UNIVERSITAS HAYAM WURUK PERBANAS SURABAYA

MIDTERM TEST 2021/2022

SUBJECT : FINANCIAL MANAGEMENT (Accounting Class ZF)

DATE : Tuesday, November 2nd, 2021
DURATION : 120 MINUTES

Note: You may use a financial calculator to assist in solving the problem. But you must
present the steps or details of calculation in answering sheet. Otherwise, the mark will
be zero.

1. (20%). Mr. Dago is considering investing in ABC stock that has the following
distribution of possible one-year returns:

Economic Conditions Probability of Possible Return

Occurrence
Recession 0.10 -0.10
Below Normal 0.20 0.00
Normal 0.30 0.10
Above Normal 0.30 0.20
Boom (Peak) 0.10 0.30

Based on the above information, you are required to:

a. Calculate the expected return of the investment!
b. Calculate the risk (standard deviation) of the investment!
c. If Mr. Dago consider to add one more stock (say stock XYZ) in his portfolio that has
a negative correlation (say - 0,5) with stock ABC. Does this stock addition increase or
decrease the portfolio risk? Explain your argument!

2. (25%) PT. Rainbow is considering two mutually projects A and B below:

Year Project A Project B

(in million (in million Rp.)
Rp.)
0 -200 -200
1 30 50
2 50 50
3 70 50
4 40 50
5 30 50

You are required to:

a. Explain the different between independent projects and mutually exclusive project!
Give examples!
b. Calculate the Payback Period
 c. Calculate Discounted payback period if discount rate 10%
d. NPV for the projects if discount rate 10%
e. IRR
f. Which projects would you choose?

3. (25%) Techno Network may upgrade its modem pool. It last upgraded 2 years ago, when
it spent Rp.115 million on equipment with an assumed life of 5 years (3 years remaining)
and an assumed salvage value of Rp.15 million for tax purpose. The firm uses straight line
depreciation. The old equipment can be sold today for Rp.80 million. A new modem pool
can be installed today for Rp.150 million. There will have a 3 years life and will be
depreciated to zero (no salvage value) using straight line. The new equipment will enable
the firm to increase sales by Rp.25 million per year and decrease operating cost by Rp.10
million per year. At the end of 3 years the new equipment will be worthless. Assume the
firm tax rate is 25%.

You are required to:

a. Explain the meaning of incremental cash flows in capital budgeting!
b. Calculate the Initial outlays (t0)
c. Calculate the Annual Operating Cash Flow (t1 – t3)
d. Calculate the Terminal value (t3)

4. (15%). Mr. Daddy is evaluating a stock for investment purpose. The stock has just paid a
dividend of Rp.40. The dividend is expected to grow at 10% constantly forever. The
appropriate discount rate (required rate of return) of this stock is 18%. Based on this
information:
a. Estimate the current market price of this stock!
b. If the stock is currently traded at Rp.600, will you buy this stock? Explain the
argument!

5. (15%). Mrs. Diana is a bond investor in the Indonesia Capital Market. She is considering
to buy a government retail bond. This bond has a nominal value of Rp.1.000.000,
maturity of 3 years, and a coupon rate of 9% paid monthly. The appropriate discount rate
for this bond is 10%. Based on this information:
a. Calculate the estimated bond price!
b. Explain the impact of a market interest rate increase on bond price!