NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JULY 2017 EXAMINATION

COURSE CODE:         ACC 415                                                        

CREDIT UNIT: 3

COURSE TITLE:          FINANCIAL MANAGEMENT

TIME ALLOWED: 2 _1/2hrs

Instructions:  1. Attempt question Number one (1) and any other three (3).

2. Question number 1 is compulsory and carries 25 marks, while the other questions carry 15 marks each

                        Present all points in a coherent and orderly manner

QUESTION 1

For an investment project, the following initial estimates have been made:

Initial outlay on equipment    N100,000

Sales price   N30

Unit cost     N20

Discount rate 10% per annum

Life of project 3 years

Sales volume                         (units)

Year 1                                     4,000

Year 2                                       6,000

Year 3                                       3,000

The equipment will manufacture a product at the above-stated unit cost and selling price in the volumes indicated. Calculate the NPV and the maximum tolerable unfavourable changes as a percentage of the original estimated value in:

a) Sales price

b) Sales volume

c) Initial outlay.

 25 Marks

QUESTION 2

Fuji software Inc. has the following mutually exclusive projects.

2a) Calculate the payback period for the two projects and advice the company accordingly.   7 Marks

2b) Suppose Fuji uses the NPV to rank these two projects, which project should be chosen if the appropriate discount rate is 15%     8 Marks

QUESTION 3

3a) List and Explain properly 7 factors that influence working capital needs of firms.     15 Marks

QUESTION 4

4a) What are the steps in strategic financial decision-making?  6 marks

4b) In resolving the issue of risk and uncertainty, various techniques are applied to analyse their effect on capital investment decisions. List some of the techniques applied.                          

QUESTION 5

5a) What are the approaches used to determine the mix of short-term and long-term sources in financing current assets of a firm       6 Marks

5b) List 9 qualitative factors to be considered in capital investment decisions              9 Marks

QUESTION 6

6a) List the factors to consider when raising finance through the issue of loan stock      6 Marks    

6b) What are the advantages of convertible loan stock to the company?  10 Marks