Faculty of Business, Economics & Accounting

Department of Business Studies

HELP Diploma in Business

INTERNAL SUBJECT DETAILS

Semester 1, 2020

Subject: D2FIN100
Introduction to Finance

Subject Lecturer/Tutor: Mr. Ang Yang Guang

Email: [email protected]

Consultation: Please call or email for appointment

PRE-REQUISITE(S)
D2ECO110 - Microeconomics
D2ECO120 - Macroeconomics.

SYNOPSIS

The subject introduces students to the essential foundations of finance. It will introduce
basic corporate and personal finance concepts, including business mathematics, the
time value of money, financial markets, shares and bonds, financial risks and returns,
raising money, and the elements of investment.

OBJECTIVES

Upon completion of this subject, students should be able to:

 demonstrate knowledge and understanding of the theoretical foundations of

finance;

 application of the theories to the sources, uses and management of finance;

 develop effective qualitative problem solving and decision making skills;

 develop numeracy and quantitative skills including data analysis, interpretation

and extrapolation;

 apply business models to business problems and phenomena.

PRESCRIBED TEXTBOOK

Gitman.L.J., & Zutter C.J., (2014), Principle of Managerial Finance: Brief Edition, 6th
edn, Pearson Education Limited.

RECOMMENDED REFERENCES

Brealey, R., A, Myers., S., C., & Marcus, A., J., (2014), Fundamental of Corporate
Finance, 8th Edition. McGraw Hill Higher Education.

Petty, Arthur & Keown (2016), Foundation of Finance, 8th Edition

Subject Outline / Teaching Plan

2
Department : Business Studies Subject Code : D2FIN100
Lecturer : Mr. Ang Yang Guang Subject Title : Introduction to Finance

Week Topic References

1 Introduction to the concept and techniques in Chp 1
finance and investments.

2 Financial environment, securities and financial Chp 2

markets

3 Financial statement and analysis Chp 3

4 Basic application of Bloomberg Terminal

5 Applications of simple and compound interest Chp 5

rates

6 Risk and return Chp 8

7 Dividend Policy Chp 13

8 MIDTERM EXAMINATION

9 Capital budgeting and techniques Chp 10

10 Capital budgeting and techniques: Continued Chp 10

11 Cost of capital Chp 9

12 Working capital management Chp 14

13 Equity Valuation Chp 7

14 Revision

15 &16 FINAL EXAMINATIONS

Gitman.L.J., & Zutter C.J., (2014), Principle of Managerial Finance: Brief Edition, 6th
edn, Pearson Education Limited.

3
ASSESSMENT:

There are 3 assessment items for this subject.

Assessment Items Value Due Date

1. Assignment (Group) 25% 3/4/2020

2. Mid Term Test 25% Week 8

3. Final Examination (Closed Book) 50% Examination period: 25 April-

9 May 2020**

REQUIREMENTS:

To gain a pass in this subject, students must:

 Attempt ALL areas of assessment; and achieve a total result of 50% or better
overall.

** - Please check on the notice board and My Acel for the actual date. HELP
University reserves the right to make any changes to the above where appropriate.

4
Assignment Details

Due date: 3/4/2020

Value: 25%

General Instructions:

 This is a group assignment. You need to form a group of not exceeding 5

persons. Your name and ID must be clearly presented in the front page.
 Your assignment should be typed using font-size 12, Times New Roman, and
doubled-spaced.
 A Turnitin originality report has to be attached to the assignment. You will have
to register yourself at www.turnitin.com. The information required when
submitting your assignment will be distributed during lecture classes.
 The assignment should be paginated and tape bound
 You must submit your assignment, together with the assignment feedback form
duly completed. Failure to submit the assignment by the stipulated date would
result in your assignment being not marked or marked as zero.

