Business Finance Sample Paper

Words: 2164
Pages: 9

FNCE20001 Business Finance

Semester 2, 2012

FNCE20001 Business Finance
Semester 2, 2012
Sample Final Exam 1
Note:

This is an edited and revised version of a previous final exam. The reading time for this sample exam is 15 minutes and the writing time is 120 minutes. On this semester’s final exam you will be required to write your answers in the exam booklet and you will be provided with adequate space to do so. Note also that the format of this semester’s final exam will differ from the sample exam’s format. Further details on the format of this semester’s final exam will be available from the LMS. The answers to these questions are not being made available as some questions from this sample final exam may be used on this
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b)

What will happen in equilibrium and why? Explain.

Question 5

[4 + 6 + 4 + 6 = 20 marks]

TOI Ltd is considering the purchase of a new manufacturing machine for use in its production process. Management has developed three alternative proposals to help evaluate the machine purchase. Only one of these proposals can be implemented. Proposal A and Proposal B both have the same cost to set up, but the output from A (as measured by future net cash flows) commences at a high rate then declines over time, while B starts at a low rate and then increases. Proposal C involves buying two of the machines considered under proposal B. That is, Proposal C is simply Proposal B scaled by a factor of two. This will give output similar in magnitude to Proposal A in the first two years. The estimated future cash flows, internal rates of return and net present values (at selected rates) for each proposal are summarized below:
Year
0
1
2
3
4
5
6
7
Sum of net cash flows
Internal rate of