CONFIDENTIAL 1 AC/AUG 2015/MAF253

UNIVERSITI TEKNOLOGI MARA

COMMON TEST
ANSWER SCHEME

COURSE : FUNDAMENTAL FINANCIAL MANAGEMENT

COURSE CODE : MAF253
EXAMINATION : AUGUST 2015

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CONFIDENTIAL 2 AC/AUG 2015/MAF253

PART A

1. C 2. C 3. D 4. D 5. D
6. B 7. C 8. C 9. B 10. A
(10√ x 1 = 10 marks)
PART B

QUESTION 1

a.
i. Money market
Deals with short-term securities such as commercial paper, banker’s acceptance,
money market funds and certificates of deposits.√ Transactions usually take
place over the telephone.√.

ii. Capital market

Market where securities have a life of more than one year such as common
stock, preference stocks and bonds. √ It can be categorized into primary market
and secondary market √
(4√ x 1 = 4 marks)
b.
Profit maximization Shareholders’ wealth maximization
Does not consider the timing of returns√ Apply the principle of time value of money
√
Ignore risk and real world complexities Do consider risk when making decision. √
when making financial decisions√
Emphasized on short-term target√ Emphasize long-term returns√
(Any relevant answers accepted)
(6√ x 1 = 6 marks)
(Total: 10 marks)

QUESTION 2

A.
a. CCC = 90√ + 38√ – 40√ = 88 days√
(4√ x ½ = 2 marks)
b. 38 days√ = AR/4000000√/360√ = RM422,222√
(4√ x ½ = 2 marks)
c. CCC = 360/6√ + 38√ - 40√ = 58 days√
(4√ x ½ = 2 marks)
d. Nature of business√, level of sales√ and credit and collection policies√
(Any relevant answers accepted)
(3√ x 1 = 3 marks)

B. a. Aggressive strategy √

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CONFIDENTIAL 3 AC/AUG 2015/MAF253

ASSETS SOURCES OF FINANCING

Permanent assets RM200,000 √ Long-term financing RM220,000√
Permanent current assets RM30,000 √
Temporary assets RM70,000 √ Short-term financing RM80,000√
RM300,000 RM300,000
(6√ x ½ = 3 marks)

b. The firm finances all of its temporary assets and some of its permanent
current assets and fixed assets with short-term financing which includes
spontaneous sources. √ The other part of the permanent current assets and
fixed assets are financed by permanent sources, which also include
spontaneous sources. √
(2√ x 1 = 2 marks)

c. High risk of illiquidity (higher amount of installment) √ and high return (less
interest payment) √
(2√ x 1 = 2 marks)

C. The hedging principle is a moderate policy that matches assets and liabilities to
maturities. √ Permanent asset investments are financed with permanent sources,
and temporary investments are financed with temporary sources. √
(2√ x 1 = 2 marks)
(Total: 18 marks)

QUESTION 3

A. Unsecured loan are obtained without the borrower’s pledge of specific assets as
collateral. √

Secured sources involve the pledge of specific assets as collateral in the event the
borrower defaults in payment of principal or interest. √
(2√ x 1 = 2 marks)

B. a. 0.05 _√ x 360___ √ = 25.26%

(1-0.05) √ (90-15) √

(4√ x ½ = 2 marks)
b. Alternative 1

15%√ x 250,000√ x 90/360√ x 360

250,000√ – (15% x 250,000 x 90/360)√ – [(0.2 x 250,000)– 30,000]√ 90
= 17%√

Alternative 2

(250,000√ x 10%√ x 90/360)√+ (50,000√ x 5%√) x 360

250,000√ 90
= 14%√
(14√ x ½ = 7 marks)

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CONFIDENTIAL 4 AC/AUG 2015/MAF253

c. Ramadhan Sdn Bhd should take an offer from the supplier and pay using line
of credit from Western Bank√. The cost only 14% compared with 17% offered
by Eastern Bank.√
(2√ x ½ = 1 mark)
(Total: 12 marks)

END OF SUGGESTED SOLUTION

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