QUESTION 1 (CLO 2)

a. Ahmed has the opportunity to invest in Project X and Project Y. The both
projects need initial investments of RM50,000 and RM80,000 respectively.
The yearly cash flow for project Y is RM20,000, RM40,000 and RM60,000.
Project X is expected to get a steady income of RM 20,000 annually
throughout the next three years. Based on the information given, calculate
the net present value (NPV) for each project if the required rate of return is
fifty percent.
(10 marks)

b. Aziz has opportunity to invest in project A and B. The initial investment for
both project are RM8,500 and RM7,500 respectively. The required rate of
return for this investment are 12%. Project A is expected to reap a yearly
income of RM3,000 maintain for first three years, RM5,000 and RM6,000
for the year four and five. The expected yearly income for project B is
RM2,000, RM2,000, RM2,000, RM3,000 and RM4,000. Compute the
discounted payback period both project A and B.
(10 marks)
c. Based on your answer in (a) and (b), identify the project should Ahmed and
Aziz choose for the investment. Justify your answer.
(5 marks)
ANSWERS
A. For Ahmed

Formula for Discounting Factor =  ( )^n

n= Number of years

r = rate of interest = 50% (Given)

Project X

Discounting Discounted Cash

Cash Flow
Year factor  Flow
(Col. 2)
(Col. 3) (Col.4 = Col. 2*3)

0 -50000 1 -50000

1 20000 0.666666667 13333.33333

2 20000 0.444444444 8888.888889

3 20000 0.296296296 5925.925926

NPV -21851.85185
 Project Y

Discounted Cash
Discounting factor
Year Cash Flow (Col. 2) Flow
(Col. 3)
(Col.4 = Col. 2*3)

0 -80000 1 -80000

1 20000 0.666666667 13333.33333

2 40000 0.444444444 17777.77778

3 60000 0.296296296 17777.77778

NPV -31111.11111

NPV of Project X: -21851.85185

NPV of Project Y - -31111.11111

B For Aziz:

Formula for Discounting Factor =  ( )^n

n= Number of years r = rate of interest = 12% (Given)

Project A

Discounting Discounted Cash Cumulative

Cash Flow
Year factor  Flow Discounted Cash
(Col. 2)
(Col. 3) (Col.4 = Col. 2*3) Flow ( Col. 5)

1 3000 0.89285714 2678.57143 2678.57143

2 3000 0.79719388 2391.58163 5070.15306

3 3000 0.71178025 2135.34074 7205.4938

4 5000 0.63551808 3177.59039 10383.0842

5 6000 0.56742686 3404.56113 13787.6453

13787.64533

NPV = Inflow - outflow

= 13787.64533 -8500
=5287.64533
The cumulative present value of the cash flow at the end of the 3rd year is 7205.4938 and I it
is 10383.0842 at the end of the 4th year. Hence discounted payback period falls between 3rd and 4th
year.
Discounted payback period = Smaller year + [(Initial Investment - small year Cumulative Discounted
Cash Flow) / Higher year Discounted Cash Flow)]
Discounted payback period = 3 + [(8500-7205.4938) / 3177.59039]
Discounted payback period = 3. 407 years

Project B

Discounting Discounted Cash Cumulative

Cash Flow
Year factor Flow Discounted Cash
(Col. 2)
(Col. 3) (Col.4 = Col. 2*3) Flow ( Col. 5)

1 2000 0.892857 1785.71429 1785.714286

2 2000 0.797194 1594.38776 3380.102041

3 2000 0.71178 1423.5605 4803.662536

4 3000 0.635518 1906.55424 6710.216772

5 4000 0.567427 2269.70742 8979.924195

NPV 8979.92419

NPV = Inflow - outflow

= 8979.92419 -7500
=1479.92419

The cumulative present value of the cash flow at the end of the 4th year is 6710.216772 and it
is 8979.924195 at the end of the 5th year. Hence discounted payback period falls between 4th and 5th
year.
Discounted payback period = Smaller year + [(Initial Investment - small year Cumulative Discounted
Cash Flow) / Higher year Discounted Cash Flow)]
Discounted payback period = 4 + [(7500-6710.216772) / 2269.70742]
Discounted payback period = 4 3480 years
C.
In the case of Ahmed: As the NPV of both project are negative hence no project should be opted by Ahmed.
In the case of Aziz: As the discounted payback period is lower in project A hence Aziz should opt for Project
A.

QUESTION 2 (CLO 3)

1. Using the projects range of income flows and initial investments mentioned in
Question 1(b) above, and using the Present Value Annuity Table to find the
estimated Internal Rate of Return (IRR) (as a basis to find the actual IRR for the
chosen project). Use a financial table.
(20 arks)

b. The H&M Company is considering purchasing a new machine that would

increase the speed of production. The net cost of this machine is
RM100,000. The scrap value of investment is RM0. The cash flow for the 5
years is RM25,000, RM30,000, RM25,000, RM20,000 and RM5,000. Based
on information given, compute the accounting rate of return (ARR) for
H&M company. (5 marks)
 QUESTION 3 (CLO 1)

a. Find financial statements for 7 ELEVEN company for year ended 2017 which
is available online. Please make sure that there are detailed elements
breakdowns of Current Assets, Non- Current Assets, Current Liabilities, Non-
Current Liabilities, Shareholder’s capital, Operation Expenses and Revenues etc
are present in the Financial Statements. Calculate the Ratios analysis as below
for 7 Eleven company:
i. Liquidity ratios
ii. Activity ratios
iii. Profitability ratios
iv. Debt ratios

(20 marks)
b. Based on the calculations, explain the performance of the company for the year 2017.
(5 marks)

VALUES ARE NOT GIVEN.

 QUESTION 4 (CLO 4)

a. Based on information below, compute the value of the Bond.

Par Value RM 1,000

Coupon Interest Rate 12 Percent

Maturity Date 16years (annually)

Required Return on Bond 8 percent

(5 marks)

b. Compute the value of a bond maturing in 9 years, with a RM1, 000 par
value and a coupon interest rate of 12% paid semiannually. The required
rate of return of the bonds is 16% paid semiannually.
(10 marks)

c. Use the constant-growth model to calculate the value of the common stock
for each firm shown in the following table.

Firm DIG CELCOM MAXIS UMOBILE TIME

I
Dividend expected next year (RM)
1.00 3.50 0.50 7.00 3.00

Dividend growth rate

9% 5% 10 % 10 % 8%

Required return 12 % 15 % 13 % 7% 13%

(10 marks)