FINAL SEMESTER EXAMINATION

Academic Year 2019 2020

Subject : Economics
Lecturer : Dr. Josep
Study Program : Mechanical Engineering
Instructions to Students
1. This examination consists of 3 pages and 3 Problems.
2. Time allowed for this examination is 2 hours.
3. Sanctions will be given to those students who are not following the examination rules.
4. All answers to be written in answer sheet provided. The number to the corresponding question must
be written correctly.
5. Students are to use proper English and are required to write neatly and clearly.
6. This is an open book examination.
7. Students are allowed to use manual calculator or excel.
8. Students are allowed to use any dictionary.
9. Students need to turn-off any communication devices (all cellular phones, must be turned off).
10. Students are allowed to use lap top without WIFI or Bluetooth (turn off).
11. Check the name and student number.

TOTAL SCORE FOR A, B, C,and D = 60% [15% each].

PROBLEM A
Cikarang Machine Company has current assets of IDR 700,000,000. and current liabilities
of IDR 400,000,000. What effect would the following transactions have on the firm’s
current ratio (and state the resulting figures) ?
a. Two new trucks are purchased for a total of IDR 100,000,000. in cash.
b. The company borrows IDR 110,000,000. short term to carry an increase in receivables
of the same amount.
c. Additional common stock of IDR 220,000,000. is sold and the proceeds invested in the
expansion of several terminals.
d. The company increases its accounts payable to pay a cash dividend of IDR 30,000,000.
out of cash.

PROBLEM B
The following are exercises on internal rates of return:
a. An investment of $1,000 today will return $2,000 at the end of 10 years. What is
its internal rate of return?
b. An investment of $1,000 will return $500 at the end of each of the next 3 years.
What is its internal rate of return?
 c. An investment of $1,000 today will return $900 at the end of 1 year, $500 at the
end of 2 years, and $100 at the end of 3 years. What is its internal rate of return?
d. An investment of $1,000 will return $130 per year forever. What is its internal rate
of return?

PROBLEM C
Phinkfloid Company is considering a new product line to supplement its range line. It is
anticipated that the new product line will involve cash investment of IDR 750,000,000. at
time 0 and IDR 1.0 billion in year 1. After-tax cash inflows of IDR 300,000,000 are
expected in year 2, IDR 300,000,000 in year 3, IDR 350,000,000. in year 4, and IDR
400,000,000. each year thereafter through year 10. Though the product line might be
viable after year 10, the company prefers to be conservative and end all calculations at
that time.
a. If the required rate of return is 12 percent, what is the net present value of the
project ? Is it acceptable ?
b. What is its internal rate of return ?
c. What would be the case if the required rate of return was 10 percent? d. What is
the project’s payback period ?

PROBLEM D

In capital budgeting, should the following be ignored, or rather added or subtracted from
the new machine’s purchase price when estimating initial cash outflow ? When estimating
the machine’s depreciable basis ?
a. The market value of the old machine is IDR 500,000,000 the old machine has a
remaining useful life, and the investment is a replacement decision.
b. An additional investment in inventory of IDR 2,000,000,000 is required.
c. IDR 200,000,000 is required to ship the new machine to the plant site.
d. A concrete foundation for the new machine will cost IDR 250,000,000.
e. Training of the machine operator will cost IDR 300,000,000.

QUESTIONS (40%) :

1. Why do bankers closely analyze cash flow statements and/or sources and uses of
funds statements in considering credit applications ?
2. Assuming that the return on real assets of a company exceeds the return on
marketable securities, why should a company hold any marketable securities ?
3. Under what conditions would it be possible for a company to hold no cash or
marketable securities? Are these conditions realistic ?
4. Explain how efficient inventory management affects the liquidity and profitability of
the firm.
5. What is the purpose of requiring more levels of management approval, the larger
the proposed capital expenditure? Is more information also required in support of
the request?
6. What is the difference between a product expansion and an equipment
replacement investment?
7. Explain what is meant by the time value of money. Why is a bird in the hand worth
two (or so) in the bush? Which capital budgeting approach ignores this concept?
Is it optimal?
8. Why does the payback period bias the process of asset selection toward short-
lived assets?
9. Why does the net present value method favor larger projects over smaller ones
when used to choose between mutually exclusive projects? Is this a problem?
10. EXPLAIN the relationship between House Holder, Firms, Market and Government.

-----------best luck----------