Exam (elaborations)
Financial Management(FIN3701 Exam pack 2024)
- Course
- Financial Management
- Institution
- University Of South Africa
Financial Management(FIN3701 Exam pack 2024) Questions and answers.
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FIN3701 EXAM PACK2023
QUESTIONS AND
ANSWERS
,FIN3701 EXAM PACK
2023
QUESTIONS AND
ANSWERS
For queries contact
Email:gabrielmusyoka940@gmail.com
,N 1 (20 MARKS)
stment Outlay for new machine
Existing Machine New Machine
ue = (350000-((350000/5) *4) =70 000 Installed Cost = R750 000
– BV = (R70 000 – R70 000) = 0
fit = (0 X 0.28) = 0
ng Capital = 7000
estment
Cost of proposed machine
roposed machine (R750 000)
tion Costs (R20 000)
talled cost – New Machine
able Value) (R770 000)
x Proceeds (Old)
from sale of present machine R70 000
ale of present machine 0
er tax proceeds – Old Machine R70 000
n net working-capital R7 000
vestment R693 000
Current Machine New Machine Incremental
CF
18*6600) and R118 800 R130 062.24 R11 262.24
854)
e Costs (@12%) (R14 256) (R15 607.47) (R1 351.47)
osts (0.15*Dpn) (R10 500) (R11 550) (R1 050)
R94 044 R102 904.77 R8 860.77
ation R(70 000) (R77 000) (R7 000)
R24 044 R25 904.77 R1 860.77
28% R(6 732.32) R(7 897.34) (R521.02)
R17 311.68 R18 651.44 R1 339.76
ation R70 000 R77 000 R7 000
w R87 311.68 R95 651.44 R8 339.75
, CF = Selling Price – Tax Liability = 70 000 – 0 = 70 000
Fo = -693 000
f1 = 8 339.75
f2 = 95 651.43
f3 = 95 651.43
f4 = 95 651.43
f5 = 95 651.43
f6 = 95 651.43
f7 = 95 651.43
f8 = 95 651.43
f9 = 95 651.43
f10 = 95 651.43 + 0 (TCF)-7000(change in WC)
/Y = 10%
NPV = -187 336.43
roject has a negative NPV, hence it is not advisable
N 2 (15 MARKS)
etained Earnings:
𝐷1 1.26 ( 1.06 )
𝑃0 = ⇒ 40 =
𝑟−𝑔 𝑟 − 0.06
40𝑟 − 2.4 = 1.3356
40𝑟 = 3.7356
𝑟 = 0.09339
∴ 𝒓 = 𝟗. 𝟑𝟒%
ecessary to adjust the cost of retained earnings for flotation costs because by
arnings, the firm “raises” equity capital without incurring these costs.
ew Ordinary Shares:
𝐷1
𝑃0 − 𝐹 𝑐 =
𝑟−𝑔
he subject of the formula gives:
𝐷1 1.26 ( 1.06 )
𝑟= +𝑔= + 0.06 = 𝟏𝟎. 𝟒𝟓%
𝑃0 − 𝐹 𝑐 40 − 10
eference shares:
𝐷1
𝑃0 =
𝑟−𝑔
preference dividend does not grow, 𝑔=0
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