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FOREIGN TRADE UNIVERSITY ACADEMIC YEAR 2020-2021 SECOND SEMESTER

MID-TERM ONLINE EXAM

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PART 1: ESSAY QUESTIONS (5 points)

Answer one of the questions from 1 to 2 (1 point)

Question 2: Give four examples where the conflicts of interest between the management and the shareholders
affect financial decisions in a firm.

Answer all of the questions below.

Question 3: What is working capital? Is more or less working capital better? Explain. (1 point)

Question 4: In 2017, Mai Linh Inc. brought in new CEO Tuan Bach to turn the company around from
disappointing performance in the previous years. In 2018, compared to 2017, Mai Linh Inc. reported the
following changes. Revenue: + 20%; Net income: +30%; Inventory: +60%; Receivables: +40%; CFO: -20%.
In the shareholders' meeting, CEO Tuan Bach claimed that he had done an exceptionally good job and thus
deserve a large bonus. Dividend to shareholders, however, remained the same as the previous year because
the company need cash to growth.
Comment on Mai Linh Inc.'s performance and Tuan Bach's statement. (1 points)

Question 5: Tuan Bach Inc. has been enjoying excessive sales growth. In order to catch up with customer
demand, Tuan Bach has expanded rapidly using debt, but financial leverage has reached its limit, and
borrowing more may significantly increase the likelihood of financial distress. Recommend four ways by
which Tuan Bach can solve the problem and improve its financial position. (1 point)

Question 6: Explain what happened between Cotecccons Construction JSC (CTD)'s management and its
shareholder Kusto. Do you approve the actions of the CTD's management or of Kusto and its allies? (1 point)

End of Part 1.
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PART 2: TUBA ELECTORNAT (3.5 points)

Mai Linh, financial analyst, is reviewing the financial information of Tuba Electronat. Tuba produces
electronic equipment. Tuba’s financial information is presented in Exhibit 2 and Exhibit 3 and “Notes to
the financial statements”.

Exhibit 1: Balance Sheet (VND billion) Exhibit 2: Income Statement 31/12/2020 (VND bil.)
2020 2019 1. Sales 3910
A. Current Assets 2872 2077 2. Cost of sales 2664
1. Cash 305 256 3. Gross profit 1246
2. Receivables 980 749 4. Sale, general and administrative expenses 223
3. Inventories 821 631 5. Depreciation expenses 182
4. Other current assets 766 441 6. Operating profit 841
B. Non-Current Assets 1440 1258 7. Other expenses 125
5. Fixed assets, net 1120 995 8. Earnings before interest and tax 716
5.1. Gross fixed assets 1450 1250 9. Interest expenses 225
5.2. Accumulated (330) (255) 10. Earnings before tax 491
depreciation
6. Real estate investment 105 90 11. Taxes 90
7. Other non-current assets 215 173 12. Net Income 401
Total Assets 4312 3335 Notes to the financial statements:
C. Liabilities 2016 1810
- Industry: electronic equipment.
CA. Current liabilities 445 301
8. Trade payables 410 281 - There are 90 million shares outstanding at the end of
9. Short-term debt 35 20 2019, and a share offering of 60 million shares on July
CB. Non-Current Liabilities 1571 1509
1st, 2020.
10. Long-term debt 610 626
11. Other 961 883 - Closing price per share as of Dec 31, 2020: 20000đ.
D. Equity 2296 1525 - Corporate income tax rate 20%.
12. Contributed Capital 1500 900
- No stock dividend or share repurchase in 2020.
13. Retained Earnings 796 625
Total liabilities and equity 4312 3335

Question 7: Calculate Tuba’s inventory turnover, receivables turnover, payables turnover, and cash
conversion cycle. (1 point)

Question 8: Calculate Tuba’s dividend paid in 2020. (0.25 points)

Question 9: Calculate Tuba’s EPS in 2020. (0.25 points)

Question 10: Calculate Tuba’s interest coverage ratio for 2020. (0.25 points)

Question 11: Calculate Tuba’s current ratio, quick ratio, and cash ratio for 2020. (0.75 points)

Question 12: The electronic industry average for asset turnover, net profit margin, and financial leverage
are 0.9; 0.15; 2.0 respectively. Tuba’s return on equity is low or high? Explain your answer to Question 13
using basic Dupont analysis, with detailed calculations. (1 point)

End of Part 2.
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PART 3: MAI LINH PACKING Ltd. (3.5 points)

Use the following information for Question 13.

Now is January 1, 2021. Mai Linh, CFO of Mai Linh Packing Ltd., is evaluating a project to replace an
existing packing machine with a new high-speed, automatic machine.

The existing machine was purchased and installed on January 1, 2011 (ten years ago) at the cost of VND15
billion. It is planned to be fully depreciated using straight-line method in 15 years. As of today, book value
of this machine is VND5 billion. Mai Linh has estimated that if a new machine is purchased, the existing
machine can be sold for VND1 billion.

The new machine costs VND10 billion. Mai Linh is considering depreciating the new machine using
double-declining balance method during an economic life of 5 years. At the end of 2016, the new machine
will be liquidated for an estimated revenue of VND2 billion.

Using the new machine will reduce labor costs and material costs by VND2 billion each year, and will
reduce inventories by VND1 billion. At the end of 2016, packaging facility will be renovated with a new
machine that requires no additional investment in working capital.

The tax rate is 20%. The cost of debt is 12%. Risk free rate is 5%. Beta is 0.8. Market return is 15%. Debt-
to-equity ratio is 1:2.

Mai Linh believes that this project is of lower risk than the company's average risk level. She decides that
the cost of capital for this project should be WACC minus 1%.

Question 13: Help Mai Linh evaluate this project. Estimate the project's cash flows, calculate its cost of
capital, and calculate its NPV, IRR, profitability index, and discounted payback period.

End of Part 3 and End of Exam.