Assignment Details

1. Please choose at least three publicly traded companies that listed in Bursa
Malaysia which operate within the same industry. You have to choose one of
them as your main company to research, and the other competitors are used for
comparison purpose.
2. You are required to find all the necessary financial information from the
companies’ Annual Reports, on the companies’ website, online searching etc.
3. You are required to calculate the financial ratios listed at the end of this
document by using the financial information of your selected companies. You
have to calculate the financial ratios of at least 5 years for your main company,
and at least 2 years for the competitors.
4. To do this, you will need to make a spreadsheet, (on Excel file), and copies
certain lines of your various financial statements’ items into the spreadsheet.
Then, make spreadsheet formulas to calculate each financial ratio that is
required. You are required to comment on the ratios that you have calculated.
5. Evaluate the performance of your main company compared to the other
competitors. Are your firm performing better or worse than others in their
industry? Explain how you make the judgment with reference to the ratios.
6. Obtain at least three recent news articles about the company. Briefly summarize
the content of these news article and explain what information in these articles
might influence the expectations about the company’s future
earnings/performance and thus the valuations of the companies?
7. Would you recommend this company for the investment purpose? Why or why
not?
8. Along with the assignment reports, you are also required to make a presentation
on your findings in the class. The presentation should be around 20 to 25
minutes.

5
Required ratio calculations are listed below:

A. Profitability Ratios:
1. Return on equity (ROE) (net annual income /shareholder’s equity)
2. Return on total assets (ROTA) (operating profit (EBIT->Earnings before
interest and taxes)/avg. total assets)
3. Gross profit margin (GPM) (Revenue - cogs)/cogs x 100
4. Operating profit margin (OPM) (net sales - cogs)/net sales x 100
5. Net profit margin (NPM) (net income/net sales) x 100
6. Earnings per share (EPS) growth ((net income-preferred
dividends)/weighted average shares outstanding)
7. Revenue growth ((Rev. year 2 – Rev. year 1)/Rev. year 1)

B. Liquidity Ratios:

1. Current ratio (CR) (Current Assets/Current liability)

2. Quick ratio (QR) (Current Assets - Inventory)/Current liability
C. Activity Ratios:

1. Inventory turnover (IT) (cogs/avg. inventories)

2. Average collection period (ACP) (365 days/Average Receivable turnover
Ratio)
3. Average payment period (APP) ((Acc. Receivable/Annual Sales) x 365)
4. Total assets turnover (TAT) (Net Sales/Average total assets)
D. Debt:

1. Debt ratio (DR) (Total liabilities/Total assets)

2. Times interest earned ratio (TIER) ((operating income +
Depreciation)/Interest)
E. Market:

1. Price/ Earnings (P/E) ratio (Market price per share/Earnings per share)
2. Price/Book (P/B) ratio (Price per share/Book value per share)

These ratios are explained in your textbook, so if you don’t understand why a particular
calculation is important or relevant, you can look up more information there.

6
Assessment Criteria

For your guidance, your assignment report will be marked as follows:

Question Marks
(%)
a) Company Background and 10
Introduction
b) Shows all calculation using an 35
appropriate formula. (Use Excel).

c) Discussion and analysis of 30

ratios
d) Correct explanation of news 15
articles. Writing is logical,
thoughts are ordered. Number and
quality of resources used.
e) Conclusion and 10
recommendation

Total 100

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 Assignment No.: __

Assignment Cover Sheet

Student Information (For group assignment, please state names of
Grade/Marks
all members)
Name ID

Office
Module/Subject Information
Acknowledgement
Module/Subject Code
Module/Subject Name
Lecturer/Tutor/Facilitato
r
Due Date
Assignment Title/Topic
Intake (where applicable)
Word Count Date/Time

Declaration

. I/We have read and understood the Programme Handbook that explains on plagiarism, and I/we
testify that, unless otherwise acknowledged, the work submitted herein is entirely my/our own.
. I/We declare that no part of this assignment has been written for me/us by any other person(s) except
where such collaboration has been authorized by the lecturer concerned.
. I/We authorize the University to test any work submitted by me/us, using text comparison software,
for instances of plagiarism. I/We understand this will involve the University or its contractors copying
my/our work and storing it on a database to be used in future to test work submitted by others.
Note:1) The attachment of this statement on any electronically submitted assignments will be deemed
to have the same authority as a signed statement.
2) The Group Leader signs the declaration on behalf of all members.

Signature: Date:
mail:

Feedback/Comments*
Main Strengths

8
 Main Weaknesses

Suggestions for improvement

Student acknowledge feedback/comments

Grader’s signature Student’s signature:

Date: Date:
Note:
1)A soft and hard copy of the assignment shall be submitted.
2)The signed copy of the assignment cover sheet shall be retained by the marker.
3)If the Turnitin report is required, students have to submit it with the assignment. However, departments may
allow students up to THREE (3) working days after submission of the assignment to submit the Turnitin report. The
assignment shall only be marked upon the submission of the Turnitin report.

