please answer these question and finish them in 3 hours, give the detail andexplanation of the every step to me , thank you !

Examination Cover Page Examination Period: Academic Institution: Academic Group: Academic Career: Examination Type: 2016 Term 2 Central Queensland University Higher Education Division Postgraduate Standard AFFIX STUDENT ID STICKER HERE I have read and understood the penalties involved if I do not abide by the rules outlined on the back of this examination paper. Student Signature: Student ID Number Course: Subject Area: Catalog Number: Paper Number: Component: Managerial Finance FINC 20018 1 ALL Components Duration: Perusal Time: First Contact: Second Contact: 180 minutes 15 minutes Hui Thia David Fox Restrictions: Closed Book Contact Number: Contact Number: 0421454139 0293245726 Office Use: Release examination paper via the CQ University Past Exams website two weeks after the DE/SE examination period? Yes Instructor Authorised/Allowed Materials Dictionary nonelectronic, concise, direct translation only (dictionary must not contain any notes or comments). Calculator nonprogrammable, no text retrieval, silent only. Student Calculator Make:____________________ / Model: ____________________ Special Instructions to Students: Please see instruction sheet on first page of the examination paper. Examination Office Supplied Materials 1 x Rough Paper 1 x Exam Answer Booklet QUESTIONS ANSWERED MARKS QUESTIONS ANSWERED Number of examination answer booklets used: Number of separate sheets attached (Do not include rough paper): MARKS This examination paper is not to be released to the student at the conclusion of the examination. Central Queensland University considers improper conduct in examinations to be a serious offence. Penalties for cheating are exclusion from the University and cancellation with academic penalty from the course concerned. Term 2 Standard Examination 2016 Managerial Finance - FINC20018 Instructions Sheet 1. Write all answers in the Examination Answer Booklet provided. 2. This examination comprises 10 questions and all questions must be answered. For Question 4 and Question 5, you are required to answer either part (a) or part (b), NOT both (a) and (b). 3. This examination is worth 50 marks and each question is worth 5 marks. 4. Write your answer clearly and use numbered headings or subheadings to show which part of your answer refers to which question. Example: Question 3 (a). 5. For calculation questions, writing the formula, then inserting values into the formula and showing your workings will gain you part marks if the final answer is incorrect. 6. A formulae sheet is attached at the back of your examination paper for your reference Page 1 of 7 Term 2 Standard Examination 2016 Managerial Finance - FINC20018 Answer ALL questions. For Question 4 and Question 5, you are only required to answer either (a) or (b), NOT both. If you answer both parts in Question 4 and Question 5, only part (a) will be marked. Each question is worth 5 marks (10 x 5 = 50 marks). Question 1 5 Marks Principle 3 in finance states that cash - not profits - is king. Provide 2 explanations why this concept is important to a finance manager. Question 2 5 Marks What aspects of a company do you think the stock exchange would want to examine to determine whether its securities should be listed? Question 3 5 Marks In 10 years you are planning to retire and buy a house in Gold Coast, Queensland. The house you are looking at currently costs $1,000,000.00 and it is expected to increase in value each year at a rate of 5%. Assuming that you can earn 10% annually on your investments, how much must you invest at the end of each of the next 10 years to be able to buy your home when you retire? Question 4 (answer either a or b only, NOT both) 5 Marks a. (i) In the context of a two-asset portfolio, what are the factors that determine the expected return of the portfolio and what are the factors that determine the standard deviation of the portfolio? (2.5 marks) (ii) If you were to graph the returns of a share against the returns of the All Ordinaries Index and the points did not follow a very ordered pattern, what could we say about that share? If the share's returns tracked the Index returns very closely, what would you say? (2.5 marks) OR (This question will continue over page 3) Page 2 of 7 Term 2 Standard Examination 2016 Managerial Finance - FINC20018 (This question is a continuation from page 2) b. You own a portfolio consisting of the following shares: Share Percentage of Portfolio Beta Expected return 1 40% 1.00 12% 2 25% 0.75 11% 3 35% 1.30 15% (i) Calculate the expected return of your portfolio. (1 mark) (ii)Calculate the portfolio beta. (1 mark) (iii) Given the information above, plot the security market line on paper. Plot the shares from you portfolio on the graph. (2 marks) (iv) From your plot in part (iii), which shares appear to be winners? (1 mark) Question 5 (answer either a or b only, NOT both) 5 Marks a. (i) How does a bond's par value differ from its market value? (2.5 marks) (ii) Explain the difference between the coupon interest rate and a bondholder's required rate of return. (2.5 marks) OR b. Morris Ltd shares are currently selling for $3.38 and the company recently paid a dividend to ordinary shareholders of 30 cents per share and has projected its future growth at a rate of 8.5% p.a. If you purchase shares in the company at the market price, what is your expected rate of return? (5 marks) Question 6 5 