1:25% Question 1 Financial managers make three IMPORTANT financial decisions below: 1. Investment Decisions 2 Financing Decisions 3. Dividend Decisions above? 3 marks a) What is the PRIMAY goal of a corporation for making the three (3) financial decisions b) Pick ONE financial decision from the three (3) above and discuss how it is used to achieve the PRIMARY goal of the corporation in (a) above. Question 2 a) Discuss the relationship between Risk and Return. 1 mark 2 marks 5 marks 1 mark b) List the two (2) main sources of capital that big corporations use to finance their investments. 2 marks c) Discuss which source of capital is used MORE and WHY? 2 marks Question 3 Net Present Value (NPV). 4 marks RAK ltd made an investment in Project A and expects the following estimated Net Cash Inflows below for five (5) years. Use this information to answer the questions that follow: Project A Time 012345 (10,000) 2,500 5,000 4,500 8,000 3,500 a) Calculate Net Present Value (NPV) of Project A, assuming the cost of capital is 10% per annum. 2 marks b) Should RAK Ltd accept this Project? If YES, Why? If NO, why not? Assume an annual interest rate of 10 % for all five (5) years. 2 marks Page 2 of 6 QUESTION 6 Liquidity ratios measure Short-term Solvency. 5 marks Below is the Emirates Financial Position (Balance Sheet) Statement for the ending 31st March 2021. Consolidated Statement of Financial Position as at 31 March 2021 2021 AID- 2020 2021 2030 AED AED m AID ASSETS EQUITY AND LIABILITIES Net Capital and reserves " 2069 2162 Capital 15 AS 67 " 2024 1 C 170 17 10 420 387 14 04 1412 31 2121 8678 2785 12 455 Attributable to data's Owner 6554 1259 Trade and other receivables 14 31 15 100 43 20 196 280 Total equity 6,535 7,314 143 Current t 71 156 Trade and other payables 143 211 Trade and other receivables 14. 2164 1010 Borrowings and lease at 2.993 21 Derivative financial instruments 24 15 Provisions 18 548 582 Comenta 55 Deferred tax labs 20 255 23 1,730 3700 LEIS 4109 Cash and cash equivalents 23 1616 17 ZMZ 3257 14,274 16,703 Borrowings and lab " 1065 957 Derivative financial instruments 24 Provisions 18 Curers a bles 17 21 3,900 4392 Total abies Total equity and abilities 7,739 14274 16.703 401 Use the above Financial Statement to calculate Liquidity Ratios for the ending 31 March 2021: a) Current Ratio b) Quick or Acid Test Ratio 2 marks 2 marks c) Use the Current and Quick ratios of Emirates Airlines calculated above and the USA Current and Quick ratios of Aircraft industry below: Discuss whether Emirates Airlines is performing well or not compared to USA airline industry? 1 mark Aircraft: average industry financial ratios for U.S. listed companies Financial ratio Current Ratio Quick Ratio Cash Ratio 17 more rows Year 2021 2020 3.32 0.85 1.56 0.32 1.78 0.24 Aircraft: industry financial ratios benchmarking - ReadyRatios... 4 marks Suppose Air Emirates sold an issue of bonds that mature in 8-years. The face value of the bond is Dhs. 1,000. The bond pays a coupon rate of 10% per annum. Coupons are paid semi-annually and the interest rate is 6% per annum. a) What is the price of the bond? 2 marks b) Discuss the relationship between the price of the bond (PV) and the interest rates. QUESTION 5 RAK Ltd finances its operations as follows below: I. The cost of bonds before tax is 8% per annum. II. III. The cost of preference stock before tax is 9% per annum. The cost of common stock before tax is 10% per annum. 2 marks 4 marks Assume corporate tax rate is 35%. Answer the question by completing the Weighted Average Cost of Capital (WACC) table below. 1 Source of 2 Market 3 4 5 6 Cost before Cost after values in Weights funds tax tax WACC 3x5 Dirham 10% Bonds 150,000 Preferred 100,000 stock Common 120,000 stock Total Use four (4) decimal places in your answers WACC