BAFB3013 FINANCIAL MANAGEMENT

Assignment

Assignment – 30%
Start: Week 3
Due Dates: Week 10

Learning outcomes
CLO1, CLO2, CLO3, CLO4

Instructions
1. Answer ALL Questions. All answer must be submitted in Word document file.
2. Prepare a cover page stated the course code, course name, semester, group name
and all the group members.
3. Each student needs to submit the file in UNIEC Open Learning.

COURSE CODE BAFB3013

SECTION CODE MC-034

COURSE TITLE FINANCIAL MANAGEMENT

ASSIGNMNET TITLE Learning outcomes: CLO1, CLO2, CLO3, CLO4

SUBMISSION DATE 11 NOVEMBER 2022

NAME OF LECTURE KHAIRATUN HISAN IDRIS SAZALI

GROUP MEMBER (GROUP 6) MATRIC NUMBER

NURDINI NABILAH BINTI AZMAN MC210413316

MUHAMMAD DHIYAUDDIN ASFA BIN OTHMAN UNU2200252

SIVASANGARI SARAVANAN UNU2200719

VIKNESBAWAN A/L VEERASINGAM UNU2200250

SIVARANJINI D/O OMAPPARAO UNU2200652

1
 QUESTION 1

WORKI NET
DEPRE DEPRE AFTER-
YEA REVEN TAX@ NET NG INVEST AFTER- PVIF@8 PRESENT
COSTS CIATI PBT CIATIO TAX
R UE 28% INCOME CAPITA MENT TAX CASH % VALUE
ON N OCF
L FLOW

0 (30000) (400000) (430000.00) 1.000 (430000.00)

1 800,000 480,000 132,000 188,000 52,640 135,360 132,000 267,360 - 267,360.00 0.926 247,555.56

2 800,000 480,000 180,000 140,000 39,200 100,800 180,000 280,800 - 280,800.00 0.857 240,740.74

3 500,000 300,000 60,000 140,000 39,200 100,800 60,000 160,800 - 160,800.00 0.794 127,648.22

4 500,000 300,000 28,000 172,000 48,160 123,840 28,000 151,840 30,000 181,840.00 0.735 133,657.83

NET PRESENT VALUE 319,602.35

a) Calculate the project initial outlay

= 43,000.00
b) What is the NPV of the proposed project?
= 319602.35
c) Should Biru Bookstores proceed with the project?
= NPV > 0 Hence project should be accepted

QUESTION 2

2
Required:
I. What is the net income before the change?
II. How many shares are currently outstanding?
III. What is the current stock price?
IV. What would be the expected year-end stock price if the company proceeded with
the recapitalization? Should Merah Berhad proceed with the recapitalization?
ANSWER
A.
AMOUNT
OPERATING INCOME (EBIT) 40,000,000
LESS: INTEREST EXPENSE 2,000,000
EBT 38,000,000
LESS- TAX 10,640,000
PAT 27,360,000
Net income is the amount of accounting profit a company has left over after
paying off all its expenses
B. Number of shares outstanding = Earnings/EPS
= 27,360,000/4
= 6,840,000 shares
Earnings per share (EPS) is a company's net profit divided by the number of common
shares it has outstanding. 

C. PE ratio is the market price of stock divided by its EPS

Current stock price = PE Ratio*EPS
= 10 x 4
= RM40
The Price Earnings Ratio (P/E Ratio) is the relationship between a company's stock
price and earnings per share (EPS).

D. Assuming the buyback is happening at market price,

Value of buy back [Bond value sold] = 1,400,000*40
= 56,000,000
No. of shares after buy back = 6840000 - 1400000
= 5440000
Debt after buy back = 20 million + 56 million

3
 = 86 million

EBIT 40,000,000

LESS- INT
8,600,000
EXP

EBT 31,400,000

TAX 8,792,000

EAT/PAT 22,608,000

New EPS = 22608000 / 5440000

= RM4.155
Stock price after capitalisation = RM4.155*10.5
= RM43.63
By considering that market price is increasing after new proposal, it is advised to proceed
with recapitalization

