ESLSCA Sample Final Exam - Managerial Finance Date Final Exam: Time: 2 Hours Answer the following questions (each question is assigned 5 marks)
40 Marks
1. Once the funds are raised, the financial management starts a process to manage the working capital and the permanent capital. Please explain briefly what are the working capital policy options which the financial manager can use? 2. Please explain why 1) the cash budgeting and, 2) the cash conversion cycle, are better approaches to measure the company’s liquidity position. Please note that the cash budgeting process, which forecasts cash inflows and outflows, focuses on the firm's ability to generate net income. 3.
The following statement is quoted from the handouts, “The cost of capital to be used in capital budgeting decisions is the weighted average of the various types of financial tools the firm uses”. The use of proper or relevant financial tool(s) depends on whether the company is newly incorporated or on-going concern. Please explain how the methods of capital cost calculations are different in each case?
4. Explain why the higher the investment risk, the higher is the required return? 5. The theory of portfolio investment and the theory of asset demand are closely associated and are used together for the same functional purpose. Give an example to demonstrate how are they used for their purpose.
6. Fundamental factors affect the viability of investment; most important of these factors is inflation. Do you agree with that? Explain why? 7. The nominal interest rate on a debt security is composed of real risk-free rate plus premiums that reflect inflation – liquidity – risk of default – and maturity default risk. If you are an investor in the bond market, which of these elements concerns you most? 8. “In its Charter/Article of Association as well as in its prospectus, the corporation should clearly indicate its dividend policy so that investors can base their future investment decision. Please explain why the corporation should declare its policy
when inviting investors to subscribe in shares offer? And What would happen if the corporation needs afterword to retain earnings for reinvestment purpose?