*Use additional sheets if required

9
 Department of Business Studies

ACADEMIC INTEGRITY

Honesty and Responsibility

Academic integrity is an important tenet for HELP University. In pursuit of the highest
standards of academic integrity, the Department of Business Studies holds it students to
the highest ethical standards defined by the Rules and Regulations section of the
Academic Handbook. All students at the Department of Business Studies are subjected
to and are bound by the Student Academic Misconduct Rule to assure academic
honesty. Students are required to sign a pledge on the assignment cover sheet before
submitting your assignments to the Department of Business Studies.

What is Plagiarism?
Plagiarism is academic dishonesty or academic theft, and it is a serious academic
offence. Plagiarism includes, but is not limited to, the followings:
1. quote, paraphrase or summarize someone else’s ideas, theories or data, in whole
or in part, without appropriate acknowledgement
2. borrow ideas, opinion or words, in whole or in part, from other sources without
properly crediting the author(s)
3. use any facts, statistics, diagrams or graphs, in whole or in part, without
acknowledging the source clearly
4. claim or imply original authorship of someone else’s ideas, theories or data, in
whole or in part, as your own
5. employ or allow someone to help to revise, amend or write your work and pass
off as your own original work
6. collaborate with or allow other students to copy your work
7. draw on sources more than what you have acknowledged by citations

While a student is not discouraged to discuss an assignment with his/her friends or

classmates, the work he/she submits must be done by the student alone. If a student
shares his/her assignment with other students and they plagiarize it, the student is as
guilty as those students who plagiarized his/her assignment. All parties to plagiarism
are considered equally guilty. Under no circumstances should a student be involved in
collusion with other students unless he/she is permitted to work on an assignment
jointly by the lecturer/tutor. If a student is unsure what constitutes plagiarism, he/she is
obliged to consult the lecturer/tutor on the matter before submission of his/her
assignment.

When and How to Reference?

Knowing when and how to cite is a student’s responsibility. If he/she is in doubt or
need more help on this matter, the student may consult the lecturer/tutor. The following
list comprises some of the sources a student will need to reference. The list is by no
means exhaustive, but simply consists of the most common sources used by students to
complete their work.
1. Books
2. Chapters in books
3. Journal articles
10
 4. Conference papers
5. Newspaper articles
6. Magazines
7. Websites
8. Study guide

Students are advised to cite in the following cases [1]:

1. When he/she quotes two or more words verbatim, or even one word if it is used
in a way that is unique to the source
2. When he/she introduce facts that he/she have found in a source
3. When he/she paraphrase or summarize ideas, interpretations, or conclusions that
he/she find in a source
4. When he/she introduce information that is not common knowledge or that may
be considered common knowledge in your field, but the reader may not know it
5. When he/she borrow the plan or structure of a larger section of a source’s
argument (for example, using a theory from a source and analyzing the same
three case studies that the source uses)
6. When he/she build on another’s method found either in a source or from
collaborative work in a lab
7. When he/she build on another’s program in writing computer code or on a not-
commonly-known algorithm
8. When he/she collaborate with others in producing knowledge

In general, a referencing system requires two parts:

1. In-text citations
This is information about a source within the text of an assignment.
2. List of references
This is a list of all sources a student has used to research his/her assignment. It
is alphabetically arranged by author surname and appears immediately after the
last page of an assignment.

Different faculties or departments may have different requirement on how referencing

for an assignment should be done. The various formats used for in-text citations and list
of references are available in the following websites:
1. Harvard System (http://www.adelaide.edu.au/library/guide/gen/harvard.html)
2. Chicago Style (http://www.chicagomanualofstyle.org/index.html)
3. American Psychological Association or APA Style (http://www.apastyle.org)
4. Modern Language Association of America or MLA Style (http://www.mla.org)

Once a student has selected a referencing style for his/her assignment, he/she must
follow the same style consistently throughout the assignment. We strongly suggest that
the student consults the lecturer/tutor about which method to use before submission of
his/her assignment.

What are the Procedures and Penalties for Plagiarism?

