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MAC3702 Assignment 2 Semester 1 & 2 2021 Suggested Solution with Workings
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MAC3702 Assignment 2 Semester 1 & 2 2021 solutions with.
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MAC3702APPLICATION OF FINANCIAL MANAGEMENT
TECHNIQUES
ASSIGNMENT 2
(748062)
SEMESTER 01&2/2021
NB: PLEASE DO NOT PLAGIARISE!! USE FOR COMPARISON PURPOSES ONLY!!
,Question 1 NB: PLEASE DO NOT PLAGIARISE!! USE FOR COMPARISON PURPOSES ON
Tech-Savvy Limited (TLS)
a) New coding infrastructure: Financing
Market values
Existing capital structure
R
Ordinary share 500 000
Retained income 720 000
Equity 1 220 000 60%
Preference shares 120 000 6%
Debt (Long-term liabilities) 680 000 34%
Capital employed 2 020 000 100%
New investment required 800 000
Capital employed after new investment 2 820 000
Investment (coding New Structure after
Current Structure
Capital Structure infrastucture) Investment
R R R
Equity: 1 220 000 190 000 1 410 000
Liabilities (Debt): 800 000 610 000 1 410 000
Long-term loan: Crypto Bank - 200 000 200 000
Long-term loan: FNB Bank 680 000 50 000 730 000
Preference shares (C1) 120 000 360 000 480 000
Total 2 020 000 800 000 2 820 000
Comments:
The capital structure is 1:1 (debt: R1 410 000 & equity: R1 410 000) and the following is concluded:
i) The new coding infrastructure must financed as follow:
> Issue of new ordinary shares to the value of R190 000 (see C2 for number of shares to be issued). Retained earnings cannot be utilised
> Top up of existing loan from FNB Bank with an amount of R50 000 at the same rate
> Taking a new long-term loan from Crypto Bank of R200 000 at prime
> Issue redeemable preference shares to make up the remainding R360 000(C1) (see C2 for number of redeemable preference shares to be
issued) which will fall within the maximum allowed of 4 000 shares issue.
ii) TSL Board will be able to maintain a debt to equity ratio of 1:1 going forward (based on book values) after the new infrastucture is financed.
(see new structure)
Calculations:
R
C1) Preference shares 800 000-(190 000+200 000+50 000) 360 000
No. shares
C2) Ordinary shares to be issued (190 000/12) 15 833
Additional 15% preference shares to be issiued (360 000/100) 3600
b) Calculate weighted Cost of Capital: Market Values
% of Weighted
Capital Structure Market Values Cost of capital capital Average
structure cost of
R
Ordinary Shares (i) 7 689 996 19,98% 85% 16,92%
Preference Shares (ii) 460 800 11,00% 5% 0,56%
Long-term loan: FNB Bank (iii) 730 000 8,14% 8% 0,65%
Long-term loan: Crypto Bank
(iii) 200 000 12,00% 2% 0,26%
9 080 796 100% 18,40%
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