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Fin3701
Exam pack
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FIN3701 FINANCIAL MANAGEMENT MAY/JUNE 2017 MEMO
(Q1) 2 cost 1 000 000
Accumulated depreciation (20% x 1 000 000) x 3 (600 000)
400 000
(Q2) 2 proceeds 200 000
Book value (400 000)
Loss (200 000)
Tax benefit (29% x 200 000) 58 000
(Q3) 1 200 000 + 58 000
(Q4) 3 750 000+20 000+5000-258 000-7000
(Q5) 2
(Q6) 2
(Q7) 1
(Q8) 2 NPV = PI (initial investment)-initial investment
(Q9) 2
(Q10) 1
(Q11) 1 discount rate= 6%+0.9(9-6)
=8.7
NPV= 400 000{(1.0875-1)/0.087(1.0875)}-1 500 000
(Q12) 1
(Q13) 1
(Q14) 3 7-2.5
(Q15) 4 {5/90 + ((4/3.2)1/2-1)} x 100
(Q16) 3
(Q17) 1 2.52/(30-(2.5%x30))
(Q18) 1 (7%x 1000) + (1000-985.56)/20
(1000+985.56)/2
Multiply by 100 and then by (1-0.3)
(Q19) 1
(Q20) 1 in units = 10 000/ (25-19) in value = 1000x25
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SECTION B
(Q1)
(1.1) capital structure A = 55% x 10 000
= 5 500 shares
Capital structure B = 35% x 10 000
= 3 500 shares
(1.2) Structure A Structure B
Sales 630 000 630 000
Fixed costs (270 000) (270 000)
Variable costs (220 500) (220 500)
Interest expense (25 025) (18 375)
Profit before tax 114 975 121 625
Tax @ 29% (33 342) (35 271)
Profit for the year 81 633 86 354
EPS 81 633/4500 86
354/6500
18.14 13.29
Calculations
Interest expense
Structure A = 13% (5500x35)
Structure B = 15% (3500 x 35)
(1.3) Structure A
Component Contribution Weight After tax costs WACC
Debt 192 500 55% 9.23 5.08
Equity 157 500 45% 51.83 23.32
28.4
Calculations
After tax costs: debt 13% (1-0.29)
Equity (18.4/35) x 100
Structure B
Component Contribution Weight After tax costs WACC
Debt 122 500 35% 10.65 3.73
Equity 227 500 65% 37.97 24.68
28.41
Calculations
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After tax costs: debt = 15% (1-0.29)
Equity (13.29/35) x 100
(Q2)
(2.1) 2017 2018
Sales in units 30 000 35 000
Sales 636 000 786 450
Variable costs (150 000) (175 000)
Fixed costs (120 000) (120 000)
EBIT 366 000 491 450
Percentage change in EBIT= 491 450-366 000 x 100
366 000
= 34.28%
Percentage change in sales = 786 450-636 000 x 100
636 000
= 23.66%
DOL= 34.28/23.66
= 1.45
Calculations
Sales in 2017 = 30 000 units x (20 x 1.06)
Sales in 2018 = 35 000 units x (21.2x 1.06) round the price to 2 decimal places before
multiplication
(2.2) component costs of capital
Component Weight After tax costs WACC
Debt 25% 13.29 3.32
Preference shares 15% 10.96 1.64
Ordinary shares 60% 13.48 8.09
13.05
Calculations
After tax costs of: debt = 180 + (1000-950)/20
(1000+950)/2 flotation costs are deducted to arrive at 950
Multiply by 100 and then by (1-0.29)
Preference dividends = {8/ (80-7)} x 100
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