need an expert to help with the accounting exam. Starts at 5:00 am Eastern Standard Time, ends at 7:20 am. In total is 2 hours and 20 minutes

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need an expert to help with the accounting exam. Starts at 5:00 am Eastern Standard Time, ends at 7:20 am. In total is 2 hours and 20 minutes
Answered Same DayApr 14, 2022

Solution

Sandeep answered on Apr 14 2022
10 Votes
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PART 1: KNOWLEDGE BASED SHORT ANSWER QUESTIONS [25 Marks]

This part consists of TWENTY (20) questions. Answer ALL questions in this part.
1. You were offered a job as the financial manager for a company that you now discover is losing
£100,000 a week. At the rate things are going, the firm would not have any cash left in 6 months
to pay its creditors. What are your goals as a financial manager? [2 Marks]
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2. Suppose you invest £1,000 in an account with a stated annual interest rate of 10%. What is the
future value of this investment in four years if the interest is compounded (a) annually; (b) semi-
annually; or (c) monthly? [3 Marks]
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As a Finance Manager it will my responsibility to stop this bloodbath and prevent business from
sinking. I will need to trade off between long term and short term goals of firm .The primary focus shall be
to boost short term liquidity in order to realise entity’s obligations by reorienting financial planning .This means
changing focus of organization from maximizing shareholder wealth to survival and prevent bankruptcy.
Additionally the firm can look at selling off some of its non-core assets and investment to pay off itsi mmediate
short obligations so the supplies and relations with creditors can resume.To sumarize
Boost short term liquidty of company will be primary focus
Align firm's short term and long term objective in interest of company and investo
At all cost avoid company from sinking into bankruptcy hole.
Dispose non-core assest to pay creditors and suppliers
Keep maximizing shareholders welath maxmimization goal linked to company's survival
FV = PV x (1+r)^t => PV = $ 1000; r = 10%; t=4 years.hence solving it we get
FV = $ 1000x(1+.10)^4 => FV = 1464.1
a) FV when the interest is compounded yearly = $ 1464.1
FV = PV x (1+r)^t => PV =$ 1000; r=10% /2= 5% ; t=4x2 =8, solving it we get
FV = $ 1000x(1+.05)^8 => FV = 1477.46
) FV when the interest is compounded Semi-annually:
FV when the interest is compounded Semi-annually = $ 1477.46



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3. The stock market provides an annual return of 8.4%. A risky project costs £35,000 but provides
£20,000 cash flow for two years. Would you invest in the project? [2 Marks]
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4. Which of the following examples is an annuity? [2 Marks]

A) Mortgage loan payments
B) Robust portfolio with a lot of volatility
C) A lump sum lottery payment
D) These are all examples of annuities

Your Answer: ___________________________________

5. You win a £2 million lottery which pays you £200,000 per year for 10 years, beginning one
year from now. How much is your prize worth today, assuming an interest rate of 4% per year?
(to the nearest £100) [2 Marks]

A) £1,422,200
B) £634,000
C) £1,622,200
D) £1,351,128

Your Answer: ___________________________________

6. Frank runs a family-owned removals company which is cu
ently facing liquidity problems and
needs an injection of funds. From the following list of sources of finance available to the company,
Cash Outlay of project = £35,000 ;
Market return (Ke) = 8.4% ; Cash Inflows =£20,000 pa ; T = 2 years .Solving for NPV we get :
Cash Outlfow (t=0 years)
Cash Inflow (t=1) => CFAT/(1+r)^t => 20000/(1+.084)^1 => £18450.18
Cash Inflow (t=2) => CFAT/(1+r)^t => 20000/(1+.084)^2 => £17020.47
Adding up CFAT for 2 years we get :
PVIF(CFAT T=1-2 years) = £35470.65
NPV = PVIF(CFAT) - Cash outflow
NPV = £35470.65 - £35,000 = £ 470.65
Hence NPV is positive so we should accept the project
A) Mortgage loan payments
C) £1,622,200



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identify which THREE would be classified as a suitable source of short-term finance.
[2 Marks]
i) 10-year Bank loan
ii) Bill of exchange
iii) Commercial mortgage
iv) Overdraft financing
v) Invoice discounting

A) ii, iv and v
B) i, ii and iv
C) i, ii and v
D) i, ii and iii

Your Answer: ___________________________________

7. There is a conflict of interest between stockholders and managers. In theory, stockholders are
expected to exercise control over managers through the annual meeting or the board of directors.
In practice, why might these disciplinary mechanisms not work? [2 Marks]
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8. The $1,000 face value ABC bond has a coupon rate of 6%, with interest paid semi-annually, and
matures in 5 years. If the bond is priced to yield 8%, what is the bond's value today?
[2 Marks]
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A) ii, iv and v
Face Value(F) = $ 1000 ; Coupon Rate =6%;Coupon Rate (semi-annual)=6%/3=2%;
Coupon Frequency=Annual ;Maturity years (N)=10; Annual Coupon Payment (C)=$30
Yield to maturity(i%) = 8%;
Bond Value = C *((1+i)^N-1)/i*(1+i)^N) + F*(1/(1+I)^N)
C *((1+i)^N-1)/i*(1+i)^N) = $ 201.30



