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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
JANUARY 2021 EXAMINATION
COURSE CODE: BFN 303
CREDIT UNIT: 3
COURSE TITLE: FINANCIAL MANAGEMENT
TIME ALLOWED: 2½ Hours
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 your points in coherent and orderly manner
1a. State five benefits of effective risk management. 5marks
b. Indicate five method of effective risk management. 5marks
c. State five of the benefits cost of capital during decision making. 5marks
d. Highlight six roles of finance manager in an organization. 3marks
e. There are two firms NOUN Plc. and NUC Plc. which are exactly identical except that NOUN does not use any debt in its financing, while NUC has N2,500,000, 6% Debentures in its financing. Both the firms have earnings before interest and tax of N75,000 and the equity capitalization rate is 10%. Assuming the corporation tax is 50%, calculate the value of the firm. 9mark
2a. Enumerate five importance of asset management in an organisation 5marks
b. What are the five major determinants of merger and acquisition? 5marks
c. Indicate five of the assumptions underlying capital structure of a firm 5marks
3a. COVID, a project cost N25million with cash inflow of: Year 1 N6m Year 2 N12m Year 3 N8m Year 4 N8m The cost of capital is 10%. Compute the net terminal value of the project. 10marks
b, Highlight five (5) benefits of embarking on merger and acquisition. 5marks
4.
Abuja Limited wishes to make a take-over bid for the shares of an unquoted company, Yola Limited over the past five years have been as follows.
2011 N250,000
2012 N360,000
2013 N340,000
2014 N355,000
2015 N375,000
The average P/E ratio of quoted companies in the industry in which Yola Limited operates is 5. Quoted companies which are similar in many respects to Abuja Limited are: Sokoto Plc., which has a P/E ratio of 7½, but is a company with very good growth prospects; Federal Plc., had a poor profit record for several years, and has a P/E ratio of 3½; What would be a suitable range of valuations for the shares of Yola Limited? 15marks
