QUESTION 1 (25 MARKS) .
a) Describe the principal-agent relationship. Give an example of a principal-agent dilemma in the business environment in your response. Justify whether such a situation becomes costly. (15 marks)
b) Explain whether the following statements are true or false.
i) Derivative transactions are designed to increase risk and are used almost exclusively by speculators who are looking to capture high returns.
ii) Hedge funds typically have large minimum investments and are marketed to institutions and individuals with high net-worth.
iii) Hedge funds have traditionally been highly regulated.
iv) The New York Stock Exchange is an example of a stock exchange that has a physical location.
v) A larger bid-ask spread means that the dealer will realize a lower profit (5 marks)
c) Jow just bought a new Toyota Cross for his business. The price of the vehicle was RM128,000. Jimmy made a RM12,800 down payment and took out an amortized loan for the rest. The car dealership made the loan at 2.35% interest per year to be compounded monthly for five years. He is to pay back the principal and interest in equal monthly installments beginning of the month. Determine the amount of Jimmy’s monthly payment. (5 marks)
QUESTION 2 (25 MARKS)
a) Refer table on question paper attached
i) Compute the Net Working Capital for 2020 and 2021. (3 marks)
ii) Compute the change in Net Working Capital (NWC). (3 marks)
iii) Assuming the Operating Cash Flows (OCF) are RM7,155 and the Net Capital Spending (NCS) is RM2,372, find the Cash Flow from Assets. (4 marks)
b) Describe some of the items often disclosed in the financial notes of Axiata Berhad (2021). (https://axiata.listedcompany.com/misc/Governance_and_Audited_Financial_St atement_2021.pdf) (15 marks)
QUESTION 3 (25 MARKS)
a) Refer table on question paper attached
Calculate the following:
i) The expected rate of returns for both shares. (4 marks)
ii) The standard deviation for both shares. (6 marks)
iii) On a stand-alone basis, discuss which share out of the two is riskier. (2 marks)
b) If given that the correlation between the two shares above is -0.7455, comment on the overall portfolio risk and on the level of diversification. (8 marks)
c) Explain unsystematic risk and elaborate ONE way to reduce this type of risk (diagrams are not necessary). (5 marks)
QUESTION 4 (25 MARKS)
Topex Sdn Bhd’s management is always looking for ways to improve productivity and efficiency. This is the more important in view of rising wage costs and difficulty in hiring workers.
The company is looking to buy a new CNC grinding machine to replace the old machine that had been bought for RM100,000 5 years ago. The old machine has a life of 4 years. If sold now this old machine can fetch RM 5,000.
Topex’s management is considering a new and more efficient machine. This new machine will cost RM170,000 and can last for 4 years. The resale value then is RM20,000. Topex will also incur freight and installation charges of RM1,000 and RM9,000 respectively.
The new machine is more productive and can generate RM62,000 more contributions a year. Spoilage cost of the new machine would be RM2,000 a year, while the current spoilage is RM5,000 a year
The business is also going to increase its working capital by RM10,000 to provide this machine with more inventories. Tax rate is 30%
a) Complete the cash flows for initial outlay, life and termination. (13 marks)
b) Topex’s CEO now asks you to confirm the viability of yet another CNC machine. This machine will cost RM160,000 and have the following cash flows. (Refer table on question paper attached)
Assess the project’s viability by computing its:
i) Payback period (2 marks)
ii) Accounting rate of return (2 marks)
iii) Net Present Value (use 12%) (5 marks)
iv) Internal rate of return (use 15%) (3 marks)
