Accounting Question

COLLEGE OF BUSINESS AND FINANCE
MBA PROGRAMME
Second Semester 2023/2024
Financial Management (FINC 501)
Instructor Name: Dr. Rami Abu Wadi
Assessment Type: Assignment – Individual
Student Name:
Student ID No.:
Due date: 21/4/2024
Section Number:
Weighting of the Assignment: 15% (out of 100)
Instructions to be followed: please read them carefully!
1. The assignment consists of 3 pages including the cover page and 3 cases.
2. Any late submission will result in 5% deduction penalty from the total grade.
Good Luck,
Questions
ILO’s
Maximum points
Q1
Q2
Q3
C1, D3
C3, D3
C2, D3
Total
24
15
6
45
Points Earned
1
Case 1: (24 marks) (C1, D3)
Consider the following two projects:
Cash Flows
C0
C1
C2
C3
C4
Project A
-$200
80
80
80
80
Project B
-$200
100
100
100
Instructions: (4 marks each)
a. If the opportunity cost of capital is 11%, which of these two projects would you accept
(A, B, or both)?
b. Suppose that you can choose only one of these two projects. Which would you choose?
The discount rate is still 11%.
c. Which one would you choose if the cost of capital is 16%?
d. What is the payback period of each project?
e. Is the project with the shortest payback period also the one with the highest NPV?
f. If the opportunity cost of capital is 11%, what is the profitability index for each project?
Is the project with the highest profitability index also the one with the highest NPV?
Which measure should you use to choose between the projects?
2
Case 2: (15 marks) (C3, D3)
Here are the percentage returns on two stocks.
Month
January
February
March
April
May
June
July
August
Digital Cheese
+15%
-3
+5
+7
-4
+3
-2
-8
Executive Fruit
+7%
+1
+4
+13
+2
+5
-3
-2
Instructions: (5 marks each)
a. Calculate the monthly variance and standard deviation of each stock. Which stock is the
riskier if held on its own?
b. Now calculate the variance and standard deviation of the returns on a portfolio that
invests an equal amount each month in the two stocks.
c. Is the variance more or less than halfway between the variance of the two individual
stocks?
Case 3: (6 marks) (C2, D3)
Many firms have devised defenses that make it more difficult or costly for other firms to take
them over. How might such defenses affect the firm’s agency problems? Are managers of firms
with formidable takeover defenses more or less likely to act in the shareholders’ interests rather
than their own? What would you expect to happen to the share price when management proposes
to institute such defenses?
The End
3