Question 1 [ 25marks) (a) Rukahia Knighting, ACCA, and Obiapeasempa King Inr, CFA, are independently analysing the value of Adobia Energy (Ghana) ltd stock. Adobia Energy paid dividend for the past four years as: Rukahia suspects that dividend will grow at a constant rate per year of 6.98%. Rukahia, further, estimates that the shares of Adobia Energy is trading at GH8.50. Recently, Adobia Energy (Ghana) ltd has paid a dividend of 32.75Gp. King Jnr has, also, researched extensively on Adobia Energy (Ghana) Ltd's stock and he discovered that equity market, in which Adobia Energy (Ghana) ltd operates, is expected to earn 15.2%; Treasury bills are currently yielding 5%; the equity beta of Adobia Energy is estimated to be 0.6 and Adobia Energy (Ghana) Itd pays corporation tax at 35%. Meanwhile, Adobia Energy (Ghana) ltd has consistently maintained debt to equity ratio of 40% to 60%. The pre-tax weighted average cost of debt structure of Adobia Energy (Ghana) Itd is 12.85%. Required: Determine the approximate cost of equity and weighted average cost of capital (WACC), correct to the nearest whole number, of Adobia Energy from the perspective of the two analysts. (10 marks) State four (4) uses of weighted average cost of capital by Adobia Energy (Ghana) Itd. (4 marks) (b) i. Explain any four functions of a finance manager. (8 marks) ii. What is meant by the concept time value of money". (3 mark) Question 2 [25marks] You believe that there is a 40 per cent chance that the share price of Fan Milk Ghana ltd will decrease by 12 per cent and a 60 per cent chance that it will increase by 24 per cent. Further, there is a 30 per cent chance that the share price of Zenith Energy (Ghana) Itd will decrease by 12 per cent and a 70 per cent chance that it will increase by 24 per cent. The correlation coefficient of the returns on shares in the two companies is 0.75. Page 2 of 7 Required: a) Calculate the expected return, variance and standard deviation for each company's shares 5 marks) b) On the basis of expected return alone, discuss whether Fan Milk Ghana ltd or Zenith Energy (Ghana) ltd is preferable. (3 marks) c) On the basis of standard deviation alone, discuss whether Fan Milk Ghana ltd or Zenith Energy (Ghana) ltd is preferable. (3 marks) d) Calculate the coefficients of variation (CVs) for Fan Milk Ghana ltd and Zenith Energy (Ghana) Itd and discuss which stock return series has the greater relative dispersion. ( 5 marks) e) Distinguish between risk and uncertainty. (4 marks) Question 3 [ 25marks] (a) CBG pays 10 percent per annum simple interest on its savings account balances, GCB pays 8 percent interest compounded annually whereas DB pays 7 percent interest compounded quarterly. If you made a GH5,000 deposit in each bank, how much more or less money would you earn from DB account than : i. CBG account at the end of 10 years? ii. GCB account at the end of 10 years? (15 marks) (b) The prime financial objective of a profit making company is to maximise shareholder wealth. Shareholder wealth can be measure by total shareholder return (dividend + share price increase). To maximise shareholder wealth an organisation must take certain key decisions. Discuss three (3) key decisions that can be taken in order to maximise shareholder wealth of an organisation. (10 marks) Question 1 [ 25marks) (a) Rukahia Knighting, ACCA, and Obiapeasempa King Inr, CFA, are independently analysing the value of Adobia Energy (Ghana) ltd stock. Adobia Energy paid dividend for the past four years as: Rukahia suspects that dividend will grow at a constant rate per year of 6.98%. Rukahia, further, estimates that the shares of Adobia Energy is trading at GH8.50. Recently, Adobia Energy (Ghana) ltd has paid a dividend of 32.75Gp. King Jnr has, also, researched extensively on Adobia Energy (Ghana) Ltd's stock and he discovered that equity market, in which Adobia Energy (Ghana) ltd operates, is expected to earn 15.2%; Treasury bills are currently yielding 5%; the equity beta of Adobia Energy is estimated to be 0.6 and Adobia Energy (Ghana) Itd pays corporation tax at 35%. Meanwhile, Adobia Energy (Ghana) ltd has consistently maintained debt to equity ratio of 40% to 60%. The pre-tax weighted average cost of debt structure of Adobia Energy (Ghana) Itd is 12.85%. Required: Determine the approximate cost of equity and weighted average cost of capital (WACC), correct to the nearest whole number, of Adobia Energy from the perspective of the two analysts. (10 marks) State four (4) uses of weighted average cost of capital by Adobia Energy (Ghana) Itd. (4 marks) (b) i. Explain any four functions of a finance manager. (8 marks) ii. What is meant by the concept time value of money". (3 mark) Question 2 [25marks] You believe that there is a 40 per cent chance that the share price of Fan Milk Ghana ltd will decrease by 12 per cent and a 60 per cent chance that it will increase by 24 per cent. Further, there is a 30 per cent chance that the share price of Zenith Energy (Ghana) Itd will decrease by 12 per cent and a 70 per cent chance that it will increase by 24 per cent. The correlation coefficient of the returns on shares in the two companies is 0.75. Page 2 of 7 Required: a) Calculate the expected return, variance and standard deviation for each company's shares 5 marks) b) On the basis of expected return alone, discuss whether Fan Milk Ghana ltd or Zenith Energy (Ghana) ltd is preferable. (3 marks) c) On the basis of standard deviation alone, discuss whether Fan Milk Ghana ltd or Zenith Energy (Ghana) ltd is preferable. (3 marks) d) Calculate the coefficients of variation (CVs) for Fan Milk Ghana ltd and Zenith Energy (Ghana) Itd and discuss which stock return series has the greater relative dispersion. ( 5 marks) e) Distinguish between risk and uncertainty. (4 marks) Question 3 [ 25marks] (a) CBG pays 10 percent per annum simple interest on its savings account balances, GCB pays 8 percent interest compounded annually whereas DB pays 7 percent interest compounded quarterly. If you made a GH5,000 deposit in each bank, how much more or less money would you earn from DB account than : i. CBG account at the end of 10 years? ii. GCB account at the end of 10 years? (15 marks) (b) The prime financial objective of a profit making company is to maximise shareholder wealth. Shareholder wealth can be measure by total shareholder return (dividend + share price increase). To maximise shareholder wealth an organisation must take certain key decisions. Discuss three (3) key decisions that can be taken in order to maximise shareholder wealth of an organisation. (10 marks)