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Final Exam For Corporate Finance Module - Term 16.2.A Part 1: Short-Answer Questions

This document contains sample exam questions and practice problems for a corporate finance module. Part 1 includes short answer questions about pecking order theory, forms of market efficiency, and the size effect. Part 2 provides two practice problems calculating net present value, internal rate of return, payback period, and risk measures for investment projects and stock portfolios. The problems require calculating financial metrics like working capital, net fixed assets, earnings before interest and taxes, cash flows, and standard deviation of returns.

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Huân Nguyễn
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187 views3 pages

Final Exam For Corporate Finance Module - Term 16.2.A Part 1: Short-Answer Questions

This document contains sample exam questions and practice problems for a corporate finance module. Part 1 includes short answer questions about pecking order theory, forms of market efficiency, and the size effect. Part 2 provides two practice problems calculating net present value, internal rate of return, payback period, and risk measures for investment projects and stock portfolios. The problems require calculating financial metrics like working capital, net fixed assets, earnings before interest and taxes, cash flows, and standard deviation of returns.

Uploaded by

Huân Nguyễn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FINAL EXAM FOR CORPORATE FINANCE MODULE - TERM 16.2.

A
Part 1: Short-answer questions
1) Pecking order and financial stack theories.
2) All three forms: weak, semi-strong and strong form
3) Both do not consider the size effect of the investment
4) Asked price = 1,015.00
Part 2: Practice Problems
Problem 1
INPUT
Project life 4 years
Fixed assets
Original cost 1,000,000
Depreciation period 5 years
Disposal price 150,000
Sales (TR) in year 1 800,000
Sales growth rate (g) 10%
Expenses to Sales ratio 60%
Working capital at year 0 50,000
WC grows at 5% for the next 2 years and then remain constant
T 25%
k 14.00%
OUTPUT
Year 0 1 2 3 4
WC 50,000 52,500 55,125 55,125 0
NFA 1,000,000 800,000 600,000 400,000 0
Investment 1,050,000 852,500 655,125 455,125 0
Sales 800,000 880,000 968,000 1,064,800
Sales of fixed assets 150,000
- Expenses 480,000 528,000 580,800 638,880
- D&A 200,000 200,000 200,000 200,000
- Cost of sales of fixed assets 200,000
EBIT 0 -480,000 352,000 387,200 425,920
EBIT(1-T) 0 -360,000 264,000 290,400 319,440
-∆WC 50,000 2,500 2,625 0 -55,125
-∆NFA 1,000,000 -200,000 -200,000 -200,000 -400,000
FCF -1,050,000 -162,500 461,375 490,400 774,565
k 14.00% 14.00% 14.00% 14.00%
PV 1,002,080 1,304,871 1,026,178 679,443 0
NPV 19,136 -47,920
PI 1.0182
IRR 14.79%
Amount to recover 1,050,000 1,212,500 751,125 260,725 0
PB period (years) 3.19 years
NPV>0 => Accept the project

Problem 2
a)
Scenario Probability RX RY RMarket Dev(X) Dev(Y) Dev(M)
Recession 0.2 -0.08 -0.14 -0.02 -26.40% -38.40% -13.60%
Boom 0.8 0.25 0.34 0.15 6.60% 9.60% 3.40%
E[R] 18.40% 24.40% 11.60%
Variance 1.7424% 3.6864% 0.4624%
Cov(RX,RM) & Cov(RY,RM) 0.8976% 1.3056%
Beta 1.94 2.82
b)
Portfolio P [50%X and 50%Y] 50% 50%
E[R] 21.400%
Cov(RAX,RY) 2.5344%
Variance 2.6244%
SD 16.20%
c)
X Y P
E[R] 10% 24.40% 21.40%
SD 13.2000% 19.2000% 16.2000%
SD per E[R] 132.00% 78.69% 75.70%
Stock X shows the lowest risk per return and, hence, should be the best choice.
The portfolio does not have significantly lower risk since X and Y do not have a negative covariance.

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