Question 1

Putih Berhad sells small kitchen gadgets for RM15 each. The gadgets have a variable cost of RM4 per unit, and Putih Berhad fixed operating costs are RM220,000 per year. Putih Berhad capital structure includes 55% debt and 45% equity. Annual interest expense is RM25,000 and the corporate tax rate is 35%.

Required:

a)Calculate the break-even point in units

b)If Putih Berhad sells 25,000 units, calculate the firm's EBIT and net income.

c)If sales increase 20% from 25,000 units to 30,000 units, estimate the firm's expected EBIT and net income.

d)Does Putih Berhad use operating leverage and/or financial leverage? Explain.

Question 2

Jingga BigSupplies' projected sales for the next six months of 2020 are given below.

July RM500,000 October RM800,000

August RM600,000 November RM900,000

September RM800,000 December RM800,000

40% of sales is collected in the month of the sale, 50% is collected in the month following the sale, and 10% is written off as uncollectible.

Cost of goods sold is 70% of sales. Purchases are made on the month prior to the sale, and are paid during the month the purchases are made (i.e. goods sold in August are bought and paid for in July). Total other cash expenses are RM50,000/month.

The company's cash balance as of 30 September 2020 will be RM40,000. Excess cash will be used to retire short-term borrowing (if any). Jingga Big has no short-term borrowing as of 30 September, 2020. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of RM20,000 at the beginning of each month. Round all answers to the nearest RM100.

Required:

Prepare JinggaBig's cash budget for the fourth quarter of 2020..

Question 3

Brown Manufacturing uses 2,400 units of a product per year on a continuous basis. The product carrying costs are RM60 per year and ordering costs are RM250 per order. It takes 20 days to receive a shipment after an order is placed and the firm requires a safety stock of 8 days of usage in inventory.

Required:

a)Calculate the economic order quantity (round up to the nearest whole unit.

b)Calculate the total cost per year to order and carry this item.

c)Its supplier has notified Brown Manufacturing that if the firm increases its order quantity by 58 units, they will give it a discount. Calculate the dollar discount that the suppliers will have to give Brown Manufacturing to result in a net benefit to the company.

Question 4

White Berhad had total earnings last year of RM6,000,000, but expects total earnings to increase to RM6,500,000 this year because of the launching of new models. There are currently 1,000,000 shares of common stock outstanding. The company has RM4,000,000 worth of investments to undertake this year. The company finances 30% of its investments with debt and 70% with equity capital. The company paid RM3.80 per share in dividends last year.

Required:

a)If the company follows a pure residual dividend policy, how large a dividend will each shareholder receive this year?

b)If the company maintains a constant dividend payout ratio each year, how large a dividend will each shareholder receive this year?