 RM52,500RM32,500
2 RM52,500RM32,500
3 RM25,000RM65,000
4 RM25,000RM65,000
5RM20,000RM20,000
Required:
Compute the net present value for each project given a 14% cost of capital for the firm.
Question 2.
Describe the key role of a financial market in the flow of funds, and how an economy might
lose out when its financial markets are not developed.
Question 3.
The following data is taken from Pickson Berhads financial statement for 2020 and 2021
Financial year ended
31 December 2020 31 December 2021
(RM) (RM) (RM) (RM)
Ordinary share capital (200,000 ordinary shares @RM1 each) 200,000 200,000
Share premium 128,000 128,000
Retained profits 432,000 512,000 Retained earnings for the year 80,000 512,000 112,000 624,000
840,000 952,000
Dividend per share (RM) 0.30 0.34
Market price per share at year end 6.30 7.56
Required:
Calculate for each year
Earnings per share (EPS)
Price-earnings ratio (P/E)
Dividend pay-out ratio
Question 4.
Discuss the reasons why a rights issue could be an attractive source of finance for an investment by a public listed company
Question 5.
Chenor Berhads expected earnings for the next five years are forecasted as below.
Year Expected profits (RM)
1 800,000
2 1,400,000
3 900,000
4 1,100,000
5 920,000
Required:
Assuming there are 1 million shares outstanding, what will the yearly dividends per share be if Chenor Berhad adopts any of the following two dividend policies:
A constant pay-out ratio of 50%.
Stable dollar dividend targeted at 40% of the average earnings over the 5-year period.
Question 6.
Three fundamental principles are followed by accountants when preparing financial statements for annual reporting purposes. These principles are the following:
(a) The revenue recognition principle,
(b) The matching principle, and
(c) The historical cost principle.
Required:
Discuss each of these principles in relation to the preparation of financial statements.
Question 7.
Veritas Company has 400,000 shares in issue with a current market price of RM 4 each.
It announces an increase in share capital to be achieved by a rights issue of one new share for every four existing shares. The rights price is RM3 per new share, thus raising RM300,000 for investment in the new project.
Required:
(i)Calculate the theoretical ex rights price.
(ii)Calculate the value of the right to subscribe for each new share.
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PART B
(50 marks)
INSTRUCTION
Answer the given question.
The declared objective of Kaisen Berhad is the maximisation of the wealth of its shareholders. Recent financial and other information on Kaisen Berhad is as follows.
2019 2020 2021
RMmillion RMmillion RMmillion
Turnover 159.3 178.4 200.00
Operating profit 27.0 27.8 28.6
Interest 2.0 1.8 1.8
Profit before tax 25.0 26.0 26.9
Taxation 7.5 7.8 8.0
Earnings 17.5 18.2 18.8
Dividends 6.6 8.8 8.9
Retained Earnings 10.9 9.4 9.9
Non-current assets 125.5 145.5 150.6
Current assets 41.8 48.0 50.0
Current liabilities 36.6 37.4 39.6
Equity funds 100.7 146.1 156.0
Long-term debt 30.0 10.0 5.0
Shares (millions) 15.0 20.0 20.0
Directors remuneration RM3.1m RM4.4m RM6.5m
Company 10.0 9.9 9.5
Industry 10.9 10.9 11.5
The increased number of shares in 2020 was due to a 1 for 3 rights issue. None of the directors of Kaisen Berhad own shares in the company.
Required:
Write a report which discusses the following issues with respect to Kaisen Berhad:
(1)Whether shareholder wealth is being maximised
(2)Whether the company is suffering from agency problems
Support your discussion with financial analysis of the information provided.
The following ratios may help in answering the above two questions:
Financial Ratios Growth rates
1 Return on capital employed (ROCE) 9 EPS growth
2 Net Profit Margin 10 Share price growth
3 Earnings per share 11 Dividend per share growth
4 Dividend per share 12 Turnover growth
5 Pay-out ratio 13 Profit Before Interest and Tax (PBIT) growth
6 Interest cover 14 Earnings growth
7 Debt/Equity (BV) 15 Non-current assets growth
8 Current ratio 16 Directors remuneration growth
---------------------END OF QUESTION PAPER--------------------
APPENDIX: Present Value Table and Annuity Table
Present value table Present value (in RM) of a single payment of RM1, n years from now, discounted at a rate of r% per annum
Discount rate ( r ) Years (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621
6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513
8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386
11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350
12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319
13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290
14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263
11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
11 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135
12 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112
13 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093
14 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078
Annuity table
Present value (in RM) of a series of n equal annual payments of RM1 a year, starting one year from now, discounted at a rate of r% per annum
Discount rate ( r ) Years (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145
11 10.37 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495
12 11.26 10.58 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814
13 12.13 11.35 10.63 9.986 9.394 8.853 8.358 7.904 7.487 7.103
14 13.00 12.11 11.30 10.56 9.899 9.295 8.745 8.244 7.786 7.367
11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
11 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327
12 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
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