FIN 3702 Past Exam memos. 100% CORRECT ANS.

FIN 3701 MAY/JUNE 2013 section A Q1 2 initial investment Cost (200 000) Net working capital 5000 Inventory 3000 Receivables 2000 Payables 4000 Accruals 6000 Initial investments Q2 3 OCF = NOPAT + depreciation NOPAT = revenue 30000 Operating cost 13000  Marketing cost are irrelevant Depreciation 40000 EBIT 23000 Tax NOPAT 16100 OCF = 16100 + 40000 =23900 Q4 2 NB: for a replacement decision you must use incremental operating cash flow i.e. OCF truck --- OCF van Year 1 7500 + 1100 – (6000+980) = 1620 2 7500 +1100 - (5100 + 980) = 2520 3 8000 + 1100 – (6500+980) = 1620 4 6000 +1100 – 0 =7100 Then compute NPV CFO = Co1 =1620 Co2 = 2520 Co3 = 1620 Co4 = 7100 I = 10% NPV = .08 Q5) 4 Project A Project B IRR 1.48% 25.97% NPV -.83 82919.72 Q6) I Q7 4 principle (1) using NPV approach accept project with positive NPV (2) Using IRR accept project where IRR COC Q8) 1 d p−F +q  NOTE VARIABLE GROWTH MODEL IS APPLICABLE g pv = R5.90 Fv = R6.80 n = 1 i = 15.25% i = growth Therefore: [ 6.80 45−5 ] × 100 + 15.25% » 32.25% Q9) 4 di p−f = 2.52 30 (1−2.5 %) =8.615% Q10) 4 cost of retained earning » Di p + g » R 20 R 50+R 8 + 3%= 37.48% NB: cost of retained earnings is cheap because it doesn’t include floation cost Q11) I Q12) 2 BEP = ¿ operating cost P−VC A B C 45000 25−13.9 30000 17.5−10 90000 29−12 »»» 4054 »»» 4000 »»» 5295