1
http://www.yale.edu/bass/writing/sources/plagiarism/warning.html, accessed May 18, 2008.
11
When a lecturer/tutor encounters a possible case of plagiarism, the lecturer/tutor shall
report the matter to the Head of the Department, who then initiates an investigation on
the matter. The following procedures would be carried out:
1. The lecturer/tutor shall provide evidence that substantiates an academic
offence has occurred. The following documentations must be ready prior to
reporting of alleged plagiarism:
a. Copy of the alleged plagiarized assignment
b. Copy of the source material (e.g. articles, websites, newspaper, etc.)
c. Report of plagiarism
d. Any other information that would support the claim of plagiarism
2. If the evidence warrants an accusation of academic offence, the Head of
Department shall establish a Board of Inquiry comprising 3 academic staff. The
Department shall provide all necessary documentations, including report on
prior academic offences if applicable, to the Board of Inquiry.
3. The Board of Inquiry shall put the matter to the student in writing and give
him/her an opportunity to respond to the accusation within 3 working days.
4. The student will be required to attend a meeting with the Board of Inquiry.
After meeting the student, the Board of Inquiry shall decide whether or not the
alleged plagiarism has occurred. The following documentations shall be
submitted to the Head of Department at the end of the meeting:
a. Findings of the investigation
b. Recommended action(s) to be taken or imposed
5. The Head of Department shall review the Board of Inquiry’s report with
supporting evidence and shall decide on an appropriate action(s) based on the
recommendation of the Board of Inquiry.
6. The decision of the Head of Department shall be put in writing to the student.
Copies of all documentations will be retained in the Department.
7. If the student feels that he/she has been unfairly accused or treated, the student
may appeal to the Head of Department within 5 working days.
8. The Head of Department shall review the appeal and the final decision will be
communicated to the student in writing and a copy will be kept with the
Department. Once a determination of plagiarism and penalty has been made by
the Head of Department, the investigative process will be deemed to have ended
and the student will not be allowed to appeal.

Possible penalties for plagiarism range from mark reduction for the assignment to
expulsion from the University. The student will not be allowed to make up the
assignment. If plagiarism has been found to have occurred, the Department will take
action(s) as determined by the forms of plagiarism implicated:

1. Complete plagiarism
Verbatim copying another person’s work without acknowledgement
1st offence : A grade of “F” in the subject and a warning letter will be
issued
nd
2 offence : Expulsion from the University at the discretion of the Head
of Department

2. Substantial plagiarism

12
 Near-verbatim copying another person’s work by simply altering the order of
the sentences or the format of presentation or by changing a few words or
phrases without acknowledgement.
1st offence : Zero mark on the assignment and a warning letter will be
issued
2nd offence : A grade of “F” in the subject and a warning letter will be
issued
rd
3 offence : Expulsion from the University at the discretion of the Head
of Department
3. Minimal plagiarism
Acknowledgement is made but paraphrasing by changing and/or eliminating
some words
1st offence : Deduction of 50% of available marks on the assignment and
a warning letter will be issued
2nd offence : A grade of “F” in the subject and a warning letter will be
issued
rd
3 offence : Expulsion from the University at the discretion of the Head
of Department
4. Unintentional plagiarism
Insufficient acknowledgement by not applying citation or quotation marks
correctly
1st offence : Deduction of up to 50% of available marks on the
assignment and a warning letter will be issued
2nd offence : A grade of “F” in the subject and a warning letter will be
issued
3rd offence : Expulsion from the University at the discretion of the Head
of Department
Pleading ignorance or unintentional plagiarism does not constitute valid reasons for
plagiarism and will not avoid the penalties from being imposed. Excuses for acts of
plagiarism such as the following, but not limited to, will not be entertained:
1. I don’t have time to do the assignment
2. I have too many assignments due on the same day
3. I don’t know, I really didn’t do it
4. I am not aware
5. I don’t understand what plagiarism means
6. I have no intention to plagiarize
7. I forgot to cite the reference
8. I forgot to include the bibliography
9. My English is not good
10. My lecturer/tutor did not explain to me
11. In my country, it is alright to copy someone else’s work
12. My friend copied my assignment when I let him/her to look at my assignment
13. My friend copied my assignment when I allow him/her to use my laptop
14. I did my assignment in the computer lab, someone must have copied my work
15. I asked my friend to submit my assignment and he/she copied my work
16. I discussed my assignment with my friends, so our answers are the same/similar
17. Even though I do not have in-text citation but I have bibliography/reference list
Students should be reminded that it is their responsibilities to take due care throughout
their written work to effectively reference or cite when they use others’ ideas from any
source.

