ECOM104 Applied Corporate Finance

 

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Main Examination Period 2019

ECOM104 Applied Corporate Finance

YOU ARE NOT PERMITTED TO READ THE CONTENTS OF THIS QUESTION PAPER UNTIL INSTRUCTED TO DO SO BY AN INVIGILATOR.

Answer TWO questions from Section A, ONE question from Section B and ONE question from Section C. Section A carries 40 marks, Section B carries 30 marks and Section C carries 30 marks. All sub-questions carry 10 marks, unless indicated otherwise.

If you answer more questions than specified, only the first answers (up to the specified number) will be marked. Cross out any answers that you do not wish to be marked

 

Calculators are permitted in this examination.  Please state on your answer book the name and type of machine used.

Complete all rough workings in the answer book and cross through any work that is not to be assessed.

 

Possession of unauthorised material at any time when under examination conditions is an assessment offence and can lead to expulsion from QMUL. Check now to ensure you do not have any notes, mobile phones, smartwatches or unauthorised electronic devices on your person. If you do, raise your hand and give them to an invigilator immediately.

 

It is also an offence to have any writing of any kind on your person, including on your body. If you are found to have hidden unauthorised material elsewhere, including toilets and cloakrooms it will be treated as being found in your possession. Unauthorised material found on your mobile phone or other electronic device will be considered the same as being in possession of paper notes. A mobile phone that causes a disruption in the exam is also an assessment offence.

 

EXAM PAPERS MUST NOT BE REMOVED FROM THE EXAM ROOM

 

Section A

Answer TWO questions

Question 1

  1. In the Balance Sheet financial statement, what is “Property, pland and equipment”? How does depreciation affect this line item?
    • marks]
  2. In the Balance Sheet financial statement, what does “shareholder’s equity” stand for? How is this value calculated? Does it appear on the asset or liabilities side of the Balanse Sheet?
    • marks]

 

Question 2

  1. How did American non-financial corporations use investment funds over the period 1990-2000? Refer to the empirical findings discussed during the lecture.
    • marks]

 

  1. In the Income Statement, what is “Selling, general, and admin expenses”? How is this line item valued?

 

  • marks]

Question 3

  1. What is the difference between “real investments” and “financial investments”? Provide one example for each.
    • marks]
  2. What are the issues associated with the use of Internal Rate of Return valuation method?
    • marks]

 

Section B

Answer ONE question

Question 4

You are a consultant at Emerson Corporation, a renewable energy firm. The company’s management has provided you with the following Balance Sheet and Income Statement information:

You are asked to calculate the following December 31, 20×5 ratios and interpret the results briefly.

  1. Leverage ratios: Debt ratio, Debt to Equity ratio. Efficiency ratios: Total Assets Turnover ratio, Inventory Turnover ratio.

 

  • marks]

 

  1. Liquidity ratios: Current ratio, Quick ratio. Profitability ratios: Net Profit Margin, Return on Assets.

 

  • marks]

Question 5

 

Alpha Milk Corp is considering taking over their competitor, Dana Dairy Products, and asked your consultancy firm to perform financial statement analysis to assess feasibility of this strategic initiative. You are given the following key financial ratios, the firm’s income statement and the balance sheet. You can assume that there are 365 days in a year.

 

  1. Using the information provided for 31 Dec 2005, calculate the following: net working capital, current ratio, quick ratio, inventory turnover, average collection period, total debt ratio, gross profit margin, net profit margin, return on total assets, return on equity. [20 marks]

 

  1. Evaluate the company’s performance against industry average ratios and against last year’s results. [10 marks]

 

Section C

Answer ONE question

Question 6

What are the Cash Flow Projections? How are they used? Provide examples for the main three projection types covered in the lecture.[30 marks]

 

Question 7

What are the potential limitations of the Trend Analysis? Provide detailed discussion of five limitations. [30 marks]

 

Question 8

How are financial ratios used? Provide two examples for each one of the following ratios: leverage ratios, efficiency ratios and profitability ratios. Explain each one of these ratios. [30 marks]

End of Paper

 

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