4
QUESTION 3
Required:
I. What is Chocolate Berhad's BEP(RM)?
II. Determine Chocolate Berhad's operating leverage at this level of output.
III. Calculate the degree of financial leverage at this level of output for Chocolate Berhad
IV. What is the combined leverage for Chocolate Berhad?
V. If sales increase by 10%, what will be Chocolate Berhad’s EPS if the firm has 50,000 shares
outstanding?
ANSWER
a) BEP(RM) = Fixed Cost / CM ratio
= RM150,000 / (400000/600000)
= RM225,000
b) DOL = CM / EBIT
= RM400000/250000
= 1.6X
c) DFL= EBIT /EBT
= RM250000/RM200000
= 1.25X
d) DCL/DTL = DOL X DFL
= 1.6 X 1.25
= 2X
e) If sales increase by 10%, what will be the new level EPS if the firm has 50,000 shares
outstanding?
Sales to EPS, so use DCL
DCL = 2x;
EPS will increase by 2x10% = 20%
Current EPS = Net income / No of shares
= RM140,000 /50000
= RM2.80
New EPS = Current EPS + Increase in EPS
= RM2.80 + (20% x RM2.80)
= RM2.80 + RM0.56
= RM3.36

5
QUESTION 4
Due to a downturn in the housing market, Turquoise Berhad expects total earnings to fall to
RM4,750,000 this year from RM5,000,000 last year. The outstanding shares of common
stock are one million. This year, the company must make investments totaling RM4,000,000.
The corporation uses equity money to fund 60% of its investments and debt to finance 40%
of them. Last year, the company paid a dividend of RM3.00 per share.
a) How much dividend per share will each shareholder receive this year if the company
adheres to a pure residual dividend policy?
b) If the company maintains a constant dividend payout ratio each year, how large the
dividend per share will each shareholder receive this year?
ANSWER
1. Pure residual dividend policy
Budget for capital expenditure = 4,000.000
Equity Finance = 60%
= 4,000,000 × 60%
= 2,400,000
Debt Finance = 4,000,000 x 40%
= 1,600,000
Total earning = 4,750,000
= (1,400,000)
= 2,350,000
Dividend per share = Dividend / number of shares
= 2,350,000 / 1,000, 000
= 2.35
2. constant:
Last year dividend per share = 3.00
NO of share = 1,000,000
Total dollar dividend = PM 3,000,000
Last year earning = 5,000,000
Last year dividend payout = 3,000,000 / 5,000,000
= 60% x 0.6% x 100
= 60%
3. 60% x 4,750,000 = 2,850,000
This year dividend per share = 2,850,000 / 1,000,000
= 2.85
DPS for constant dollar = RM3.00

QUESTION 5

6
In Malaysia, Hijau Berhad imports and sells unique adjustable comb to a range of customers.
The business is reevaluating its sourcing guidelines. Next year, it anticipates selling 31,200
combs. Each comb costs RM4.80 and is offered for sale in dozens. The anticipated cost of
storage and other carrying is RM0.20 per comb. The ordering cost is RM40 per order. The
delivery time is two weeks, and there are 6,000 combs in the safety stock. About 28,000
dozen of these combs are needed each year to meet demand.

Calculate:
a) The optimal economic order quantity.
b) The annual inventory cost for the company if it orders in this quantity.

ANSWER

a. Calculation of economic order quantity (EOQ)

Annual demand(A) =31,200
Cost per order (O) =RM40
Carrying cost(C) = RM0.20

EOQ = SQRT[(2*A*O)/C]
= SQRT [(2*31200*40)/0.20]
= SQRT [2496,000/0.20]
= SQRT (12480,000)
= 3532.70 or 3533 combs
= Thus, EOQ is 3533 combs

b. Calculation of annual inventory cost:

Annual Inventory cost as per EOQ is:
= Total ordering cost + Total carrying cost
= (Annual demand/EOQ) *Cost per order +(EOQ/2) *Carrying cost per unit
= (31200/3533) *RM40 + (3533/2) *RM0.20
= RM353.24 + RM353.30
= RM706.54

7
QUESTION 6
REQUIRED: PREPARE A CASH BUDGET FOR THE MONTHS OF MARCH TO MAY 2023.
ANSWER

ITEMS MARCH APRIL MAY JUNE

Receipt:
Cash sales - 40% 152,000 196,000 296,000 244,000
Credit sales– 50% collected in 30 days 370,000 190,000 245,000 370,000
Credit sales– 10% collected in 60 days 50,000 74,000 38,000 49,000
Total Receipts 522,000 386,000 541,000 614,000

Payments:
Cost of goods sold 228,000 294,000 444,000 366,000
Other cash expense 40,000 40,000 40,000 40,000
Total Disbursement 268,000 334,000 484,000 406,000

Net Cash Flows 254,000 52,000 57,000 208,000

Opening balance 25,000 279,000 331,000 388,000
Closing balance 279,000 331,000 388,000 596,000