ASSIGNMENT 3

QUESTION 1

• a) Describe the principal-agent relationship. Give an example of a principal-agent dilemma in the

business environment in your response. Justify whether such a situation becomes costly.
• Suggestions:
• Write what is principal –agent relation. Give the definition and then if possible explain the relationship
with a example.
• Who came up with this principle agent theory? Name the person/persons who came up with the theory.
• When does a principal agent problem( also known as agency problem) occur.
• Explain what is agency problem and give some examples of agency problems.
QUESTION 1IS IT COSTLY TO HAVE
PRINICIPAL AGENT PROBLEMS – JUSTIFY
• This creates a number of problems for the business:
• Costs go up: Because of information asymmetries, you may be unaware how much time it should take to complete a task, or how much
a task should cost. You may end up paying more than is necessary for the agent's services.
• Inefficiency: The principal-agent problem could enable agents to produce less than optimal work, especially if you've no idea what
quality work looks like because it's not your area of expertise.
• Cost of incentives. To overcome the principal-agent problem, you almost certainly will have to spend time and money on monitoring
the problem and motivating the agent to make optimal decisions on your behalf – example paying the agent payment on certain
performance criteria.
• A common performance cost for large companies is the giving of stock options to employees so that their wealth is tied to how well
they do their job
• Costs might include hiring another party (auditors, directors etc) to monitor the agent or offering the agent pay based on certain
performance criteria.
QUESTION 1 B
• Explain whether the following statements are true or false
• a. Question: Derivative transactions are designed to increase risk and are used almost exclusively by speculators who are looking to
capture high returns.
• Answer: False; derivatives can be used either to reduce risks or to speculate.
• b. Question: Hedge funds typically have large minimum investments and are marketed to institutions and individuals with high net-
worth.
• Answer: True; hedge funds have large minimum investments and are marketed to institutions and individuals with high net worths.
Hedge funds take on risks that are considerably higher than that of an average individual stock or mutual fund.
• c. Question: Hedge funds have traditionally been highly regulated.
• Answer: False; hedge funds are largely unregulated because hedge funds target sophisticated investors.
• d. Question: The New York Stock Exchange is an example of a stock exchange that has a physical location.
• Answer: True; the NYSE is a physical location exchange with a tangible physical location that conducts auction markets in designated
securities.
• e. Question : A larger bid-ask spread means that the dealer will realize a lower profit.
• Answer: False; a larger bid-ask spread means the dealer will realize a higher profit.
QUESTION 1 C

• c) Jow just bought a new Toyota Cross for his business. The price of the vehicle was RM128,000.
Jimmy made a RM12,800 down payment and took out an amortized loan for the rest. The car
dealership made the loan at 2.35% interest per year to be compounded monthly for five years. He is to
pay back the principal and interest in equal monthly installments beginning of the month. Determine
the amount of Jimmy's monthly payment. (5 marks)

• Step 1 Find out how much the Jow owes the for the now after paying down payment

• Step 2 Take the amount owing as present value ( this is the amount he has to pay today to the car
company). Since Joe is paying monthly a fixed amount it is a annuity due because he is paying at
beginning of the month

• Step 3 PVA = (amount owed to car company) i = 2.35 m= 12 n =5 years

• Apply the formula

• Find PMT = ( monthly instalment)

• Ans: PMT= RM2032.904
QUESTION 2
• a) Consider the information below from a firm's balance sheet for 2020 and
2021.

i) Compute the Net Working Capital for 2020 and 2021. (3 marks)
QUESTION 2

(i) Compute the Net Working Capital for 2020 and 2021.
• Net working capital
• Net Working Capital = Current Asset – Current Liabilitites

• (Show working)

• Answer :
• Net Working Capital for 2020 = RM1890
• Net Working Capital for 2021 = RM3597
QUESTION 2 (iii)

• ii) Compute the Change in Net Working Capital (NWC).

