February 2022

CONFIDENTIAL 1 AM/FEB 2022/ADM658
UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION
COURSE : CORPORATE FINANCE

COURSE CODE : ADM658
EXAMINATION : FEBRUARY 2022
TIME : 4 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts : PART A (8 Questions)

PART B (3 Questions)
2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.
4. Please check to make sure that this examination pack consists of :
i) the Question Paper

ii) a two – page Appendix 1
iii) an Answer Booklet – provided by the Faculty
5. Answer ALL questions in English.
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 5 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
PART A
QUESTION 1
Briefly describe TWO (2) major decisions made by financial managers.
(5 marks)
QUESTION 2
Describe the agency conflict between management and the owners of the firms.
(5 marks)
QUESTION 3
Explain TWO (2) types of inventories.
(5 marks)
QUESTION 4
Discuss why maximization of shareholder wealth is given priority compared to profit in setting
goal for corporation.
(5 marks)
QUESTION 5
Discuss TWO (2) drawbacks of payback period method in capital budgeting.
(5 marks)
QUESTION 6
Differentiate between systematic risk and unsystematic risk in corporation.
(5 marks)

QUESTION 7
Explain the TWO (2) motives for holding cash in corporation.
(5 marks)
QUESTION 8
Differentiate between “Primary Market” and “Secondary Market”.
(5 marks)

PART B
QUESTION 1
Rentas Sdn Bhd makes annual credit sales of RM6,000,000. Credit terms are 60 days, but
the company’s debt administration has been poor and the average collection period has been
75 days with 1% of sales resulting in bad debts. The company incurs RM90,000 a year in
administration costs.
A factor is willing to take on the task of debt administration and credit checking at an annual
fee of 3% of credit sales. The credit terms will be maintained strictly at 60 days.
The factor would also provide as advance on 75% of invoiced debts at an interest rate on
12% [3% above Base Lending Rate (BLR)]. The company can obtain an overdraft facility to
finance its debtors at a rate of 2% over BLR.
a) What is the cost of the current practice?

(8 marks)
b) What is the cost of factoring? Should the company accept the factor’s service?
(12 marks)
QUESTION 2
(a) Intelligent Bhd has two mutually exclusive projects for the next year’s investment plan.
The firm cost of capital is 10%. The estimated cash flows are as follows:
Year Project A (RM) Project B (RM)

0 (140,000) (200,000)
1 50,000 55,000
2 60,000 55,000
3 70,000 55,000
4 75,000 55,000
5 80,000 55,000
For each project calculate:
i) Payback Period
(6 marks)
ii) Net Present Value
(4 marks)
iii) Calculate the Internal Rate of Return for project B
(10 marks)

QUESTION 3
The following are information pertaining to the capital structure of Courier Hub Bhd.
1) The company has issued Bond with a par value of RM 1,000.00. The coupon rate is
5% and the maturity period is 12 years. The market value per Bond is RM 900.00.
Flotation cost is 5% of the par value per bond. Tax rate is at 25%.
2) Issued 6% preference shares and currently trading at RM 80.00 per preference share.
The par value per preference share is RM 100.00. The flotation cost is 8% of par value.
3) The company has issued 50 million ordinary shares of RM 1 each. The current market
price is RM 2.50 per share. The company paid a dividend of RM 0.25 per share for the
year ended 31st December 2021. The directors expect dividend to grow by 4% p.a for
the next few year. The flotation cost is 10% of the current market price.
You are required to:
(a) Calculate the cost of each capital component.
(12 marks)
(b) If the firm has agreed that its optimal capital structure should consist of 30% debt, 10%
preference share and 60% ordinary shares, calculate the firm's weighted average cost of
capital (WACC).
(6 marks)
(c) Explain why the cost of debt is divided into two, that is the before tax cost of debt (Kd) and
the after-tax cost of debt (Kd*).
(2 marks)
END OF QUESTION PAPER

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CONFIDENTIAL 1 AM/FEB 2022/ADM658

UNIVERSITI TEKNOLOGI MARA

COURSE : CORPORATE FINANCE

1. This question paper consists of two (2) parts : PART A (8 Questions)

4. Please check to make sure that this examination pack consists of :

i) the Question Paper

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

Briefly describe TWO (2) major decisions made by financial managers.

Explain TWO (2) types of inventories.

Discuss TWO (2) drawbacks of payback period method in capital budgeting.

Differentiate between systematic risk and unsystematic risk in corporation.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

Explain the TWO (2) motives for holding cash in corporation.

Differentiate between “Primary Market” and “Secondary Market”.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

a) What is the cost of the current practice?

Year Project A (RM) Project B (RM)

For each project calculate:

ii) Net Present Value

iii) Calculate the Internal Rate of Return for project B

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

You are required to:

(a) Calculate the cost of each capital component.

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

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