NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
APRIL/MAY 2019 EXAMINATION

COURSE CODE: BFN715                                                          

CREDIT UNIT: 2

COURSE TITLE: PRINCIPLES OF FINANCE

TIME ALLOWED:             2HRS

INSTRUCTIONS:

1. Attempt Question One (1) and any other two (2) questions

2. Question 1 carries 30 marks, while the other questions carry 20 marks each

3. Present all points in coherent and orderly manner

1a. Jelili Consulting Services has been offered an opportunity to receive the following mixed stream of cash flows over the next five years.                                                                          

Year                                                 Cash flows

1                                                          N800

2                                                       N1,600

3                                                       N1,000

4                                                          N800

5                                                          N600

If the firm must earn 8 per cent at minimum on its investment and the respective PVF (year 1 – year 5) are as follows: .9259, .8573, .7938, .7350 and .6806. What is the most it should pay for this opportunity?    (15 marks)

1b. You are requested to determine how much fund that will be saved at the end of year five (5), if N2000 is deposited annually in a savings account paying 7% based on annual compound interest. (15 marks)

2a. Torti Management Services Ltd expects to receive N320,000 per year at the end of each year for the next 20 years from a new machine.  If the firm’s opportunity cost of fund is 12 per cent, how much is the present value of this annuity?(8 marks)

2b. Discuss any three (3) types of preference shares. (12 marks)

3a. Explain any five (5) short-term sources of funds for a firm.                 (15 marks)

3b. Calculate the present value as at January 5, 2020 of a perpetuity paying N20,000 at the end of each month starting from January 2020.The monthly discount rate is 0.7%. (5 marks)

4a. Differentiate between financial lease and operating lease in four (4) distinct ways.  (10 marks)

4b. Explain four (4) characteristics of a financial lease.                                (10 marks)

5a. Nimota Ltd has a liability of N152,500.85, which must be repaid in five (5) years’ time. The liability pays 12% interest compounded annually. Calculate the present value of the total liability.    (10 marks)

5b. The nominal interest rate charged on bank overdraft is 8%. Given a company tax rate of 35%, calculate the effective cost of the overdraft. (10 marks)