ANSWERS

Answers
TOPIC 1: INTRODUCTION TO FINANCIAL
MANAGEMENT
SELF-CHECK 1.1
Essay Question
1.

(a) Maximising the managers utilities

(b) Implementing social responsibilities

(c)

(d) Uplifting the standards and welfare of workers

Continuous existence

SELF-CHECK 1.2
TRUE (T) or FALSE (F) Statements
1.

2.

3.

4.

SELF-CHECK 1.3
Fill in the Blanks
1.

Maximising the firms wealth

2.

Unlimited, limited

3.

Financial manager

4.

Difficult to set up/double taxation

5.

Technology, globalisation

151

152

ANSWERS

TOPIC 2: FINANCIAL ENVIRONMENT

SELF-CHECK 2.1
Match the Correct Answers
1.

Commercial paper

2.

Negotiable Certificates of Deposit

3.

Treasury Bills

4.

Money Market

SELF-CHECK 2.2
Multiple Choice Questions
1.

2.

3.

4.

5.

TOPIC 3: FINANCIAL STATEMENT AND

FINANCIAL RATIOS ANALYSIS
SELF-CHECK 3.1
1.

Working capital
(2010)

= 24,300 6,600
= 17,700

Working capital
(2011)

= 30,000 9,300
= 20,700

SELF-CHECK 3.2
Essay Question
2011: = 15,154 3,525

= 11,629
2010: = 14,390 3,660

= 10,730

ANSWERS

153

SELF-CHECK 3.3
TRUE (T) or FALSE (F) Statements
1.

2.

3.

4.

SELF-CHECK 3.4
Essay Question
Current ratio of Emas Limited Company for the year 2010 was 1.80 times, which was
higher compared to the year 2011 which had a current ratio of only 1.24 times. This
means that the firms liquidity for the year 2010 was better than for the year 2011. In the
year 2010, for each ringgit of current liabilities the company had a cash of RM1.80 and it
also had assets which were easily convertible into cash which could be used to pay-off its
short term debts quickly. This indicates that the firm was in a better condition in the year
2010 than in the year 2011.

SELF-CHECK 3.5
TRUE (T) or FALSE (F) Statements
1.

2.

3.

4.

TOPIC 4: FINANCIAL MATHEMATICS

SELF-CHECK 4.1
1.

FV

= RM500(1 + 0.05)2
= RM500 (1.1025)
= RM551.25

2.

FV

= RM2,000(1 + 0.08)5
= RM2,000(1.4693)
= RM2,938.66

154

ANSWERS

SELF-CHECK 4.2
1.

Compounding: future value; discounting; present value.

2.

RM1,500
(a) PV =
2


(1 + 0.05)

= RM1,500
1.1025

= RM1,360.54

RM10,000
(b) PV =
4


(1 + 0.08)

RM10,000
=
1.3605

= RM7,350.24

SELF-CHECK 4.3
Higher, decrease.

SELF-CHECK 4.4
1.

RM500
0.08

= RM6,250

2.

RM500 (5.8666)

= RM2,933.30

3.

RM500 (5.8666) (1+ 0.08) = RM500 (6.3359)

= RM3,167. 95

SELF-CHECK 4.5
1.

RM500(1.2597) + RM800 (1.1664) + RM1,000(1.08) + RM1,200

= RM3,842.97

2.

RM5,000(0.9259) + RM7,000(0.8573) + RM5,000(0.7938) + RM3,000(0.7350)

= RM16,804.60

ANSWERS

155

SELF-CHECK 4.6
1.

n = 5 years 12 = 60 months

i = 9% = 0.75%
12

PVA = B(PVIFA i = 0.75%, n = 60)

200 000 = B (48.1734)

B = RM4,151.67

B = monthly installment

SELF-CHECK 4.7
1.