13
 FACULTY OF BUSINESS, ECONOMICS AND
ACCOUNTING
20XX SEMESTER X
SAMPLE MID-SEMESTER TEST

Subject Code : D2FIN100

Subject Name : INTRODUCTION TO FINANCE

This examination carries 20% of the total assessment for this subject.

Examiner(s)

Day :
Time :
Date :

Time allowed : 2 HOURS

INSTRUCTION(S):

1. This examination consists of TWO (2) sections:

SECTION A (Multiple Choice Questions) – consists of TWENTHY (20) Questions – Answer

ALL questions in the multiple choices answer sheets.

SECTION B (Short Answer Questions) – consists of FOUR (4) questions. Answer ALL
questions in the answer book provided.

2. This is a CLOSED BOOK examination.

3. The exam paper will be marked upon 100% and will be weighed upon 20%.

4. Students are NOT permitted to retain this examination paper

(This question paper consists of 2 sections in XX printed pages, including cover page)

14
 SECTION A – MULTIPLE CHOICE QUESTIONS (20 MARKS)

1. The changes that occurred during a recent year in the accounts Retained
Earnings and Treasury Stock will be found in which financial statement?
a. Income Statement
b. Statement of Cash Flows
c. Statement of Comprehensive Income
d. Statement of Stockholders’ Equity

2. The amount spent for capital expenditures will be reported in which section of
the statement of cash flows?
a. Cash Provided/used In Financing Activities
b. Cash Provided/used In Investing Activities
c. Cash Provided/used In Operating Activities
d. Supplemental Information

3. The firm of Sun and Moon purchased a share of Acme.com common stock
exactly one year ago for $45. During the past year the common stock paid an
annual dividend of $2.40. The firm sold the security today for $85. What is the
rate of return the firm has earned?
a. 5.3%
b. 194.2%
c. 88.9%
d. 94.2%

4. Krisle and Kringle's debt-to-total assets ratio is.4. What is its debt-to-equity
ratio?
a. .2
b. .77
c. .667
d. .333

5. A statistical measure of the variability of a distribution around its mean is

referred to as __________.
a. a probability distribution
b. the expected return
c. the standard deviation
d. coefficient of variation

15
6. __________ is the variability of return on stocks or portfolios associated with
changes in return on the market as a whole.
a. Systematic risk
b. Standard deviation
c. Unsystematic risk
d. Coefficient of variation

7. Which of the following items describes an index measure of systematic risk?

a. Beta.
b. Standard deviation.
c. Coefficent of variation.
d. Variance.

8. Which of the following investment alternatives would provide the greatest

ending wealth for your investment?
a. 10% compounded daily (360 days).
b. 10.5% compounded annually.
c. 10.25% compounded quarterly.
d. There is not sufficient information to determine the best alternative from the
above .

9. The average tax rate is equal to the __________.

a. rate that will be paid on the next dollar of taxable income
b. median marginal tax rate
c. percentage increase in taxable income from the previous period
d. total tax liability divided by taxable income

10. A major disadvantage of the corporate form of organization is the __________.

a. double taxation of dividends
b. inability of the firm to raise large sums of additional capital
c. limited liability of shareholders
d. limited life of the corporate form

11. A corporation that receives $1,000 in dividends from another corporation, of

which they have owned 10% of the outstanding stocks for one full year, will be
taxed on how much of those dividends?
a. All $1,000 of the dividends.
16
 b. None of the dividends since it is from another corporation.
c. $100 (10% of $1,000) since they owned a 10% position for at least 6 months.
d. $300 (30% of $1,000) since 70% of dividends is tax exempt.

12. In finance we refer to the market where new securities are bought and sold for
the first time as the __________ market.
a. money
b. capital
c. primary
d. secondary

13. Which group of ratios measure the effectiveness of the firm’s operations ?
a. Liquidity ratios.
b. Coverage ratios.
c. Profitability ratios.
d. Activity ratios.

14. Which of the following is an advantage of a corporation that is not an advantage

as a limited partner in a partnership?
a. Limited liability.
b. Easy transfer of ownership position.
c. Double taxation.
d. All of the above are advantages that the corporation has over the limited
partner.

