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NATIONAL OPEN UNIVERSITY OF NIGERIA
UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
NOVEMBER 2018 EXAMINATION
COURSE CODE: BFN805 CREDIT UNIT: 2
COURSE TITLE: CORPORATE FINANCE
TIME ALLOWED: 2 HOURS
INSTRUCTIONS:
- Question number 1 is compulsory and carries 30 marks while the other 2 questions carry 20 marks each. Present all your points in coherent and orderly manner.
- Attempt question number one (1) and any other two (2).
1. Igwe Adenuga is running a business which manufactures nuts and bolts which are then sold to local industrial units. The abridged accounts for 2016 and 2017 are given below:
Igwe Adenuga
Income Statement for the year ending 30 September 2016 and 2017
|
|
2016 |
2017 |
||
|
|
|
|
|
|
|
Sales |
|
1,920 |
|
2,180 |
|
Cost of sales |
|
|||
|
Direct material cost |
780 |
|
920 |
|
|
Direct wages |
510 |
|
390 |
|
|
Factory overheads |
110 |
1,400 |
220 |
1,530 |
|
Gross profit |
|
520 |
|
650 |
|
Expenses |
|
|||
|
Administrative cost |
120 |
|
145 |
|
|
Distribution cost |
80 |
200 |
115 |
260 |
|
Net profit |
|
320 |
|
390 |
|
Inventory of finished goods on 1st October 2015 was |
||||
Igwe Adenuga Balance Sheet as at 30 September 2016 and 2017
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2016 |
2017 |
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|
|
|
|
|
|
|
Non-Current Assets |
|
|||
|
Freehold premises |
400 |
|
400 |
|
|
Plant and machinery |
200 |
|
395 |
|
|
Fixtures and fittings |
120 |
720 |
100 |
895 |
|
Current Assets |
|
|||
|
Inventory |
200 |
|
250 |
|
|
Trade receivables |
130 |
|
166 |
|
|
Bank balance |
30 |
|
---- |
|
|
Cash in hand |
10 |
|
4 |
|
|
|
370 |
|
420 |
|
|
Current Liabilities |
|
|
|
|
|
Trade payables |
(150) |
|
(160) |
|
|
Bank overdraft |
---- |
220 |
(35) |
225 |
|
|
|
940 |
|
1120 |
|
Equity |
|
|||
|
Capital |
900 |
|
940 |
|
|
Net profit for the year |
320 |
|
340 |
|
|
Less drawings |
(280) |
940 |
(160) |
1120 |
Required:
Use the following ratios to compare the financial performance from 2016 and 2017 of Igwe Adenuga firm.
(i) Gross profit ratio
(ii) Return on capital employed
(iii) Inventory turnover (times) or inventory turnover ratio
(iv) Current ratio
(vi) Quick ratio
30 marks
- Discuss any five (5) determinants of the capital structure of a business enterprise. 20 marks
- a) Explain the term Cost of Capital 5 marks
b) If the weighted average cost of capital (WACC) is defined by this equation:
WACC = Ke (E/CE + D + PS) + Kd (E + D + PS) + Ks(PS/(E + D + PS).
Explain what each or group of letters represents.
Ke
Kd
Ks
E/(D + E + PS)
D/(E +D + PS)
PS/(E + D + PS) 15 marks
- a) Discuss the term Convertible Security. 10 marks
b) Explain five (5) reasons for issuing Convertible Securities. 10 marks
5 a) Discuss any five features of Articles of Incorporation 10 marks
b) Discuss the functions of the financial market 10 marks
