PUR CORPORATE FINANCE EXAM
BUSINESS STUDIES ACC-ENTR/HOLIDAY (2024 - 2025)
RESPOND TO ALL QUESTION IN 3 HOURS
QUESTION 1
TOR most recently sold 100,000 units at $7.50 each, its variable operating costs are $3.00 per
unit and its fixed operating costs are $250,000, annual interest charges total $80,000 and the
Firm has 8,000 shares of $5 (annual dividend) Preferred stock outstanding. It currently has
20,000 shares of common stock outstanding. Assume that the Firm is 40% tax rate.
a) What level of sales (in units) would the Firm break even on operation?
b) Calculate the Firm`s Earnings Per Share (EPS) in tabular form at:
i) The current level of sales and
ii) A 120,000 units sales level
c) Using the current $750,000 level of sales as a base, calculate the Firm`s Degree of
operating leverage, the Degree of Financial leverage and the Degree of Total leverage
d) Use the Degree of total leverage concept to determine the effect in % of a 50% increase
in TOR`S Sales from the $750,000 base level in its EPS.
QUESTION 2
Victoria Robb is considering purchasing the common stock of Warren industries, a rapidly g.
growth boat Manufacturer. She find that the firm`s most recently (2015) annual Dividend
payment was $1, 50 per share. Victoria estimates that these dividends will increase at a 10%
annual rate over the next 3 years (2016 – 2018) because of the introduction of a new boat. At
the end of the 3 years (2018), she expects the Firm`s mature product line to result in a slowing
of the Dividend growth rate to 5% per year for the foreseeable future. Victoria required return
is 15%. To estimate the current (end-of-2015) value of Warren`s common stock (end-of-2015)
value of Warren`s common stock, Po = 2015, she applies the four steps procedure to these
data.
QESTION 3
Given the following possible return of Ford Motor Ltd Co.Determine: Expected return, Standard deviation,
Coefficient of Variation
STATE OF ECONOMY PROBILITY RETURN ($)
1. Recession 1. 0.20 4. -1,000
2. Normal year 2. 0.60 5. 1,500
3. Boom 3. 0,20 6. 2,500
QUESTION 4
Calculate the PBP, ARR, NPV, PI and IRR of the two projects and suggest which of the two projects should be
accepted at a discount rate of 10% of the two projects.
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
PROJECT X ($20,000 5,000 10,000 10,000 3,000 2,000
PROJECT Y ($30,000 20,000 10,000 5,000 3,000 2,000
QUESTION 5
The Slove Mfg Co. balance sheet and its Income statement for the last year are:
Balance sheet of Slove ltd
Liabilities AMT ($000) ASSETS AMT ($000)
Account payables 724 Cash&MarketableSecurity 887
Accrued Salaries & Interest 332 Account Receivable 2,075
Other Current Liabilities 1,665 Inventories 2,120
Common stock 296 Other current Assets 300
Retained Earnings 5,082 Other Assets 687
Stockholders` Equity 5,378 Plant & Equipment 3,707
L-TDebts&OtherLiabilities 1,677
9,776 9,776
Income Statement (in $000)
Particulars AMT($000)
Net Sales 11,990
Cost of Sales 6,946
Selling, Gl & Admin. Expenses 2,394
Other Expenses 581
Earnings Before Taxes 2,069
Taxes 825
Earnings After Taxes (Net) 1,244
Determine Inventory Conversion Period, Receivable, Cash Operating Cycle, Payable deferral
period, Cash Conversion Cycle
QUESTION 6
Calculate the WACC of Book Value & Market Value for the following information:
Type of Capital Book value ($) Market value ($) Specific cost %
Debt 400,000 380,000 5
Preference share capital 100,000 110,000 8
Equity share capital 600,000 900,000 15
Retained Earnings 200,000 300,000 13
