Managerial Finance 2.

4 Final Exam
Duration 2 Hours
Name:
Question (1):
Identify the following statements true or false and correct the false:

1. By raising funds through debt, owners of firms can maintain

control of the firm with a high investment.

2. If the internal rate of return is equal to or greater than the

company’s required rate of return, the project is not acceptable.

3. Cash distributions can take two basic forms: Cash dividend and
stocks repurchase

4. Individuals in upper income tax brackets might prefer lower

dividend payout.
 5. Stock repurchases sends a positive signal that management
believes that the current price is low.

6. Tender offers send a more positive signal than open market

repurchases because the company is stating a specific price.

Question (2)
Answer the following cases:
A. The expected annual net cash inflow from a project is $22,000 over
the next 5 years. The required investment now in the project is $79,310.
What is the internal rate of return on the project?
 B. Management at The XYZ Company wants to install equipment.
The equipment cost is $200,000 and has a 6 year life, and will
generate net annual cash inflows of $40,000. Management requires
a payback period of 5 years or less on all investments.
What is the payback period for the Equipment? And explain why
the company accept or not accept the project.

Question (3)
Durham Hospital has been offered a five year contract to provide medical services for a
large company’ employees. The following are revenue and cost related to this contract.
Cost of special equipment related to the contract 250,000
Working capital required 50,000
Relining equipment in 4 years 50,000
Salvage value of equipment in 5 years 30,000
Annual Services revenue 500,000
Annual Services cost 400,000
 At the end of five years the working capital will be released and may be used
elsewhere by Durham.
 Durham Hospital uses a discount rate of 16%.
Should the contract be accepted based on Net Present Value Method?
Question (4):

A- Explain by Chart the Corporate Governance Structure

B- Explain the important of corporate governance

Question (5)

Assume a company with 500,000 shares of $10 par common stock

outstanding pays a 20% stock dividend. The pre-dividend market value
is $50. The following is the shareholders’ equity accounts before stock
dividend:
Common stock 5,000,000
Additional Paid in Capital 5,000,000
Retrained Earning 5,000,000
Total 15,000,000

How does this impact the shareholders’ equity accounts?