Page 1 of 10 UNIVERSITY OF TECHNOLOGY, JAMAICA COLLEGE: BUSINESS & MANAGEMENT SCHOOL: — BUSINESS ADMINISTRATION Final/Redo Examination: Semester 2 Module Name: — Corporate Finance Module Code: FIN3003 Date April/May 2011 ‘Theory/Practical: Theory Groups: BBA3 Fin & Acc, EBBA4 Ace and PBBA3 Fin Duration: 2 Hours Instructions: L.__Please read questions carefully 2, ‘This paper consists of TEN (10 ) pages. 3. Answer the paper as follows: + Twenty (20) Multiple choice questions. Answer all questions Section B: ‘Ten (10)"True or False choice questions. Auswer all questions Section C: Four (4) short answer questions. Answer all questions Section D: ‘Two @) questions. Answer all questions.Page 10 of 10 SECTION D (40 marks) ‘This section consists of two (2) questions. Answer ALL questions in the answer booklet provided, QUESTION 120 Marks) A company currently has assets of $5 million and it is 100 percent equity financed. The company currently has net income of $1 million and it pays out 40 percent of net income as dividends, Both net income and idends ate expected to grow ata constant rate of 5 percent per year. ‘There are 200,000 shares of stock outstanding, and its estimated thatthe eurrent cost of capital is 13.4 percent. The company is considering a recapitalization exercise where it will issue SI ‘million in debt and use the proceeds to repurchase stock. Investment bankers have estimated that if the company goes alvead withthe recapitalization, before-tax cost of debt will be 11 percent, and the cost of equity will rise to 14.5 percent. The company has a 40 percent tax rate 8. What is the current share price of the stock (i.e. before recapitalization) (a0 marks) '. Assume that the company maintains the same payout ratio, what will be the stock price after recapitalization. (10 marks) QUESTION 2 (20 Marks) The Jean Corpotntion is trying to determine the effect ofits inventory turnover ratio and days sales outstanding (DSO) on its eash flow eycle,Jean’s sales last year all on credit) were $150,000, and it earned a net profit of 6% oF $9,000, It tamed over its inventory 5 times during the year, and its DSO was 36.5 days. The firm had fixed assets totaling $35,000, Jean's payables deferral peri is 40 days. 1. Caleulate Jean's ensh conversion eyele. (5 marks) Assuming Jean holds negligible amounts of cash and marketable securities, ealeulate its total assets turnover and ROA. (S marks) ‘6. Suppose Jean's managers believe thatthe inventory turnover ean be raised to 7.3, times. What would Jean's cash conversion cycle, total assets turnover, and ROA have been if the inventory tumover lad been 7.3 for the year? (10 marks) see END OF PAPERS