The Management of “TanjungUdaBerhad” is planning a RM4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for RM$5 per share. The bonds can be issued with a 12% coupon rates. The firm’s existing preference share pay dividends of RM$2 per share

Assignment 1 (Corporate Financial)

Additional Instruction

1. Type your answers using Arial 12 with1.5 spacing.
2. Must have cover page.
3. Assignment Due Date 2^nd July 2022……No extension
4. Must do and submit ALL questions
5. 100% marks (worth 30%)
6. Use “Turnitin” checker for plagiarism (less than 30% plagiarism is accepted)…..Only for essay questions
7. Upload to LMS……No WhatsApp or emails (Upload the correct file or correct assignment)

Question 1 (50 Marks)

 

1. The primary financial objective is usually taken to be the maximization of shareholder wealth.

Discuss:

1. Ways in which the shareholders of a company can encourage its manager to act in a way which is consistent with the objective of maximization of shareholder wealth.
2. What other objective may be important to a public limited company which are in-line with the primary objective of shareholder wealth maximization.
3. What is the purpose or benefit of published financial statements for companies and the ratio analysis?
4. Discuss Bonds/ Preference Shares and Ordinary Shares, and factors determinant in choosing them as the firm’s capital structure.
5. What are the short term and long term financing available for companies to generate funds for operating their business. Discuss the reason for acquiring this funds.

(4 to 5 pages to answer this question and point forms with compact facts)

 

Question 2 (30 Marks)

The Management of “TanjungUdaBerhad” is planning a RM4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for RM$5 per share. The bonds can be issued with a 12% coupon rates. The firm’s existing preference share pay dividends of RM$2 per share. The company’s corporate income tax is 30%. The financial statement of TanjungUdaBerhad is as follow:-

TanjungUdaBerhad

Balance Sheet as at 31^st December 2021

 

Current Assets                                                                                             RM$ 2,000,000

Fixed Assets                                                                                                  RM$ 8,000,000

RM$ 10,000,000

 

Current Liabilities                                                                                        RM$ 1,500,000

Bonds:

(8.5%, RM1,000 par value)                                                                       RM$ 4,000,000

(9%, RM1,000 par Value)                                                                          RM$ 1,000,000

 

Preference Shares

(RM$ 100 par value)                                                                                   RM$ 500,000

 

Ordinary Shares

(RM$ 2 par value)                                                                                       RM$ 2,400,000

Retained Earnings                                                                                       RM$ 600,000

RM$ 10,000,000

Required:

1. Calculate the indifference level of EBIT between the two Plans.
2. If EBIT is Expected to be RM1,500,000 which plan will result in ahigh EPS?

 

 

Question 3 (20 marks)

1. You need $3,000 to buy a new stereo for your car in 3 years. What value you must have now if the compounded annually return is 10%.
2. Your grandfather placed $5,000 in a trust fund for you. In 12 years what will be the worth of the savings. If the estimated rate of return on the trust fund is 8%?