QUESTION 1

Fui Fui, a head of investment manager holds a portfolio with a current value of RM20 million. The cash index currently stands at 970 points. Fui Fui fear that the market might be heading for a short-term volatility and wishes to enter the KLCI futures market for two months. She analyzing all the information before she decides.

Today, July 2020 Kuala Lumpur Composite Index (KLCI) is 1070 and the KLCI futures is 1100. While the dividend yield and the risk-free rate are 4% and 6.5%.

In August 2020, the KLCI futures price has shown as 1120, 1128 and 1210 for spot month, one month and two months. And both indices converged at last day of August 2020. Fui Fui confusing either she should enter as a hedger or arbitrageur in the market as the best strategy. She found currently the market is mismatch and she decides to get your advice.

Required:

i.As a CFO in the firm, what you would advise to Fui Fui based on the data given?

ii Why the market is mismatch? How you could proof to Fui Fui that your strategy that could benefited to the firm.

iii.What is/are the difference(s) or the benefit(s) between hedging and arbitraging. Is/Are there any disadvantage(s) from both strategies? Briefly explain.

QUESTION 2

As a new professional spreader, in August 2020, you have expected that the market will volatile in the near future. Therefore, you are bullish on the market and asked your broker to trade for RM20 million Futures Kuala Lumpur Interbank Offered Rate Three-Months (FKB3) between September 2020 and December 2020.

In August 2020, the contract months quoted as August (95.17), September (95.24), October (95.76), November (96.12) and December (96.45).

Assume that in September 2020, the contract months are quoted as September (95.78), October (96.12), November (96.43) and December (96.76).

Required:

a.As a spreader in KLIBOR future market, how you could protect your firm from the exposure of the risk? Is it different with a spreader in options market? Explain.

b.Compute the benefits from the above strategy.

c.Interpret how the spreader and the hedger can benefits the firm?

d.How to differentiate between the borrower and the lender in KLIBOR futures contract? Discuss in details.

QUESTION 3

As a fund manager in X-cell Berhad, Alisa has to analyse and follow the current market situations. Malaysian government recently has made an announcement that the government will spending much on the public infrastructure. To boost the market, the government also will increase the budget in few sectors. The financial institution been advised to reduce the interest rate in order to increase the activities in the market.

Therefore, the government is planning to sell Malaysia Government Securities (MGS) for 5 years. The MGS futures price offered was very attractive and you will take this opportunity to growth your firm funds. To hedge in futures market, you have to contact one of the principal dealers that has been appointed by the Bank Negara Malaysia (BNM). Today, September 2020 the current interest rate is 7.8% and MGS futures price as in the third quarter of 2020 is 132.15. You plan to hedge RM30 million between the third quarter of 2020 and the first quarter of 2021.

In March 2021, the interest rate has drop from 7.3% in December 2020 to 6.8% in March 2021 further down to 6.2% in June 2021. While in March 2021, the MGS price is increasing by 0.18%.

Required:

a.What appropriate strategy should Alisa enter and will she get benefits from this strategy? Elaborate.

b.Proof your explanation in (a) by illustrate it in calculation.

c. If Alisa made a mistake on her expectation and the MGS futures has dropped to 132.35 and the interest rate unexpectedly rise to 8.4%, analyze for both changes in

a.(c) and (d). Is she still achieve her price objective? Proof your explanation in (a) by illustrate it in calculation.

With many options in reproductive technologies, many questions are being raised withthe addition of genetic engineering. This debate creates two distinct sides that are both equallypassionate about their beliefs; two of these opposing voices are Michael Sandel and KristaConger. Michael Sandel, a professor of political philosophy at the University of Harvard,opposes human genetic engineering in his article, "Genetically Designing Babies Is Unethical."While Krista Conger, a science writer at the university of Stanford school of Medicines office ofCommunication and Public Affairs argues in her article, "Parents Should Be Free to Use"Designer Baby" Technologies." Sandel believes that designing babies are unethical because itchanges the way families function in parenting and how these parents view their children. Hebelieves this change will cause privileged eugenics so only those with enough money are able toafford to try these reproductive technologies and this will cause people to compete with othersand not try to improve society as many claim it would. He also argues that parents should lovetheir children no matter what qualities they possess and that genetically modifying children willcreate the philosophy that love should depend on what qualities your child possesses. Congerproposes that human genetic engineering should be used because it will help improve humansand therefore society. She believes that altering children to give them their best chance wouldalso make the future a brighter place because if we better our children we better our future. BothSandel and Conger argue about how genetic engineering will effect society and the role of theparents and weather it will benefit or deter society. When considering both arguments one mustadmit that it will have an effect on society and parenting in a way that will both inhibit andbenefit depending on how this technology is used.