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9. Stark Industries has a debt-equity ratio of 1.1. Its WACC is 9.6 percent, and its cost of debt is
7.2 percent. The corporate tax rate is 35 percent. What is Weston's cost of equity capital?
[3 Marks]
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10. Western Corp has 2,500 bonds outstanding that are selling for $1,020 each and yielding a pre-
tax 7.2 percent. There are 60,000 shares of common stock outstanding with a beta of 1.3 and a
market price of $56 per share. The risk-free rate is 4 percent, the market risk premium is 7 percent,
and the tax rate is 35 percent. What is the WACC? [5 Marks]
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F*(1/(1+I)^N) = $ 463.15
Bond Value/Price = $ 664.50
WACC = (Wd*Kd*(1-t) + (We*Ke) =>9.6% = ((1.1/(2.1)*7.2%*(1-35%)) + ((1/2.1)*Ke)
9.6% = ((1.1/(2.1)*7.2%*(1-35%)) + ((1/2.1)*Ke)
9.6% = 2.56 %* +.4717Ke
Ke = 14.78%
WACC = (Wd*Kd*(1-t) + (We*Ke) =>
Ke = Rf +Beta(Rm-Rf) => 4% +1.3(7% -4% )=> 7.9%
Wd = 2500*$ 1020 = $ 2550000 ; Wk =60000*56=$ 3360000 ; Combined Weight = $5910000
WACC = ((2550000/5910000)*7.2% *(1-35%))+((3360000/5910000)*7.9%)
WACC = 2.02% + 4.49% =
WACC = 6.51%



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PART 2: Attempt ANY THREE questions in this part [Total 75 marks]
Question 1 [25 Marks]
You are provided with the projected income statements for a project:
Year 1 2 3 4
Revenues $ 10,000 $ 11,000 $12,000 $13,000
- Cost of Goods Sold $ 4,000 $ 4,400 $ 4,800 $ 5,200
- Depreciation $ 4,000 $ 3,000 $ 2,000 $ 1,000
= EBIT $ 2,000 $ 3,600 $ 5,200 $ 6,800
NOTES
• The tax rate is 40%.
• The project required an initial investment of $15,000 and an additional investment of $2,000
at the end of year 2.
• The working capital is anticipated to be 10% of revenues, and the working capital investment
has to be made at the beginning of each period.
REQUIRED
a. Estimate the free cash flow to the firm for each of the 4 years. [10 Marks]
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FCF = Operating Cash Flow - NWC - Capital Expense =
OCF = EBIT (1-tAX) +Depreciation =
yEAR1 =$ 5160 ; Year 2 = 5160 ; Year 3 = 5120 ; Year 4 = 5080
Type text hereNWC Year 1 =1000 ; Yr 2 = 1100; Yr 3 = 1200 ; Yr 4 = 1300



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. Estimate the payback period for investors in the firm. [5 Marks]
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c. Estimate the net present value to investors in the firm if the cost of capital is 12%.
[5 Marks]
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d. What Is difference between payback period method and NPV method? Write THREE
advantages of NPV method. [5 Marks]
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Question 2 [25 Marks]
Alpha PLC's stock had a beta of 0.95. The treasury bill rate at the time was 5.8%, and the treasury
ond rate was 6.4%. The firm had debt outstanding of $ 1.7 billion and a market value of equity of
$ 1.5 billion; the corporate marginal tax rate was 36%. Alpha PLC also had debt outstanding of
$ 1.7 billion and a market value of equity of $ 1.5 billion; the corporate marginal tax rate was 36%.
REQUIRED:
a. Estimate the expected return on the stock for a short-term investor in the company.
[4 Marks]
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. Estimate the expected return on the stock for a long-term investor in the company.
[4 Marks]
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c. Estimate the cost of equity for the company. [5 Marks]
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d. Assuming that the cu
ent beta of 0.95 for the stock is a reasonable one, estimate the beta for the
company. [5 Marks]
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e. How much of the risk in the company can be attributed to business risk and how much to financial
leverage risk? [4 Marks]
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f. What if a company has a Beta greater than market beta? Is it good
ad for the company?
Comment with example.
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Question 3 [25 Marks]
a. Discuss the differences between primary and secondary market with ONE example for each.
[6 Marks]
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Primary Market - This is the market where all the Investotrs converge to invest in the stock when any
company wishes to list it's stock for the first time on stock exchange after duly fulfilling all the
egistration formalities . This is the Initial public offering place where all new share are launched or listed .
The share are directly purchased from the company



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. “Maximizing stock prices does not make sense because investors...
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