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Assignment 1 Questions

Uploaded by

Ryan Cheung
Copyright
© © All Rights Reserved
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HPMS4005 Fundamentals of Finance

2024/25 Semester 1
Assignment 1

Intended Learning Outcome:


CILO1. Explain the functions of corporate financial management in relation to financial
management goals.
CILO2. Analyse the functions and roles of specific financial markets.
CILO3. Analyse key decision-making areas and to apply financial management tools to attain a
solution.

Total marks: 50 marks (15% of continuous assessment)


Submission Deadline: on or before 11:59pm, 16 October 2024
Submission Method: Via SOUL

Remarks:
(1) The submission file m u s t be in PDF format using the Answer Sheet
Template provided . M a r k s w i l l b e d e d u c t e d f o r o t h e r f o r m a t s .
(2) Late submission will get ZERO mark.
(3) Copying from others will be given zero mark. This will also apply to the student
who provides his/her assignment(s) for others to copy.
(4) Marks will be given to equations and workings.
(5) Do NOT round the figures in the intermediate steps but the final answers should be
rounded to 2 decimal places.

1
Question 1 (30 marks)
A. At the beginning of the year, the long-term debt of Company X was $3,500,000. At
the end of the year, long-term debt was $3,200,000. The interest paid was $255,000.
What is the amount of the cash flow to creditors? (5 marks)

B. Company Y has the following balances on the balance sheet:

2023 2024
Net fixed assets $ 190,820 $ 440,394
Current assets $ 60,970 $ 80,612
Current liabilities $ 30,920 $ 40,575

The financial results of the company in 2024 are as follows:


Total sales is $1,500,000 with costs of $905,000. Depreciation is 45,000 and the tax
rate is 34 percent. The company does not have any interest expense. The company
has paid 30% of the net income to shareholders as dividend. In 2024, it has issued
and sold $10,000 worth of common stock.

i) Calculate the operating cash flow. (5 marks)


ii) Calculate the cash flow from asset. (5 marks)
iii) Calculate the cash flow to stockholders. (5 marks)
iv) Calculate the net capital spending (5 marks)
v) Calculate the change in retained earning (5 marks)

Question 2 (20 marks)


Use the following information for parts A and B.
Alimama Company would like to borrow $8 million for an investment project. Hang Seng
Bank is offering a loan of $8 million with 8% p.a. interest rate. The loan is to be repaid by
an equal payment at the end of each year for 6 years.

A. Calculate the annual amount Alimama Company will have to repay at the end of each
year. (6 marks)

B. ICBC is willing to lend the $8 million loan to Alimama Company with interest rate
of 7.80% p.a. but the interest will be compounded every three months. Calculate the
EAR% offered by ICBC. Should Alimama Company borrow from ICBC instead of
Hang Seng Bank. Explain your answer. (4 marks)

C. Alimama Company is considering investment project X. The present value of the cash
flows from investment project X is $10,499,034.70 when discounted at 8% p.a. The
company expects to receive $ 3.4 million and $ 4.4 million from the investment
project at the end of year 1 and year 3 respectively. Calculate the cash flow to be
received at the end of year 2. (5 marks)
2
D. Alimama Company is also considering another investment project Y. The project can
generate a constant cash flow of $300,000 at the end of each year forever. The
Company’s accountant calculated the present value of the cash flows from investment
project Y to be $3,750,000. Calculate the discount rate the accountant used in his
calculation. (5 marks)

~End of Assignment 1~

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