NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
OCTOBER/NOVEMBER 2016 EXAMINATION

COURSE CODE:    ACC415                                                         

COURSE TITLE:    FINANCIAL MANAGEMENT

CREDIT UNIT: 3

TIME ALLOWED: 2 hours 30 minutes

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.
3. 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 advise 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

3. List and Explain properly 6 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 the techniques applied.                                         

QUESTION 5

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

5b) List 6 qualitative factors to be considered in capital investment decisions.         9 Marks

QUESTION 6

6a) List 5 factors to be considered when raising finance through the issue of loan stock               6 Marks

6b) State 5 advantages of convertible loan stock to the company?     10 Marks