NOOR SAATILA BINT! MOHO !

SA

CONFIDENTIAL 2 AC/AUG 2016/MAF253

PART A

1. C 2. C 3. A 4. 8 5. C
6. D 7. C 8. 8 9. C 10.A

(10✓ x 1 mark= 10 marks)

PARTS

QUESTION 1

a. High dividend payout ratio - the higher will be the amount of dividend paid, therefore
lesser will be the earnings retained in the firm. The firm will rely more on external
financing✓ such as long-term borrowings, which are more expensive.
,''\
') Low dividend payout ratio - the more the firm relies on retained earninas✓ to reinvest
or grow the business.

(2 ✓ x 1 mark= 2 marks)

b. Borrowings:
• Long-term: e.g. debentures✓, bond, etc.
• Short-term: e.g. bank overdraft ✓, commercial paper,. etc.

Capital:
• Issuing common stock✓ or preference stock ✓.
(4✓ x ½mark= 2 marks)

Profit Maximization Shareholders' Wealth

Maximization
• Short-term concept✓ • long-term concept ✓
• Does not consider timing of returns ✓ • Applies TVM principles ✓
• Ignores risk and uncertainty ✓ • Take into account risk and uncertainty
factor ✓
• · not increase in •
Increase in profit does Increase s/holder's wealth is relate·d to
cash flows an increase in cash flows.

(6 ✓ x 1 mark= 6 marks)
(Total: 1 0 marks)

QUESTION 2

A a. lrsyad Bhd is using an aggressive approach/ Temporary sources of

financing amounted to RM1,400,000 is used to finance temporary assets{
(RM825,000) and permanent assets of RM575,00W. Meanwhile the
remaining permanent assets ar'?ounted to RM1 ,900,000 is financed using
permanent sources of financingv'.
© Hak Clpta Unlversitl Teknologl MARA - ��f l&S1 Vt C<-rf Y-01/ld,, ✓ CONFIDENTIAL
- r� 'ji.Yh ,-\+V)) - :::.) ,ri
v .
� ;l.s \( , r� '575\( ✓
� r<e-wi011WiO tA Y..rnl·/1W) -�) fs ✓-:
 "' J
' ',. .;

CONFIDENTIAL 3 AC/AUG 2016/MAF253

Temporary assets RM825,ooo ✓

Temporary
Sources
"--
Permanent currJnt assets RM 275,ooo../
RM1.4M f

Permanent
asset
RM2.475M Permanent sources
\/ Non-current assets RM2,200,000 ../ RM1.9M'1

Time period./
(12✓ x ½mark= 6 marks)

b. Using this approach, risk of illiquid is high✓, because of unavailability of funds

due to frequent payments✓. However, the expected return is high✓ because of
lower cost of short-term financing✓.
(4✓ x ½ mark = 2 marks)

C.
(a) Firm may loss investment in profitable opportunities.✓
(b) Firm may face difficulties in meeting its day-to-day obligations.✓
(c) It may prevent the firm from availing attractive credit opportunity.
(d) Firm may face difficulties in implementing operating plans.
- -· ·----------------·-- -- · ·· · · ·· · · (2✓ x 1 mark- 2 mari<:s>-1--
) ---

B. ",( a. CCC =ICP+R<;P-PDP 4-,2t:'v ,0t-----O

I, 1 ° '= � �oo o'o'o+ 1 eooioo ✓ 12✓ + {¼ J x 19,200,ooo)v° - 45 days✓
0 &

(80%- x 24,000,000)�360-l 90%..f x RM24,000,000✓/360Y

IC\, ).cc,c-01) ).I 1t,;ev,cc.:C
= 32 days + 80 days - 45 days
= 67 days✓
(12✓ x ½ mark= 6 marks)

b. Annual savings = 1,000,000 ✓ x 10% ✓ x (80 days✓ x 10% ✓)

360
= RM2,222.22
(4✓ x ½mark= 2 marks)
(Total: 18 marks)

© Hak Clpta UnlversiU Teknologl MARA CONFIDENTIAL

CONFIDENTIAL 4 AC/AUG 2016/MAF253

QUESTION 3

a. Opportunity cost = 0.02 x J 360 1 = 16.33%

(1-0.02)..Ji 60-15..V
(4 ✓ x ½mark= 2 marks)

b. Alternative 1

AR=AB-i-CB
1,4ss,ooo = B- (o.1sslx 45/36°'1-o.2s ✓
B = RM1 ,900,800

EAR= 15%.fx 1,900,800/x 45/360

1,4as,ooo;il
✓ X 360
45
✓
= 19.2%..Y

Alternative 2 .
22- 1 2 � 5"" I O r ·s c,'c) •
EAR= 1 485.000 x 12%J x 45/360 ../ + 2%..fx 515 000 J X 360✓
1,485,00 45
= 17.55%'-/

(1 e ✓ x ½mark= 8 marks)

c. The company sh9uld forego the cash discount and pay on the 60 dar/because of
th

the lowest cost. -J l.

(2✓ x 1 mark= 2 marks)
(Total: 12 marks)

END OF SUGGESTED SOLUTION

© Hak Cipta Unlversltl Teknologl MARA CONFIDENTIAL