Financial Management 1 (FINM3101)
Faculty of Economics and Management Science (FEMS)
Semester: First Semester
Level: 300
Year: 2017
Question one: (6marks)
Outline the two priority financial objectives of managers of business and state why profit
maximization is not considered to be one of these priority financial objectives.
Question two: (6 marks)
Outline what you understand by financial market efficiency and the efficient market
hypothesis.
Question three: 15marks
A company with 6,000 shares in issue has announced a new issue of shares by a right issue.
The current market price of the shares just before the issue stands at 30,000 FCFA. The shares
will be issued at a discount of 30% and the shareholders have decided to make a one for three
right issue.
Required:
1) Determined the right issue price.
2) Determine the theoretical ex-right price.
3) Determine the value do a right.
4) A shareholder of 300 shares decides to forfeit his rights and to sell them for cash. Show the
effect of his action on his financial and shareholding situation.
Question four: (15marks)
An extract of the financial position of a company is published as follows:
FCFA
Common stock (1,000 shares of 10,000 FCFA par value): 10,000,000
Retained earnings: 20,000,000
Owners’ equity: 30,000,000
Required: determine:
1) The number of new shares to be issued in a three-for-two bonus issue.
2) The number of shares to be allotted to a shareholder of 100 shares in the capitalization issue.
This same company issued warrants that entitled the holder to buy five shares during a new
share issue at the exercise price of 20,000FCFA. A new share issue is announced when the
shares are currently selling at 32,000FCFA.
3) Determine the value of the warrant.
Question five:
A PLC making its first public issue of shares decides to make the issue by means of an offer
for sale by tender with the minimum tender price to be 30,000FCFA. the intention is to issue
the full amount of the authorized share capital of 8,000 shares. With the condition that
applicants make only one offer, with no multiple application, the following tenders were
received;
THE UNIVERSITY OF BAMENDA
FACULTY OF ECONOMICS AND MANAGEMENT SCIENCES
1
st
Semester Exam Course: Financial Management: FINA301
Credit Value:
Course Lecturers:
Time: Course Status: Date:
Venue: Instruction:
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Name of applicants Proposal tender price per
share(FCFA)
No. of shares
applied for.
Mamadou Moussa
Seidou Ibrahim
Voma Martin
Fru Angwafor
Shang Gilbert
Ful Honest
GUSA Casandra
Kahbilla Florinda
XYZ Co. Ltd
Finance house Y’de.
African Investors
Europa Investors
SAMA fidelis
BUMA Julius
30,000,000
60,000,000
55,000,000
35,000,000
50,000,000
40,000,000
45,000,000
30,000,000
60,000,000
50,000,000
55,000,000
35,000,000
30,000,000
40,000,000
1,000
65
152
1,000
250
1,200
900
2,000
35
350
48
2,000
2,000
1,000
Required:
1- Determine the number of shares that would be issued, the price per share and how much would
be raised if the company chooses to: a) maximize the total amount to be raised from the issue.
And b) issue exactly the authorized capital.
2- Assuming that any partial acceptance of offers would mean allotting the shares to each accepted
applicant in proportion to the number of shares applied for, determine the number of shares to
be issued to African investors in both cases above.
3- Determine the amount to be refunded to African investors in both cases, assuming that her
tender was paid for in cash by bank cheque.
Question six; (8marks)
ABC Plc made profits before tax in 2016 of 93,200,000FCFA. The income tax rate is 33%.
The company’s share capital is as follows:
Ordinary shares (10,000shares of 10,000FCFA) 100,000,000FCFA
8% preference shares 20,000,000FCFA
120,000,000FCFA
Required:
Given that 25% of annual earnings shall be retained, calculate the EPS and DPS for 2016.
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