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Question 1

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 in the amount of RM10. The interest rate that banks will charge for any amount of loan is 8%. The Corporate Tax Rate is 30%. Fixed deposit rates in the market are 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 unleveled beta for the company is 0.8. Any new shares issued will be charged 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

Calculate the leverage beta at the first stage of financing.
Calculate the cost of equity at the first stage of financing.
Calculate the cost of equity after the first stage of financing.
Calculate the Weighted Average Cost of Capital at the first financing stage and the second financing stage.
Explain whether each of the projects can be Explanation must include the cost of capital of the project.
Based on the answer in part f, what is the total amount of investment

QUESTION 2

The CNC company has access to the following information to prepare for the budget.

Direct Materials: Cost RM1 per kg, and the 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. The production also requires 2 machine hours per unit.

Manufacturing Overheads Costs 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 labor, 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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