NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JANUARY/FEBRUARY 2013 EXAMINATION

Course Code: MBF 848                                                      Credit Unit: 2.

Course Title: ADVANCED EVALUATION METHOD

Time Allowed: 2 Hours.

Instructions: 1. Attempt Question 1 and any other two (2) Questions.

                        2. Question 1 is compulsory and carries 30 marks

                           while the other 2 Questions carry 20 marks each.

                        3. Present all your points in coherent and orderly manner.

     1.   a. List the 5 stages of a Project Cycle.                                    5 MARKS

b. Discuss all the stages listed in (a).                                      20 MARKS

c. List the sources of new project ideas.                                  5 MARKS

    2a. Explain the components of the term ‘required rate of return’. 4 MARKS

b. An investment company is considering the purchase of a 3 year N 1,000,000 value bond bearing a compound rate of interest of 8%. The Investment company’s required rate of return is 10%. How much will the company be willing to pay now to purchase the bond?    10 MARKS

         c. The coupon rate of interest on a N 1,000,000 par value perpetual      bond is10%. What is the current yield if the bond market price is N 800,000?                                  6 MARKS

   3.  a. List the Traditional Criteria of Capital Investment Decision.  2 MARKS

     b.  Ogba Limited having a project which involves immediate cash outlay of        N200,000.00. The company estimates that the net cash inflows from the project      will be as follows:

Year                  Cash flow (N)

  1                        20,000.00

  2                        40,000.00

  3                      220,000.00

  4                         80,000.00

Calculate the payback period for the above project. 14 MARKS  

 c. State the Decision Rule for this method of Investment Decision. 4 MARKS

4.  a. List four sources of capital in a firm’s capital structure.            4 MARKS

     b. What do you understand by the term ‘cost of equity capital’?   2 MARKS

    c. The current price of a share is N45 and the expected dividend per share next year is N4.50. If the dividends are expected to grow at a rate of 5%, calculate the cost of equity.      9 MARKS

     d. A firm issues a 9.5% perpetual bond for N95. The tax-rate is 50%. What is the cost of the issue?  5 MARKS

5.  a. List the FOUR classifications of Accounting Ratios known to you.  4 MARKS                                                                     

     b. Discuss any three measures of liquidity of a firm-stating clearly the formula for calculating each of them.     8 MARKS

     c. List three profitability ratios and discuss their computation.     8 MARKS