Answer : Change in Net Working Capital = RM1707

QUESTION 2(iii)

(iii) Assuming the Operating Cash Flows (OCF) are RM7,155 and the Net
Capital Spending (NCS) is RM2,372, find the Cash Flow from Assets.
Formula
𝐶𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑓𝑟𝑜𝑚 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑂𝐶𝐹 – 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑁𝑊𝐶 – 𝑁𝑒𝑡 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔

Answer: 𝑅𝑀3,076
QUESTION 3

• b) Describe some of the items often disclosed in the financial notes of Axiata
Berhad (2021). b) Describe some of the items often disclosed in the financial
notes of Axiata Berhad (2021). (
https://axiata.listedcompany.com/misc/Governance_and_Audited_Financial_
St atement_2021.pdf
)

• (Write about any 5 headings and write about 5-6 points in each heading)
• 1. GENERAL INFORMATION
• What is the information stated there ? Read thru the financial report of Axiata
and write what information is in there under this heading
• 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
• What is the information stated there ? Read thru the financial report of Axiata
and write what information is in there under this heading
• 3. SIGNIFICANT ACCOUNTING POLICIES
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 5. SIGNIFICANT CHANGES IN COMPOSITION OF THE GROUP
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 6. REVENUE
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 7(a). DEPRECIATION, IMPAIRMENT AND AMORTISATION
• (b). OTHER OPERATING COSTS
• (c). AUDITORS’ REMUNERATION
• (d). STAFF COSTS
• (e). DIRECTORS’ REMUNERATION
• Write what information is given under this heading after reading thru the note to
accounts mentioned under this heading.
• 9. OTHER INCOME – NET
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 10. FINANCE INCOME/(COSTS)
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 11. TAXATION AND ZAKAT
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 12. EARNINGS PER SHARE
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 13. SHARE CAPITAL
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 14. SHARE-BASED COMPENSATION PLANS
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 15. RESERVES
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
• 16. BORROWINGS
• Write what information is given under this heading after reading thru the note
to accounts mentioned under this heading.
QUESTION 3
QUESTION 3 ANSWERS

• Follow what you did in Assignment 2 Question 3

• Answers:
• (i) Expected Return of A = 12.0 %
• Expected Return of B = 8.1%
• (ii) Std Deviation of A = 12.17
• Std Deviation of B = 1.51
• (iii) A is risker
QUESTION 3

Correlations = - 0.7455
QUESTION 3

• c) Explain unsystematic risk and elaborate ONE way to reduce this type of
risk (diagrams are not necessary).
• Read note given on unsystematic risk and write.
QUESTION 4
ANSWERS QUESTION 4

• Initial
• Cost of New Machine ( 170,000)
• Sales of the old machine fill
• Less: Tax on sales of old machine(30%) (fill) fill
• Freight Charges ( fill )
• Installation charges ( fill )
• Additional Working Capital ( )
• Total ( )
• Answer : 186,500
• Life
• Increase Contribution XXXXX fill
• Reduction in spoilages XXXX fill
• Less: Depreciation (XXXX) fill
• Less: Tax (XXXX) fill
• Total XXXXX
• Answer : 59000
• Termination
• Sales of new machine after 4 years xxxxx fill
• Tax on the sale of new machine (xxxx) fill
• Net income on sales of machine xxxxx
• Additional working capital xxxxx
• Total xxxx
• Answer : 24000
QUESTION 4
• Payback period
• Amount Invested : 160,000
Year Cash Flow Cumulative
1 40000 40000
2 50000 90000
3 60000 fill
4 80000 fill

Answer : 3.12 years

• Accounting Rate of Return:
• Average Return : (Y1 + Y2 + Y3 + Y4) / 4
• Average Investment : (Initial Investment + Residual investment)/2
• Accounting Rate of Return = Average Return/Average Investment X 100
• = ……….. %

Ans : 71.88 %
• Net Present Value (use 12%)
Year Cash Flow Interest factor Present Value
0 (160000)
1 60000
2 50000
3 60000
4 80000
Total

Answer: NPV = RM9170

Find IRR (Internal Rate of Return) use 15%

Net Present Value (use 15%)

Year Cash Flow Interest factor Present Value
0 (160000)
1 60000
2 50000
3 60000
4 80000
Total
• To Find IRR

Answer : IRR = 14.42