The state Department of Education owns a computer system, which its employees use for word processing andkeeping track of education statistics. The governor's office recently began using this computer also. As a result ofthe increased usage, the demands on the computer soon exceeded its capacity. The director of the Departmentof Education was soon forced to lease several personal computers to meet the computing needs of heremployees. The annual cost of leasing the equipment is $14,000.

Question 1

Identify the primary characteristics of each form of legal organization.(a) sole proprietor; (b) partnership; (c) corporation

Question 3

What are some of the problems involved in the use of profit maximization as thegoal of the firm? How does the goal of maximization of shareholder wealth deal withthose problems?

Question 4

Describe the primary role of a Financial Manager within a firm.

Question 5

Firms often involve themselves in projects that do not result directly in profits; forexample, Maxis and Magnum frequently support public television broadcasts. Dothese projects contradict the goal of maximization of shareholder wealth? Why orwhy not?

Canvas Industry Berhad projects unit sales for a new headset as follows:

Year: 1 2 3

Unit sales: 73000 86000 105000

Production of the headsets will require RM2 million in net working capital to start. Total fixed costs are RM1 million per year, variable production costs are RM200 per unit, and the units are priced at RM300 each. The equipment needed to begin the production has an installed cost of RM30 million. Because of the headsets are intended for professional singers, the equipment is considered industrial machinery and it will be depreciated using the straight-line method over 3 years. In Year 3, this equipment can be sold for 20 percent of its acquisition cost. The tax rate is 25 percent, and the required return is 15 percent.

(i) Compute the net cash flows for this project for Year 0 to Year 3.

(ii) Calculate the net present value for this project

(iii) Should Canvas Industry Berhad invest in this project? Why?

Nesta Berhad has a beta of 1.8 and has just paid a dividend of RM0.80 per share. Its dividend is expected to grow at 5% per annum for the foreseeable future. Return on Treasury security is 4% and risk premium for market portfolio is 10%. Is it worthwhile to purchase Nesta Berhad's ordinary shares at its current market price of RM5.50 per share?

Dhabi Sdn Bhd paid dividend of RM250,000 this year. Current return to shareholders of companies in the same industry as Dhabi is 12%, although an additional risk premium of 2% is applicable to Dhabi, being a smaller and non-listed company. Dhabi has 1,000,000 authorized ordinary shares, but only 800,000 shares are currently issued and outstanding. What is the fair price for Dhabi's ordinary shares, if

a) M/s. SJ Private Limited manufactures 20000 units of a product per month. The cost of placing an order is `1,500. The purchase price of the raw material is `100 per kg. The re-order period is 5 to 7 weeks. The consumption of raw materials varies from 200 kg to 300 kg per week, the average consumption being 250 kg. The carrying cost of inventory is 9.75% per annum. You are required to calculate: (i) Re-order quantity (ii) Re-order level (iii) Maximum level (iv) Minimum level (v) Average stock level

M/s. SD Private Limited commenced a contract on 1stJuly 2017 and the company closes its account for the year on 31stMarch every year. The following information relates to the contract as on 31stMarch 2018. (i) Material issued `9,48,000 (ii) Direct wages `4,57,200 (iii) Prepaid direct wages as on 31.3.2018 `1,08,000 (iv) Administration charges `7,20,000 (v) A supervisor, who is paid `50,000 per month, has devoted two-third of his time to this contract (vi) A plant costing `7,85,270 has been on the site for 185 days, its working life is estimated at 9 years and its scrap value is `75,000 The contract price is `42 lakhs. On 31stMarch 2018 two-third of the contract was completed. The Architect issued certificate covering 50% of the contract price and the contractor had been paid `15.75 lakhs on account. Assuming 365 days in a year, you are required to:

(i) Prepare Contract Account showing work cost (ii) Calculate Notional Profit or Loss as on 31stMarch 2018