Question 1
c
Required Investment RM
ROIC
Project A
40
16%
Project B
40
13.50%
Project C
20
13%
Total Investment
100
The target capital structure is to use 50% Debt and 50% Equity. Net Income last year was RM40 and the company intends to pay dividends to the amount of RM10. The interest rate that banks will charge for any amount of loans is 8%. The Corporate Tax Rate is 30%. Fixed deposits rates in the market is currently 3%. This rate is considered risk free (RF). The stock market is forecasted to provide a return of 15% which will be used as the required return from the market. The unlevered beta for the company is 0.8. Any new shares issue will be charge a 3% flotation cost.
Required:
What is the amount of the first stage financing using the intended capital structure and that the company needs to pay the dividends
1.Calculate the leverage beta at the first stage of financing?
2. Calculate the cost of equity at the first stage of financing?
3. Calculate the cost of equity after the first stage of financing?
4. Calculate the Weighted Average Cost of Capital at the first financing stage and the second financing stage?
5.Explain whether each of the project can be Explanation must include the cost of capital of the project.
6. Based on the answer in part f, what is the total amount of investment
QUESTION 2
The CNC company have acess to the following information to prepare for the budget.
Direct Materials: Cost RM1 per kg, and required amount per unit is 2.5kg. The number of hours workers require to finish a product is 2 hours. The direct labor rate is RM5.00 per hour. Production also require 2 machine hours per unit.
Manufacturing Overheads Cost are estimated and allocated as follows:
Variable Overheads
Total Estimate Cost (RM)
Allocation Basis
Cleaning
18,000.00
Direct Labour Hours
Maintenance
12,000.00
Machine Hours
Supervision
24,000.00
Direct Labour Hours
The following fixed overheads were also estimated
Fixed Manufacturing Overheads
Total Estimated Cost (RM)
Insurance
36,000.00
Advertising
14,000.00
Depreciation
10,000.00
Administration Cost
Total Estimate Cost (RM)
Managers Salary
108,000.00
Utilities in Main Office
12,000.00
Required
Prepare the budget net operating income for the
Calculate the product cost per unit using the absorption costing method.
Calculate the product cost per unit using the variable costing method?
The actual results of operations are as follows.
Units
100,000
Price (RM)
12.00
Sales (RM)
1,200,000.00
Variable Costs
Quantity Used
Rate (RM)
Direct Materials
240,000
0.80
192,000.00
Direct Labour
150,000
4.50
675,000.00
Variable Overheads
Quantity Used
Rate (RM)
Cleaning
150,000.00
0.120
18,000.00
Maintenance
200,000.00
0.060
12,000.00
Supervision
150,000.00
0.320
48,000.00
Total Variable Overhead
78,000.00
Fixed Overheads
Insurance
36,000.00
Advertising
14,000.00
Depreciation
10,000.00
Total Fixed Cost
60,000.00
Total Manufacturing Cost
1,005,000.00
Administration
Managers Salary
180,000.00
Utilities
12,000.00
Total Administration Cost
192,000.00
NET OPERATING INCOME
3,000.00
4. Prepare a usage/efficiency variance analysis and price variance analysis for direct materials, direct labour, cleaning, maintenance and
5. Prepare a variance analysis on the Unit Sales, Sales Price, Fixed Overhead and Administration
6. There was a dispute between the workers in production and the management with regard to their Explain the major cause of the low actual net operating income and whether the complaints are justified. Suggest actions that the company can take.
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