15. In finance we refer to the market for relatively long-term financial instruments
as the __________ market.
a. money
b. capital
c. primary
d. secondary

16. The DuPont Approach breaks down the earning power on shareholders' book
value (ROE) as follows: ROE = __________.
a. Total asset turnover × Gross profit margin × Debt ratio
b. Total asset turnover × Net profit margin
c. Total asset turnover × Gross profit margin × Equity multiplier
d. Net profit margin × Total asset turnover × Equity multiplier

17
18
17. The __________ decision involves a determination of the total amount of assets
needed, the composition of the assets, and whether any assets need to be
reduced, eliminated, or replaced.
a. short term financial management
b. financing
c. investment
d. accounting

18. Which of the following would not cause the quick ratio to increase?
a. Sell inventory to payback accounts payable.
b. Sell common stock to reduce current liabilities.
c. Issue long-term debt to buy inventory.
d. Sell fixed assets to reduce accounts payable.

19. The __________ decision involves efficiently managing the assets on the
balance sheet on a day-to-day basis, especially current assets.
a. short term financial management
b. financing
c. investment
d. accounting

20. Which of the following statements is most correct regarding the current ratio for
a firm that uses industry averages and a peer benchmark as their comparison?
a. Firms should attempt to maintain a current ratio that is below 0.5.
b. Firms should always exceed both the industry average and the peer
benchmark current ratio.
c. Firms should strive to maintain a current ratio that seems reasonable when
compared to an industry average and a peer benchmark.
d. Firms should strive to maintain a current ratio of at least 2.0.

19
 SECTION B – SHORT ANSWER QUESTIONS (80 MARKS)

Answer ALL Questions.

QUESTION 1 (20 marks)
Answer the following:

i. Ecoworld Berhad's balance sheet indicates that the book value of stockholders'
equity (book value per share X total shares outstanding) is $750,500. The firm's
earnings per share are $3.00, which produces a price-earnings ratio of 12.25. If
there are 50,000 shares of common stock outstanding, what is the firm's price-to-
book ratio (i.e., the price per share to book value per share ratio)? What does
price-to-book ratio tell us?

(10 marks)
ii.
Corporate Tax Rate Schedule
Range of taxable income Base
+
($) Tax (Marginal rate X Amount over base bracket0
0 to 50000 0 + (15% x amount over 0)
50000 to 75000 7500 + (25% x amount over 50000)
75000 to 100000 13750 + (34% x amount over 75000)
100000 to 335000 22250 + (39% x amount over 100000)
335000 to 10000000 113900 + (34% x amount over 335000)
10000000 to 15000000 3400000 + (35% x amount over 10000000)
15000000 to 18333333 5150000 + (38% x amount over 15000000)
Over 18333333 6416667 + (35% x amount over 18333333)

ABC Enterprises, Inc., had operating earnings of $350,000 for the year just ended.
During the year, the firm sold stock that it held in another company for $200,000,
which was $50,000 above its original purchase price of $150,000, paid 1 year earlier.

i. How much total taxable income did the firm earn during the year?

(2 marks)

ii. Use the corporate tax rate schedule given above to calculate the firm’s total
taxes due.

(4 marks)

iii. Assuming the marginal tax rate for the 4th bracket ($100000 to $335000) have
been reduce to 35% from 39%. Please calculate the firm’s total taxes due.

20
 (4 marks)

QUESTION 2 (20 marks)

Answer the following:

i. SuperFund, Inc. is considering an investment in one of two common stocks.

Given the information that follows, you are require to calculate the expected
return and standard deviation of Stock A and Stock B. Which investment would
you recommend SuperFund Inc to invest based on the risk (as measured by the
standard deviation) and return of each?

Stock A Stock B
Probabilit Retur Probabilit
y n y Return
30% 11% 20% -5%
40% 15% 30% 6%
30% 19% 30% 14%
    20% 22%
(14 marks)

ii. Please explain what is the liquidity ratios. What does the liquidity ratios
measure about? Is it better to have a higher or lower liquidity ratios? Why?

(6 marks)

Question 3 (20 marks)

Answer the following

i. Last year Triangular Resources earned $5.0 million in net operating income
and had an operating profit margin of 20.0%. If the firm's total asset
turnover ratio was 1.50, what was the firm's total assets?

(8 marks)
ii. Describe the difference between systematic risk and unsystematic risk.

(6 marks)
iii. Please explain the differences between common stocks and preferred stocks.
(6 marks)

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QUESTION 4 (20 marks)
i. You are offered $150,000 today or $300,000 in 13 years. Assuming that you
can earn 11% on your money, which should you choose?

