FIN5100 CORPORATE FINANCE MBA MID TERM EXAMINATION
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
FIN5100 CORPORATE FINANCE MBA
MID TERM EXAMINATION
SECOND TRIMESTER 21/22
Question 1 (40 marks)
a) Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problem can arise?
(20 marks)
b) Suppose you own stock in a company. The current price share is RM30. Another company has just announced that it wants to buy your company and will pay RM40 per share to acquire all the outstanding stock. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interest? Why or why not?
(20 marks)
(Total = 40 marks)
Question 2 (30 marks)
a) A homeowner just obtained a RM400,000 mortgage. The mortgage is for 30 years (360 months) and has a fixed nominal annual rate of 9 percent, with monthly payments. What percentage of the total payments made the first two years will go toward repayment of interest?
(8 marks)
b) A football player is offered a 5-year contract which pays him the following amounts: Year 1: RM1.2 million Year 2: 1.6 million Year 3: 2.0 million Year 4: 2.4 million Year 5: 2.8 million Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the football player asks his agent to negotiate a contract which has a present value of RM1 million more than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5- year annuity due. All cash flows are discounted at 10 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in millions of RM)?
(8 marks)
c) Potter plan to buy a terrace house and need to borrow RM500,000 from Bank A. Interest rate offered by Bank A is 4% nominal rate and his term loan is about 30 years. His instalment will be monthly instalment. How much interest does he need to pay in 4th payment? Total principal paid from Period 1 till 6?
(8 marks)
d) Should lending laws be change to require lenders to report EARs instead of APRs? Why or why not?
(6 marks)
(Total = 30 marks)
Question 3 (30 marks)
a) Bon Godman Bhd bond currently sells for RM960 and, has 12 percent coupon interest rate and RM 1,000 par value. It pays interest quarterly and has 10 years to maturity. Calculate the yield to maturity (YTM) on this bond?
(3 marks)
b) The Silicone Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually.
(i) How much are each of the semiannual coupon payments? Assuming the appropriate YTM on the company’s bond is 8.8%, then at what price should this bond trade for?
(5 marks)
(ii) Assuming that this bond trades for $1035.44, then what is the YTM for this bond?
c) Explain the relation that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond.
(6 marks)
d) Due to the Covid- 19 Pandemic, the real estate company- SkyHome Bhd. is expecting its property sales to decline in coming year. Thus, the company has announced that it will be reducing its annual dividend by 5 percent a year for the next three years. After that, the company expects the growth of dividend will be constant at 7 percent. On 31st December 2021, the company paid a dividend of RM1.40 per share.
i) Calculate the current price of the stock if investors require a 9 percent rate of return?
(8 marks)
ii) If SkyHome. Bhd share currently trading at RM60, what is your trading or investment decision on this company?
(4 marks)
(Total = 30 marks)
2022-04-13