MULTIMEDIA UNIVERSITY

FIRST TRIMESTER MID TERM EXAMINATION, 2020/2021 SESSION

BFN2104 – CORPORATE FINANCE

(TAKE HOME EXAM)

TIME: 29 AUG 2020 (10am) - 29 AUG 2020 (10pm)

(12 HOURS)

THIS BOOKLET CONSISTS (4) PAGES EXCLUDING THE COVER PAGE

INSTRUCTION TO STUDENT:

ANSWER ALL THE QUESTIONS IN THIS BOOKLET

STUDENT NAME:

STUDENT ID:

MAJOR: ___________ (Please indicate BOF/BFE)

QUESTIONS NO. MARKS

1 / 10

2 /10

TOTAL /20
BFN2104 CORPORATE FINANCE TERM 2010

Question 1 (10 marks)

(a) What is the value today of a 15-year annuity that pays RM750 a year? The annuity’s first
payment occurs 6 years from today. The discount rate is 8 percent for Years 1 through 5
and 11 percent thereafter.
(3 marks)

(b) You want to buy a new sports car from Muscle Motors for RM84,000. The contract is in
the form of a 60-month annuity due at an APR of 6.08 percent. What will your monthly
payment be?
(3 marks)

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BFN2104 CORPORATE FINANCE TERM 2010

(c) Your financial planner offers you two different investment plans. Plan X is a RM25,000
annual perpetuity. Plan Y is a 10-year, RM51,000 annual annuity. Both plans will make
their first payment one year from today. At what discount rate would you be indifferent
between these two plans?
(4 marks)

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BFN2104 CORPORATE FINANCE TERM 2010

Question 2 (10 marks)

(a) Solo Corp. is evaluating a project with the following cash flows:

Year Cash Flow

0 −RM 47,000
1 RM 16,900
2 RM20,300
3 RM25,800
4 RM19,600
5 − RM9,500

The company uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of
its projects.

(i) Calculate the MIRR of the project using the reinvestment approach.
(3 marks)

(ii) Calculate the MIRR of the project using the combination approach.
(3 marks)

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BFN2104 CORPORATE FINANCE TERM 2010

(b) Bill plans to open a self-serve grooming centre in a storefront. The grooming equipment
will cost RM325,000, to be paid immediately. Bill expects after-tax cash inflows of
RM67,000 annually for 7 years, after which he plans to scrap the equipment and retire to
the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the
required return is 13 percent. What is the project’s profitability index (PI)? (4 marks)