(4 marks)

ii. Determine the present value of an ordinary annuity of$1,000 per year for 10
years, assuming it earns 10 percent. Assume that the first cash flow from the
annuity comes at the end of year 8 and the final payment at the end of year 17.
That is, no payments are made on annuity at the end of years 1 through 7.
Instead, annual payments are made at the end of years 8 through 17.

(10 marks)

iii. If Lisa Simpson wants to have$1,000,000 in 40 years by making equal annual

end-of the-year investment into her investment account that paying 8.75 percent
annually, what is the minimum amount that Lisa's must invest annually?

(6 marks)

*** END OF EXAMINATION PAPER ***

22
 DEPARTMENT OF BUSINESS STUDIES

SEMESTER X, 20XX

SAMPLE FINAL EXAMINATION

Subject Code : D2FIN100

Subject Name : INTRODUCTION TO FINANCE

This examination carries 60% of the total assessment for this subject.

Time allowed : Reading 10 MINUTES

Writing – 3 HOURS

INSTRUCTION(S):

1. This examination consists of TWO (2) sections:

SECTION A: TEN (10) Questions – Answer SIX (6) questions in the answer booklet provided.
SECTION B: THREE (3) Questions – Answer TWO (2) questions in the answer book provided.

2. Students are required to answer ALL questions in the answer book provided.

3. Writing on the examination answer book is NOT permitted during reading time.

4. This is a CLOSED BOOK examination.

5. Students are NOT permitted to retain this examination paper.

6. Students MUST pass this examination in order to pass the subject.

(This question paper consists of 2 sections in XX printed pages, including cover page)

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SPECIMEN: FINAL EXAMINATION QUESTION

SECTION A (60 MARKS)

Answer any SIX (6) out of the TEN questions. Each question carries 10 marks.

1. Define agency problem, and describe how they give rise to agency costs.
Explain how a firm’s corporate governance structure can help avoid agency
problems.
2. Describe the differences between the capital markets and the money.
3. What ratio measures the firm’s degree of indebtness? What ratios assess the
firm ability to service debts?
4. What is the current yield for a bond? How are bond prices quoted? How are
bonds rated, and why?
5. Apply the basic valuation model to bonds, and describe the impact of required
rate of return and time to maturity on bond values.
6. Discuss the measurement of return and standard deviation for a portfolio and
the concept of correlation.
7. What is the relationship between the firm’s target capital structure and the
weighted average cost of capital (WACC)
8. What is the difference between the firm’s operating cycle and its cash
conversion cycle?
9. How does asymmetric information affect the firm’s capital structure decision?
How do the firm’s financing actions give investors signals that reflect
management’s view of stock value?
10. Describe the residual theory of dividends and the key arguments with regard to
dividend irrelevance and relevance.

SECTION B (40 MARKS)

Answer any TWO (2) out of the THREE questions. Each question carries 20
marks.

Question 1

a) Aziz’s has expected earnings before interest and taxes of $6,200. Its unlevered
cost of capital is 13 percent and its tax rate is 34 percent. The firm has debt with
both a book and a face value of $2,500. This debt has a 9 percent coupon and
pays interest annually. What is the firm's weighted average cost of
capital? (10m)

b) Cole Tire Distributors has debt with both a face and a market value of $12,000.
This debt has a coupon rate of 6 percent and pays interest annually. The
expected earnings before interest and taxes are $2,100, the tax rate is 30 percent,
and the unlevered cost of capital is 11.7 percent. What is the firm's cost of
equity? (10m)

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Question 2

John Macaulay Designs has prepared the following estimates for a long-term project it
is considering. The initial investment is $18,250, and the project is expected to yield
after-tax cash inflows of $4,000 per year for 7 years. The firm has a 10% cost of
capital.

i) Determine the net present value (NPV) for the project. (7m)
ii) Determine the internal rate of return (IRR) for the project. (7m)
iii) Would you recommend that the firm accept or reject the project? Explain
you answer. (6m)

Question 3

You have recently been hired to improve the performance of Volvex Corporation
which has been experiencing a severe cash shortage. As one part of your analysis, you
want to determine the firm’s cash conversion cycle. Using the following information
and a 360-day year, what is your estimate of the firm’s current cash conversion cycle?
(20m)

Current Inventory $120,000

Annual Sales $600,000
Account Receivable $160,000
Account Payable $25,000
Total Annual Purchases $360,000
Purchases Credit Terms net 30 days
Receivables Credit Term net 50 days

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