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Exercise Final SECTION B 2019

This document contains a multi-part exam question assessing financial analysis skills. It includes questions calculating expected return, standard deviation, and coefficient of variation given stock return probabilities. It also includes capital budgeting questions calculating payback period, net present value, profitability index, and internal rate of return for a potential investment. Additional questions calculate fair bond and stock prices, dividend yields, and financial ratios like gross profit margin, net profit margin, return on assets, and return on equity for two companies.

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Arman Shah
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53 views5 pages

Exercise Final SECTION B 2019

This document contains a multi-part exam question assessing financial analysis skills. It includes questions calculating expected return, standard deviation, and coefficient of variation given stock return probabilities. It also includes capital budgeting questions calculating payback period, net present value, profitability index, and internal rate of return for a potential investment. Additional questions calculate fair bond and stock prices, dividend yields, and financial ratios like gross profit margin, net profit margin, return on assets, and return on equity for two companies.

Uploaded by

Arman Shah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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SECTION B (60 M)

Answer in this section must be written in the space provided.

QUESTION 1 (20 M)

Mahawangsa Ltd is expecting the following returns on their stock and related probabilities

State of Economy Probability Stock Return


(P)
Recession 0.3 40%
Normal 0.5 50%
Boom 0.2 60%

a) Calculate the expected return

(5m)

b) Calculate the Standard Deviation

(10m)

c) Calculate the Coefficient of variation

(5m)
QUESTION 2 (10 M)

Suppose we are considering a capital investment that costs RM53,680 and provides annual net cash
flows of RM8,000 for 10 years. The firm’s required rate of return is 11%.

a) Calculate Payback Period.

(1m)
b) Calculate Net Present Value (NPV).

(4m)
c) Calculate Profitability Index (PI).

(2m)
d) Calculate Internal Rate of Return (IRR).

(3m)
QUESTION 3 (30 M)

1. Suppose our firm decides to issue a $1,000 par 8% coupon bond with 10 years to maturity and annual
coupon payments. The required return on bonds is 5% . What would be a fair price for these bonds?

$1,231.64

2. Akmal Co. has issued a preferred stock that pays an 5% dividend on a $40 par value. The required rate of
return on stock is 4%. What is the market price for the stock?

$50

3. You expect DYT stock to pay a $2.00 dividend at the end of the year. The dividend is expected to remain the
same indefinitely. If you require a 10% rate of return, what would you pay for the stock now?

$20

4. Qila Drek Corporation issued a stock that had paid $2.50 dividend last year. The dividend is expected to
grow at 8% per year indefinitely. What would we be willing to pay if our required return on XYZ stock is
12%?

$67.50
QUESTION 4 (30 M)

Income Statement for the Year Ended December 31, 2012


Sales revenue RM 140,000
Less: Cost of goods sold 98,000
Gross Profit 42,000
Less: Operating expenses 14,000
Operating profits 28,000
Less: Interest expense 11,200
Net profits before taxes 16,800
Less: Taxes (40%) 6,720
Net profits after taxes 10,080

Total assets was RM126,000 and total equity was RM100,800

Required :

1. Gross Profit Margin

2. Net Profit Margin

3. Return on Assets (ROA)

4. Return on Equity (ROE)


Question 46 till 49 based on information below.

Income Statement for the Year Ended December 31, 2012


Sales revenue RM 250,000
Less: Cost of goods sold 200,000
Gross Profit 50,000
Less: Operating expenses 25,000
Operating profits 25,000
Less: Interest expense 10,000
Net profits before taxes 15,000
Less: Taxes (40%) 6,000
Net profits after taxes 9,000

Total assets was RM180,000 and total equity was RM112,500

Required :

5. Gross Profit Margin

6. Net Profit Margin

7. Return on Assets (ROA)

8. Return on Equity (ROE)

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