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13. Commercial banks are exposed to which of the following risks: ) Credit risk (2) Liquidity Risks (3) Operating risk (4) Regulatory risk A. 1&2 B. All C. 1 &3 D. 1 only 14. Which of the following statements about working capital management (WCM) is incorrect? (1) WCM involves a risk reward trade-off between profitability and liquidity (2) During periods of rapid sales growth, WCM is secondary compared to market share (3) Poor WCM can result in cash shortages and the threat of insolvency A. 2 only B. All C. 1&3 D. 1 &2 15. Quantitative easing by central banks has become a popular monetary policy in order to: (1) Inject liquidity into the financial system after a credit crisis panic (2) Help governments to stimulate economies by deficit spending (3) Kick-start low growth economies with lower borrowing costs (4) Used in lieu of austerity constrained fiscal policies of excessively indebted governments A. 1 only B. 1,3 & 4 C. 3 D. (30 marks)1. The home currency of XYZ Sp. zo.o. is the zolty (zl) and it trades with a company in the Euro-zone whose home currency is the Euro (E). The following information is available: Poland Euro-zone Spot Rate: 4.1 zl/C Interest rate 6% 2% Inflation Rate 4% 1% What is the six-month forward exchange rate? A. 4.18 ZI/E B. 4.09 ZI/E C. 3.02 ZI/E D. 4.15 ZI/E 2. The following financial information relates to an investment project: PLN '000 Present value of sales revenue 65,067 Present value of variable costs 31,768 Present value of contribution 33,299 Present value of fixed costs 17,875 Present value of operating income 15,434 Initial investment 10,656 Net present value 4,768 What is the sensitivity of the net present value of the investment to a change in sales volume? A. 5.9% B. 8.2% C. 12.7% D. 14.3% 3. Bargiel plots the historic movements of share prices and uses this analysis to make his investment decisions. To what extent does Bargiel believe capital markets to be efficient? A. Strong form efficient B. Semi-strong form efficient C. Weak form efficient D. Inefficient 4. Which of the following statements concerning capital structure theory is correct? A. Business risk is assumed to be constant as the capital structure changes B. Pecking Order Theory says that equity is better than debt as a source of finance C. Modigliani & Miller say that capital structure doesn't affect the cost of equity D. In the traditional view there is a linear relationship between the cost of equity and risk5. Which of the following will be the MOST likely to increase shareholder wealth? A. The supervisory board recruits a ACCA to head up the audit committee B. Management focuses on investing in projects with high NPVs C. A management board bonus programme is created to boost earnings per share (EPS) D. Surplus cash is used in a share buy-back programme reducing float by 15% 6. Which of the following statements are features of money market instruments? (1) By selling in the market, they can be readily converted to cash at any time (2) In the case of commercial paper, there will be a credit rating assigned (3) They yield varying returns depending on the perceived default risk A. 1 only B. 1 and 3 C. None D. All 7. The following are extracts from the income statement of RST SA: Sales income 72,000 Cost of sales (75% variable) 60,000 Operating profit 12,000 Interest expense 3,000 Profit before taxes 9,000 Incomes taxes 3,000 Net profit after tax 6,000 What is the operational leverage of RST SA? A. 2.3 times B. 3.8 times C. 4.5 times D. 5.0 times 8. Polmark SA has annual credit sales of PLN 60 million with days sales outstanding (DSO) of 60 days. Accounts receivable are financed by a combination of bank debt (67% at 9%) and the firm's own working capital (WACC at 12%). What would be the annual interest saving if DSO could be reduced by 15 days? A. 189,876 B. 413,980 C. 328,767 D. 125,9789. Which of the following statements about shareholder wealth maximization are correct? (1) Managers should maximize earnings per share (2) Reducing the WACC to its minimum will tend to maximize the firm's value (3) In efficient markets, cumulative NPVs will be reflected in share prices A. 1 and 3 B. 1 only . 2 and 3 D. None 10. Motoparts SA has paid the following dividends in recent years: Year 2018 2017 2016 2015 Dividend (PLN/share) 34 28 23 19 2018's dividend was just paid & the cost of equity is 14% Using the geometric average historical dividend growth rate and the dividend growth model (DGM) valuation what is the market price of Motopart's shares on an ex dividend basis? A. PLN 120 B. PLN 167 C. PLN 109 D. PLN 217 11. A Boeing aircraft executive said: "The strengthening USD is having an adverse impact on the company's competitiveness in the commercial jet liner market." What risk is the executive referring to? A. Interest rate risk B. Transaction risk C. Economic risk D. Translation risk 12. The following information has been calculated for Polflex Sp.zo.0.: Cash balances - PLN million 13 A/R: Days sales outstanding 65 Inventory: Days COGS outstanding 30 Current portion LTD - PLN million 7.5 A/P: Days purchases outstanding 25 What is the length of the cash cycle of net trading investment? A. 64 days B. 70 days C. 53 days D. 100 daysPlease use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice question (MCQ). Do not write out the answers to the MCQ on the lined pages of the answer booklet. Each question is worth 2 marks. The following scenario relates to questions 16-20. Slavmax SA currently has the following long-term capital structure: PLN millions PLN millions Long Term Debt: Mortgage Bonds - 20 yrs 24 Senior unsecured debt 15 Subordinated debt 10 Deferred Tax Liability 7 Equity: 56 Preferred shares - 5% 10 Capital reserves 7 Ordinary shares 25 Retained earnings 27 69 Total equity and liabilities 125 The subordinated debt earns interest at 9% per year and matures in 5 years time. It has a convertibility feature allowing creditors the right to receive 10 common shares at maturity for every 1,000 PLN nominal value of debt. Slavmax's cost of subordinated debt is 11%. The ordinary shares of Slavmax have a nominal value of 25 PLN per share. The current ex- dividend share price on the Warsaw Stock Exchange is PLN 95/share which the company expects to grow at 5% per year for the foreseeable future. Polish treasury bills currently pay 3%. Total shareholder returns (dividends and price appreciation) on the WSE WIG-30 index have averaged 14% over the last 5 years. The equity beta of Slavmax is .95. 16. What is the conversion value of the subordinated debt after 5 years? A. 1,342 PLN B. 1,212.50 PLN C. 121.25 PLN D. 987.56 PLN 17. The market consensus is that Slavmax's earnings will grow at 4%/yr. Based on this, what is the market value of the subordinated debt of Slavmax? A. 897.56 PLN B. 1,000.00 PLN C. 1,213.77 PLN D. 1,018.04 PLN 18. What is Slavmax's cost of equity capital as implied by the Capital Asset Pricing Model? A. 13.5% B. 15.1% C. 9.0% D. 17.3%
