NATIONAL OPEN UNIVERSITY OF NIGERIA
14/16 AHMADU BELOW WAY, VICTORIA ISLAND, LAGOS
SCHOOL OF MANAGEMENT SCIENCES
MARCH 2014 EXAMINATION
COURSE CODE: BHM 771 CREDIT UNIT: 2
COURSE TITLE: CORPORATE FINANCIAL MANAGEMENT
TIME ALLOWED: 2 hrs
Instructions: 1. Attempt question Number one (1) and any other two (2).
2. Question number 1 is compulsory and carries 30 marks, while the
other questions carry equal marks each. Present all points in a coherent
and orderly manner
QUESTION 1
1a) Financial management is not an independent area of study but draws from other
related disciplines”. What are the disciplines? 20 Marks
1b) Find the present value of the following stream of cash flows discounted at 15% rate of return.
| Year end | Cash flows (N) |
| 0 | -2000 |
| 1 | 1000 |
| 2 | 2000 |
| 3 | 500 |
5 Marks
1c) Assuming that an investor is considering the purchase of a Delta Oil bond which will
mature in 5 years’ time; The bond is in N1,000 denominations, with annual interest
rate of 7%. The investor’s required rate of return is 8% 5 Marks
QUESTION 2
2a) Explain Shareholders’ wealth maximization and its advantages 11 Marks
2b) If Jeff Zuma receives $41,000 on his graduation day from his father and he deposits it in
a savings account at 6% interest, compounded annually; the future (compound) value of his
account at the end of 1 year (FV1) is?
If Mr. Zuma leaves the $41,000 plus the accumulated interest in the account for another
year, the value of his account at the end of two years is?
If Mr. Zuma makes no withdrawals from the account for another year, the value of his
account at the end of the third year will amount to? 6 Marks
2c) What are perpetual bonds? 3 Marks
QUESTION 3
3a) Explain the following terms in detail. 10 Marks
1. Book Value
2. Replacement Value
3. Liquidation Value
4. Going Concern Value
5. Market Value
3b) What are the steps involved in the calculation of covariance between two assets? 3 Marks
3c) What are the possible covariance outcomes? 7 Marks
QUESTION 4
4a) Maxis Leisure Crafts makes raffia crafts which they sell for N400 each.
Their fixed costs are N75,000 and variable costs are N250 per craft. If their sales level is 800 units, what is the percentage increase in EBIT and the degree of operating leverage, if sales increase to 20 percent? 15 Marks
4b) Determining a firm’s break-even point, graphically, involves three steps, what are they? 3 Marks
4c) Define “The degree of operating leverage (DOL)” 2 Marks
QUESTION 5
5a) An appropriate capital structure analysis must take cognizance of which factors? 20 Marks
For the 2015 – till date past questions for this course CLICK HERE
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