‘THE UNIVERSITY OF THE WEST INDIES ‘ST. AUGUSTINE EXAMINATION! OF APRIL/MAY 2013 Code and Name of Course: MGMT 2023 — FINANCIAL MANAGEMENT I Date and Time: Friday loth Wa, 2913 Loe pin INSTRUCTIONS TO CANDIDATI ‘This paperhas pages and INSTRUCTIONS: = This paper comprises of six (6) compulsory questions. You may use a non-programmable financial calculator. Total marks ~ 60. Show all workings. The University of the West Indios Course Code: MGMT 2023, Paper: B.Se. Duration: 2 hrs, 6 questions. 18hpage 2 QUESTIONONE — (5 marks) ‘The DFL Caribbean Group has assembled the following financial statements for its annual year-end review. Balance Sheet DFL Caribbean Group December 31, 2012 Assets Current assets Cash $ 118,750 Accounts receivable 296,250 Inventory 303,750 Total current assets $ 718,750 Gross fixed assets $625,000 Less: Accumulated depreciation 93,750 Net fixed assets 531,251 ‘Total assets $1,250,000 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 111,250 Notes payable 211,250 Accruals 108,75 ( ‘Total current liabilities $ 431,250 Long-term debt 235,000 ‘Total liabilities $ 666,250 Stockholders’ equity Common stock 318,750 Retained earnings 265,000 ‘Total stockholders’ equity $ 583,750 ‘Total liabilities and stockholders’ $1,250,000 ean Seer @The University of the West Indies Course Code: MGMT 2023page 3 Income Statement DFL Caribbean Group é for the Year Ended December 34, 2012 Sales revenue $1,680,000 Cost of sales -1:362.480 Gross profits $ 317,520 Less: Operating expenses Selling expense $ 125,600 General and administrative expense 81,600 Depreciation expense 24,000 Total operating expense $231,200 Operating profits $ 86,320 Less: Interest expense 15,600 Net profits before taxes, $70,720 Less: Taxes (40%) __ 28,288 Net profits after taxes E4242 Required: Calculate any two financial ratios from the same category and briefly comment on the firm's performance in that category. (5 marks) QUESTIONTWO (43 marks) Part 1-7 marks (a) ABC Ltd. expects to pay a dividend of $2.60 next year. The dividends are expected to grow ata rate of 10% per annum for the first 3 years after which the growth rate will stabilize at 5% per annun for an indefinite time period, If you require a return of 15% per annum, what would be the current price of ABC’s shares? (5 marks) (b) Discuss whether the Dividend Capitalization Model can be used to value stocks of firms that do not pay dividends. (2 marks) Part Il - 6 marks (@) A.9% annual coupon bond is maturing in 8 years with a current selling price of $800. If this bond was called at a call price of $1,100 at the end of year 5, what would be its yield to call? Discuss if the bond is likely to be called, (3 marks) @The University of the West indies. Course Code: MGMT 2023,