Answer all questions

Question $1(20$ marks $)$

Grand Goals Bhd$.,$ is in the business of manufacturing steel utensils. The firm is planning to diversify and add a new product line. The company require a machinery and can either purchase or get it on lease basis $.$

The machine can be purchased for $$15,000,000.$ It is expected to have a useful life of $5$ years with salvage value of $$1,000,000$ after $5$ years. The purchase can be financed by a $20$ percent loan repayable in $5$ equal annual instalments $($ inclusive of interest$)$ becoming due at the end of each year. Alternatively, the machine can be taken on year$-$end lease rentals of $$4,500,000$ for $5$ years. You may assume the following:

$($a$)$ The company follows written down value method of depreciation, the rate of depreciation being $25$ percent.

$($b$)$ Tax rate is at $24\%$ and cost of capital is $18$ percent

$($c$)$ Lease rents are to be paid at the end of the year.

$($d$)$ Maintenance expenses is estimated at $ $300,000$ per year to be borne by the lessee.

Required

Advice the company, which option it should choose.

Question $2(20$ marks $)$

Zaman Silam Bhd have $500$ employees with an average salary of $$3,000$ per month. Their average age are $30.$ The company is planning to start an Endowment scheme as the company pension scheme for all the company$$s employees. The period of investment is expected to be for $30$ years before the first batch of employees will go for retirment.

The company is going to set aside a salary deduction system to deduct $50\%$ of the required installment for the endowment scheme. The installment payment will be invested in the endowment scheme with a target to achieve a capital endowment sufficient to generate income to take care of the pension payment at $50\%$ of the last drawn salaries expected to averaged at RM$10,000$ in $40$ years time. A fund management with a good reputation had assured that the endowment fund will generate an average return at $6\%$ per annum.

Estimate the monthly installment required by the company to the endowment fund.

$(10$ marks $)$

How much will each employee will have to contribute monthly to the pension fund.

$(5$ marks $)$

If each employee has an option to join the fund or to create their own investment fund, what would be your choice and why $?$

$(5$ marks $)$

$(20$ marks $)$

Question $3(20$ marks $)$

Fast Mawar Bhd is a company that manufactures box mowers. It had net income of $ $15$ million on revenues of $ $50$ million last year, after depreciation charges of $ $10$ million. Capital expenditures last year amounted to $ $16$ million and total non$-$cash working capital was $ $10$ million. The firm had a cash balance of $ $15$ million and paid $50\%$ of its earnings as dividends last year. There is no debt outstanding.

Assuming that revenues, capital expenditures and depreciation grow $10\%$ a year and that net income grows $12\%$ a year for the next four years, and that the non$-$cash working capital as a percent of revenues does not change over this period, estimate the cash balance at the end of year $4,$ if the company maintains its current payout ratio and borrows no money.

$(7$ marks $)$

What proportion of earnings will Fast Mawar have to be pay out as dividends if the firm wants to to preserve its existing cash balance of $ $15$ million at the end of $4$ years?

$(7$ marks $)$

Assuming that Fast Mawar does not want to issue new shares and wants to maintain its existing payout ratio of $50\%$ what debt ratio will the firm have to utilize over the next four years, to have a cash balance of $ $30$ million at the end of the fourth year.

$(6$ marks $)(20$ marks $)$

Question $4(10$ marks $)$

Zanzibar Bhd has the following capital structure.

Source of Financing After$-$Tax Cost Cost of fund

RM$000$ RM $000$

Bond $8\%40,000$

Term loan $9\%20,000$

Overdraft $13\%.4,000$

Preferred Stock $10\%10,000$

Common Equity $14\%50,000$

Accounts payable $15,000$

Required :

What will be the costs of fund of the company $?$

Question $5(15$ marks $)$

The following are financial summary of Gemar Bhd$.$

RM$\text{'}000$

$2019$

$2020$

$2021$

$2022$

$2023$

Average

Profits After Tax $($NCF$)$

RM$\text{'}000$

$2,500\mathrm{.}00$

$2,760\mathrm{.}00$

$2,635\mathrm{.}00$

$2,900\mathrm{.}00$

$3,100\mathrm{.}00$

Retained Profit $($NCF$.$K$)$

RM$\text{'}000$

$1,550\mathrm{.}00$

$1,775\mathrm{.}00$

$1,600\mathrm{.}00$

$1,800\mathrm{.}00$

$1,900\mathrm{.}00$

Dividend $($NCF$(1-$K$))$

RM$\text{'}000$

$950\mathrm{.}00$

$985\mathrm{.}00$

$1,035\mathrm{.}00$

$1,100\mathrm{.}00$

$1,200\mathrm{.}00$

Share Capital $+$ retentions

B$/$F

$30,000\mathrm{.}00$

$31,550\mathrm{.}00$

$33,325\mathrm{.}00$

$34,925\mathrm{.}00$

$36,725\mathrm{.}00$

C$/$F $(=$ BF $+$ Retained Profit$)$

$31,550\mathrm{.}00$

$33,325\mathrm{.}00$

$34,925\mathrm{.}00$

$36,725\mathrm{.}00$

$38,625\mathrm{.}00$

Retention Rate K

$0\mathrm{.}62$

$0\mathrm{.}64$

$0\mathrm{.}61$

$0\mathrm{.}62$

$0\mathrm{.}61$

$0\mathrm{.}62$

r on opening capital

$0\mathrm{.}083$

$0\mathrm{.}087$

$0\mathrm{.}079$

$0\mathrm{.}083$

$0\mathrm{.}084$

$0\mathrm{.}083$

g $=$ Kr $=0\mathrm{.}05.$

Required :

Using the Gordon Growth model, calculate the value of the company.