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 805

CREDIT UNIT: 2

COURSE TITLE: CORPORATE FINANCE

TIME ALLOWED: 2 Hours

INSTRUCTIONS: 1. Attempt Question Number one (1) and any other two (2).

2. Question Number 1 is compulsory and carries 30 marks, while the other questions carry 20 marks each

3. Present all your points in coherent and orderly manner

Shown is the Balance Sheet and Income Statement of XYZ Nig Ltd for 2019 and 2020. From the figures, calculate the following financial ratios: Current ratio, Quick ratio, Receivables Turnover, Average Collection Period, Inventory Turnover, Debt to Assets ratio, Return to Assets and Return to Equity. Comment on your observation in each case. 30 marks

2a. To know whether the objective function we have chosen is the ‘right one’, it must exhibit certain characteristics. Explain these characteristics. 10 marks

2b. The least restrictive of the objective is to maximize the firm value while the most restrictive is to maximize the stock price. In view of this statement, explain the underlying assumptions justifying wealth maximizing objective function. 10 marks

3a. Explain Operating cash flow 6 marks

3b. Discuss the process for calculating operating cash flow. 6 marks

3c. Assume Fulman Nig. Ltd paid N140,000 interest to creditors and long-term debt from N816,000 to N908,000. Calculate the Net Cash Flow. 8 marks

4a. The weighted average cost of capital (WACC) is defined as the weighted average of the costs of the different components of financing used by a firm: WACC = Ke (E/CE + D+PS) +Kd (E+D+PS) +Ks (PS/(E+D+ PS) Explain the independent variables of the WACC equation. Ke, Kd, Ks, E/(D+ E+ PS), D/(E+D+PS), PS/(E+D+PS) 12 marks

4b. The cost of capital is comprised of three major key risk components. In addition to these three key risk components, explain two (2) other risks associated with business. 8 marks