(a)

(1)
Period

(2)
Balance
brought
forward (RM)

(3)
Payment
(RM)

(4) = 1%x(2)
Interest (1%)

(5)=(3)-(4)
Principal loan
reduction

(6)=(2)-(5)
Last
Balance

2,726.96

100

27.27

72.73

2,654.23

2,654.23

100

26.54

73.46

2,580.77

2,580.77

100

25.81

74.19

2,506.58

2,506.58

100

25.07

74.93

2,431.65

(b) If the period of payment increases, the interest decreases while the
principal loan reduction increases even if the installment is fixed at
RM100.

SELF-CHECK 4.8
TRUE (T) or FALSE (F) Statements
1.

2.

3.

4.

5.

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ANSWERS

TOPIC 5: CAPITAL BUDGETING AND CASH FLOW

ProJECTION
SELF-CHECK 5.1
TRUE (T) or FALSE (F) Statements
(a) Payback period = 100,000



30,000

= 3 1/3 years

= 3 years 4 months

(b) No because the payback period exceeds 3 years.

SELF-CHECK 5.2
1.

100 000 = 30 000 (PVIFA i = ?, n = 4)

2.

Based on the PVIFA table for a period of 3 years, it shows that PVIFA at an
interest rate of 7% is 3.3782 and at an interest rate of 8% is 3.3121. Therefore,
the internal rate of return is between 7% and 8%.

SELF-CHECK 5.3
Fill in the Blanks
1. bigger, higher
2.

high, low

TOPIC 6: COST of capital AND Capital

STRUCTURE
SELF-CHECK 6.1
1.

Weighted debt

: 150,000
500,000

Preferences shares : 80,000

500,000

Ordinary shares

: 270,000
500,000

ANSWERS

SELF-CHECK 6.2
Debt cost after tax = 7% (1 0.30)

= 4.9%

SELF-CHECK 6.3
8 100 = 8.25%
Cost of preferences shares =

100 3

SELF-CHECK 6.4
D1
+ g
(a) Common equity =


H0

= 0.20 + 0.05
3.00

= 11.67%

(b) Common equity cost = D1 + g

H0(1 A)

= 0.20
+ 0.06
3(1 0.20)

= 13.33%

SELF CHECK 6.5

TRUE (T) or FALSE (F) Statements
1. T
Capital components

Weight

Capital cost

Debts

0.3

0.3 x 7% = 2.1%

Preferences shares

0.16

0.16 x 8% = 1.28%

Ordinary shares

0.54

0.54 x 12% = 6.48%

TOTAL

1.00

9.86%

2. F
3. F
4. T
5. T

157

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ANSWERS

SELF CHECK 6.6

TRUE (T) or FALSE (F) Statements
1. F
2. F
3. T
4. F
5. T

TOPIC 7: WORKING CAPITAL MANAGEMENT

SELF-CHECK 7.1
For year 2010 Net working capital is RM30,000 and its current ratio 1.25.
For year 2011 Net working capital is RM15,000 and its current ratio 1.09.

For the year 2011, increase in current liabilities is higher than increase in current
assets (liabilities) leading to decrease in the firms liquidity position.

SELF-CHECK 7.2
TRUE (T) or FALSE (F) Statements
1.

2.

3.

4.

5.

ANSWERS

159

TOPIC 8: CASH MANAGEMENT AND

MARKETABLE SECURITIES
SELF-CHECK 8.1
Fill in the Blanks
1. Differences between the balance in the firms cheques book and its account
in the bank.

2. (a) Payment

(b) Net

(c) Collection

SELF-CHECK 8.2
TRUE (T) or FALSE (F) Statements
1.

2.

3.

4.

5.

TOPIC 9: ACCOUNTS RECEIVABLE

MANAGEMENT
SELF-CHECK 9.1
120,000 60
Accounts receivable management =

360

= RM20,000

SELF-CHECK 9.2
TRUE (T) or FALSE (F) Statements
1.

2.

160

3.

4.

5.

ANSWERS

TOPIC 10: INVENTORY MANAGEMENT

SELF-CHECK 10.1
(a) EOQ

= 439 components

(b) Reorder point

= 800 components

(c) Annual total cost = RM5,477.24

SELF-CHECK 10.2
TRUE (T) or FALSE (F) Statements
1.

2.

3.

4.

5.