Marks Briefly explain five (5) reasons why a Company undertakes on-market purchase or acquisition of its Shares Page 3 of 7 Term 2 Standard Examination 2016 Managerial Finance - FINC20018 Question 7 5 Marks ABC Enterprises is considering the acquisition of a new conveyor belt system for one of its plants. The system requires an initial outlay of $54,200 in Year 0 and has an expected life of five years. The required rate of return is 15%. The cash flow is shown below: Year Cash Flow 0 -$54,200 1 +$20,608 2 +$20,608 3 +$20,608 4 +$20,608 5 +$33,808 a. What is the project's Payback period? b. What is the project's NPV? c. Explain whether the project should be accepted. Question 8 (2 marks) (2 marks) (1 mark) 5 Marks The most recent balance sheet for ABC Limited is provided below: $ million Liabilities: Debt (Bonds) $20 Equity : 500,000 preference shares 10 million ordinary shares $5 $15 Total $40 The company's bonds have a maturity of five years and a total face value of $20 million paying a coupon rate (half yearly) of 12% p.a. The current yield of company bonds of similar rating is 15%. The current market price for the company's preference share is $4 and preference dividend is 60 cents. The price for its ordinary shares is $3.90, has a beta of 1.8, risk free interest rate of 7.0% and the risk premium for a market portfolio is estimated to be 8%. The corporate tax rate is 30% a. Calculate the market values for each of the company's sources of long term finance. (3 marks) b. What is the after-tax weighted average cost of capital of the company? (2 marks) Page 4 of 7 Term 2 Standard Examination 2016 Managerial Finance - FINC20018 Question 9 5 Marks ABC Company is considering raising $12 million through a rights issue. It has 10 million ordinary shares outstanding, currently selling for $8.40 each. The subscription price of new shares will be $6 per share. a. How many shares must be sold to raise the desired funds? (1 mark) b. How many shares must a shareholder own in order to have one right? (1 mark) c. What is the theoretical value of the shares ex-rights? (2 marks) d. What is the value of one right? (1 mark) Question 10 5 Marks Some financial data for three companies and the industry norms are displayed below: Measure Company X Company Y Company Z Industry Norm Debt ratio 20% 15% 35% 25% Interest time covered 11 times 9 times 6 times 9 times Price-earnings ratio 12 times 10 times 5 times 10 times a. b. c. Which company appears to be using too much debt in its financing mix? (2 marks) Which company appears to be employing debt to the most appropriate degree? (2 marks) What explanation can you provide for the higher price-earnings ratio enjoyed by company X as compared to company Y? (1 mark) - End of paper - Page 5 of 7 Term 2 Standard Examination 2016 Managerial Finance - FINC20018 LIST OF FORMULAE Module 2 (Chapter 4) Ordinary Annuities Single sums (1 i ) n 1 j Compound interest rate: i m n=mxt FVn=PV(1+i)n FVn PV or PV = FVn (1+i) ; PV PMT 1 (1 i )n i Perpetuity: PV PMT i FV n (1 i) i ( FVn ) (1 i ) 1 n log PMT i ( PV ) 1 (1 i) n jn FVn=PVe 1 (1 i)n PV PMT i 1 PV 1; PMT ; Solving for i, it is trial and error. Alternatively, you can use a financial calculator. PV * i 1 log(1 i) m j m -n FV n i Bond ; log(1+ ) PV )+1 = n EAR 1 ( (1 i)n FV log i FVn PMT ; n 1 log(1 i) Annuities Due PV PMT PMT 1 (1 i) ( n1) i Or PV ordinary annuity * (1+i) Module 3 (Chapter 9) PMT Nominal rate of interest: i Real rate of interest: R Rate of inflation: r i= R+r+rR Historical Return/ Holding Period Return/ P t 1 Return in general: R CAPM: Rj=Rf+(Rm-Rf)j Beta of security: P * j j jm m Expected Return and Risk: R* = P(R1) x R1 + P(R2) x R2 + ... + P(Rn) x Rn P CF Rt t t1 * Ri R * 2 P Ri Portfolio Beta: portfolio = (percentage invested in stock j) x ( of stock j) t P t 1 Holding period return with cash-flow: P t 1 Return of a two-asset portfolio (Rp) Rp= (w1*R1)+(w2*R2) Standard deviation of a two-asset portfolio P w1212 w2222 21,2 w1w2 Or = 2 2 1 1 + 2 2 2 2 +2 1,2 1 2 1 2 This formulae sheet is continued on the next page Page 6 of 7 Term 2 Standard Examination 2016 Managerial Finance - FINC20018 This formulae is continued from the previous page Module 4, 7 & 8 (Chapter 10, 14 & 18) Value of bond - see module 2. Before-tax cost of debt: n M It D1 Value of ordinary shares: VE NP0 t n RE g t 1 1 K d , BT 1 Kd ,BT After-tax cost of debt: K d , AT K d ,BT 1T Return for ordinary shares: RE D1 g After-tax cost of preference shares: VE D Value of preference shares: VP RP , = 0 Return for preference shares: R D P P After-tax cost of ordinary shares (retained earnings): D0 1 g g R E , AT Before-tax cost of preference shares: K After-tax cost of ordinary shares (new issue): P0 Before-tax cost of ordinary shares (retained earnings): R D0 1 g 1T g E ,BT D 1T NP0 p ,BT P0 K D0 1 g g NP0 Before-tax cost of ordinary shares (new issue): E , AT K E ,BT D0 1 g 1T g NP 0 Calculations involving Term-loan: see relevant formulae in module 2 Module 5 and 6 (Chapters 11, 12 & 13) n NPV n IO t 1 ACF n IO t t 1 (1 k) t ACFt (1 IRR) PI t 1 ACFt (1 k ) IO t t Module 9 (Chapter 19) For Rights Issue: = No. of shares to own one right= Original no. of shares New share issue Theoretical Value of one right: = Or, R N ( Pon -S) N 1 Security Value of Convertible note (SV): see bond calculation in module 2 Conversion Value of Convertible note (CV): conversion ratio x current share price Conversion premium for Convertible Note: Market price of note - Larger of CV and SV Page 7 of 7