IQ SCHOOL OF FINANCE

CFAP 04 – BUSINESS FINANCE DECISIONS

Segment Year Attempt Attempt/Year Name Ques Part Chapter/Topic Area Description Marks

Prepare a brief commentary for the board of directors of IPL on the above variances
MAC 2018 Summer 2018 Summer Ikraam (Private) Limited 5 b Variance Analysis Variance Analysis 7
and their impact on profitability of the company.
Investment Appraisal
Investment Appraisal Advise whether CT should initiate expansion of its steel production capacity by
BFD 2017 Winter 2017 Winter CT Limited 1 - Weighted average cost of 18
Weighted average cost of capital disposing of its investment properties.
capital
Rights issue and dividend
BFD 2017 Winter 2017 Winter GSI Company Limited 2 a Rights issue and dividend policy Briefly discuss any four factors which influence the dividend policy of a company. 4
policy
Weighted average cost of Estimate the effect on GSI’s weighted average cost of capital by the end of financial
BFD 2017 Winter 2017 Winter GSI Company Limited 2 b Weighted average cost of capital 20
capital year 2018 if the stock analyst viewpoint remains valid.
Moderax Company Pakistan International Investment
BFD 2017 Winter 2017 Winter 3 - International Investment Appraisal Advise whether MCL should proceed with the above investment. 24
Limited Appraisal
Working Capital
MAC 2017 Winter 2017 Winter Sohrab Industries Limited 4 - Working Capital Management Determine which option SIL should adopt, if any. 15
Management
Foreign Exchange Risk Currency Futures
BFD 2017 Winter 2017 Winter Captain (Private) Limited 5 a Advise the feasible hedging options for each of the above transactions. 11
Management Money Market Hedge
Devise the hedging strategy using stock future contracts and calculate the net
Foreign Exchange Risk
BFD 2017 Winter 2017 Winter Captain (Private) Limited 5 b Stock Futures outcome and hedge efficiency assuming that CPL’s incremental rate of borrowing is 8
Management
10% per annum.
Investment Appraisal
Net Present Value
BFD 2017 Summer 2017 Summer Dr Tahir Lodhi 1 - Weighted average cost of Evaluate the above investment by using discounted cash flow technique. 27
Calculation of WACC
capital
Develop a production plan on the basis of overall profitability of the company and
MAC 2017 Summer 2017 Summer Hamid Limited 2 - Transfer Pricing Transfer Pricing determine the increase in profit that could be achieved on the basis thereof, as 25
compared to the profit under the existing policy.
Advise which of the two hedging options would be more feasible for JML if expected
Foreign Exchange Risk Currency Futures
BFD 2017 Summer 2017 Summer Jhelum Motors Limited 3 a spot rates at the end of August, September and October are Rs. 106.50, Rs. 105.00 12
Management Money Market Hedge
and Rs. 106.20 respectively.
Explain how JML could use interest rate future to hedge its exposure to interest rate
Foreign Exchange Risk risk. Also determine whether it would be beneficial for JML to use interest rate futures
BFD 2017 Summer 2017 Summer Jhelum Motors Limited 3 b Interest Rate Futures 5
Management if at the end of three months, spot interest rate and future prices move to 7.5% and
92.2 respectively.
MAC 2017 Summer 2017 Summer Shah Brothers Limited 4 - Budgeting Budgeting Advise the most feasible selling price per bottle which SBL may fix for the next year. 14
Advise MPL about the IPO price and suggest the number of shares to be offered in
BFD 2017 Summer 2017 Summer Mars Petroleum (Private) Limited 5 a Business Valuation Business Valuation 14
the IPO assuming that entire amount would be spent in year 0.
Write a brief memorandum to the board of directors discussing the advantages of
BFD 2017 Summer 2017 Summer Mars Petroleum (Private) Limited 5 b Business Valuation Business Valuation 3
leverage, for the shareholders of the company.
Calculate the net amounts that RC would pay or receive each year on the swap
Foreign Exchange Risk transaction. Also determine the net interest rate payable by RC if it chooses to
BFD 2016 Winter 2016 Winter Ramzi Corporation 1 a Interest Rate Swap 11
Management exercise the swap option.
Discuss the merit(s) and demerit(s) of the swap transaction for RC.
Assume that spot rate of interest on 31 May 2017 moves to 8.5% per annum and
Foreign Exchange Risk theprice of June interest rate futures falls to 90, demonstrate how short-term interest
BFD 2016 Winter 2016 Winter Ramzi Corporation 1 b Interest Rate Futures 6
Management rate futures can be used by RC to hedge against any rise in interest rate. Also
determine the effective rate of interest on the loan and hedge efficiency.
Using the net present value method, advise SL whether it would be feasible for the
BFD 2016 Winter 2016 Winter Suffer Limited 2 a Investment Appraisal Net Present Value 23
company to establish manufacturing plant.
BFD 2016 Winter 2016 Winter Suffer Limited 2 b Investment Appraisal Sensitivity Analysis Estimate the project’s sensitivity to the direct material costs. 3
BFD 2016 Winter 2016 Winter Malik Investments Limited 3 a Investment Appraisal Capital Rationing Determine the optimum investment mix for MIL. 11
Assume that MIL wishes to invest in all the remaining available projects including
BFD 2016 Winter 2016 Winter Malik Investments Limited 3 b Investment Appraisal Capital Rationing upward scaling. For this purpose, it is negotiating a financing arrangement. Advise the 9
maximum interest rate which MIL may offer.
Prepare a statement reconciling budgeted contribution for September 2016 with the
MAC 2016 Winter 2016 Winter Smart Limited 4 - Variance Analysis Variance Analysis 17
actual contribution, using planning and operational variances.