Mock Exam – Spring 2021

1) Emma Enterprises wants to purchase Emaan Inc for which they want to calculate its firm
value. Currently Emaan Inc has FCFFo of $800, growth rate of 6% and EACC of 12%. What is
the firm’s value?
(2)

2)
a) Calculate free cash flow to the firm for Ahmed International using the following information
in $: (5)
Net Income 97.52
Non Cash charges 45
Interest Expense x (1 – tax rate) 10.95
Investment in fixed capital 0
Investment in working capital 56

b) Calculate free cash flow to the firm for Zia International using the following information in $:
Cashflow from operations 86.52
Interest Expense x (1 – tax rate) 10.98
Investment in fixed capital 0

c) What is the importance of free cash flow?

Q3)
a) Mr. Ansari is trying to decide whether invest in Stock A or stock B. His broker has given
him the following data: (3)
S. No. Probability Possible Return of Stock A Possible Return of Stock B
1 0.16 0.25 0.35
2 0.24 0.35 -0.12
3 0.4 0.18 0.28

Calculate standard deviation and coefficient of variation for Mr. Ansari.

b) Explain the difference of standard deviation and coefficient of variation to Mr. Ansari?

(1)
 c) Explain the results obtained in case A to Mr. Ansari and give your recommendation for
investment with justification. (1)

d) If Mr. Ansari decides to invest equal amount in both the securities then calculate the
expected return of Mr. Ansari’s portfolio. (1)

Q3) Government of Pakistan decides to issue 3 year bond. The data which their analyst gave
them are as follows: (4)
Inflation premium = 3%
Reinvestment risk = 2%
a) Calculate the coupon rate which government should offer to the bond holder.
b) Why are certain premiums required for calculating bond coupon rate of private bonds but
are not applicable in calculation of govt bond.

Q4) Mr. Hilton has the following two investment options.

Project A Project B
Year Cash Flows Year Cash Flows
0 -100,000 0 -100,000
1 10,000 1 40,000
2 20,000 2 30,000
3 30,000 3 20,000
4 40,000 4 10,000
5 20,000 5 20,000

You are hired as an investment consultant and asked to calculate the following: (5)

a) NPV of both the projects if applicable discount rate is 10%. Recommend which
project will you choose if projects are independent and which project will you choose
if projects are mutually exclusive? Explain the basis of your recommendations to Mr.
Hilton.
b) If both projects are mutually exclusive calculate its pay period and recommend in
which project investor should invest in and why?

Q6) You have been hired by a public listed cement company and given the task of forecasting
additional funds required by the DG Cement for year 2021. All relevant data is attached. Use
excel sheet for calculation. Both excel sheet and working saved in word is required (10)
Following assumptions need to be followed:
1) Percentage of growth method needs to be adopted to forecast sales
2) Plant and machinery is not running at full capacity

a) Forecast Sales
b) Calculate Ratios
c) Calculate Forecasted Balance sheet
d) Calculate forecasted Income Statement
e) Does company require additional funds or not? How should it arrange funds in case
required? In case assets are more, what steps can company take?

Best of Luck!