The following table presents the financial information of a software company DeskPro in 2020:
Items	Value
Accounts payable	480000
Accounts receivable	180000
Cash and equivalents	165000
Common stock	270000
Inventories	290000
Long-term debt	470000
Patents and intangibles	190000
Preferred stock	40000
Property, plant, and equipment	615000
Retained earnings	30000
Short-term debt	150000

b) The companys sales (all sales are credit sales) and cost of sales for the year 2020 are $2,000,000 and $1,500,000, respectively. Calculate cash conversion cycle of the company and interpret the result. (2 marks)

c) Due to a violation of the debt covenants, DeskPro is obligated to pay its creditors all its liabilities very soon. What is the market value of the shareholders equity if the companys total assets have a market value of $1,500,000? What if the market value of total assets equals $750,000? Can market value of equity be negative and why? (2 marks)

d) If you observe a drop in ROA of the company, does it necessarily mean a deterioration in the company's financial health? Explain why. (2 marks)

- ABC Inc. will be producing a new line of smart robot vacuum. If the large factory is chosen, the cost per unit to produce each unit will be $230 while the cost per unit will be $280 for the small factory. The large factory would have fixed cash costs of $280,000,000 and a depreciation expense of $10,000,000 per year, while those expenses would be $140,000,000 and $5,000,000 in the small factory. Unit price is $1000 for both projects.

a) Calculate the accounting operating profit break-even point for both factory choices for Twilight Candles. (2 marks)

b) Calculate the number of unit sales for which the accounting operating profit is the same, regardless of the factory choice. Interpret the result. (2 marks)

c) The companys marketing analysis suggests that there is a probability of 70% that the demand for this product is 3,300,000 units and a probability of 30% that the demand for this product is 2,300,000 units. What is the expected unit sales? (1 mark)

d) Given the results in b and c, discuss which factory option the company should choose? (1 mark)

e) ABC Inc. is also considering an investment strategy under capital rationing condition that works for a multiple period scenario. Matthew, the financial analyst of the company, suggests that choosing the projects with the highest profitability indices in the first period will generate the greatest aggregate NPV of all projects that the company will undertake in all periods. Do you agree with Matthew? Explain why? (3 marks)

- KR Inc.s main facility is located in Wellington. Suppose that Genentech would experience a direct loss of $700 million in the event of a major earthquake that disrupted its operations. The chance of such an earthquake is 2.2% per year, with a beta of -0.7.

a) If the risk-free interest rate is 3.5% and the expected return of the market is 9%, what is the actuarially fair insurance premium required to cover KR Inc.s loss? (2 marks)

b) Suppose the insurance company raises the premium by an additional 0.1% over the amount calculated in part (a) to cover its administrative and overhead costs. The company estimates its financial distress cost it would have to suffer if it were not insured is $90. Should the company purchase the insurance policy in this case? (Hint: calculate the NPV of the insurance policy). (3 marks)

c) Explain why beta of such event can be negative? (1 mark)

d) In your own words, discuss how moral hazard and adverse selection impact insurance premium? (2 marks)

a) A year ago, your company generated a higher level of cash flows and decided to increase dividend payout. Unfortunately, after a year, the financial results are not as good as expected and the cash flows have bounced back to its pre-adjusted level. Discuss how a decision to cut dividends might impact the companys share price. (2 marks)

b) Alpha Ltd is trading for $22 per share on the day before the ex-dividend date. If the amount of the dividend is $4 and there is no tax, what should the price of the shares be trading for on the ex-dividend date? Explain why (2 marks)

c) You own 1000 shares of Gloria Ltd. The firms management just announce that it will pay $2 dividend per share. Current share price in the market is $35. Assuming that market is perfect, show that you can create your own stream of dividend without changing your total wealth if you want a dividend of $5 per share. (3 marks)