Summary MAC 2602 EXAM Paper and answers

Question Topic Marks Minutes 1 Time value of money 15 18 2 Capital structure & cost of capital 20 24 3 Analysis of financial information & managing working capital 23 28 4 Capital investment & capital budgeting 22 26 5 Multiple choice questions 20 24 100 120 2 QUESTION 1 (15 marks) (18 minutes) a) Mxolisi has deposited an amount of R1 500 in a bank account. This account earns simple interest of 8% per annum. REQUIRED: Calculate the amount of interest that he will earn after 2 years. Show detailed workings. [Use four decimal places for your calculations and round your final answer to the nearest rand.] (2) b) Every year after Mary has paid all her additional expenses and treated herself to some luxuries she still has R4 200 from her annual bonus available in her bank account. She wants to save this amount and decided to deposit this amount, on an annual basis, for the next 3 years. The special savings account she decided on earns interest at 12%, compounded annually. REQUIRED: Calculate the total value of Mary’s special savings account at the end of year three by using the mathematical formula. Show the mathematical formula and detailed workings. [Use four decimal places for your calculations and round your final answer to the nearest rand.] (4) c) Helen will be investing an amount of R3 900 annually at the end of each of the following four years. She will earn compounded interest of 14% per annum. REQUIRED: Calculate the present value of Helen’s investment by using your financial calculator and showing detailed inputs with regard to periods and interest rate. [Use four decimal places for your calculations and round your final answer to the nearest rand.] (2) d) Simeon wants to invest an amount now that will have a total value of R10 000 after five years. The compounded interest rate of the investment is 12% per annum. REQUIRED: Calculate the amount that Simeon will have to invest today to receive R10 000 at the end of year five by using the mathematical formula. Show the mathematical formula and detailed workings. [Use four decimal places for your calculations and round your final answer to the nearest rand.] (4) e) Today is Michaela’s birthday. She received a total of R2 000 cash as presents from her friends and family. She wants to invest this money and decided on a fixed term bank deposit for six years at an annual compounded interest rate of 16%. REQUIRED: Calculate the value of her investment at the end of year six by using the mathematical formula. Show the mathematical formula and detailed workings. [Use four decimal places for your calculations and round your final answer to the nearest rand.] (3) [15] MAC2602/201 QUESTION 2 (20 marks) (24 minutes) a) Pete Limited has the following forms of capital funding: Form of capital funding R mil Leases 80 Issued share capital 500 Non-distributable reserves 214 Bonds 230 Mortgage bonds 211 Retained income (56) REQUIRED: Based on bookvalues, show in detail the amounts financed by equity and the amounts financed by debt as well as the total capital funding. Then calculate the capital structure and provide the debt:equity ratio. (8) b) The cost of equity can be determined by the Capital Asset Pricing Model (CAPM). Supply the formula of the CAPM and name the two elements that the expected rate of return required by ordinary shareholders essentially comprises of. (2) c) The following is an extract from DA-NC Limited’s statement of financial position as at 31 August 2014: The given rate (in the table below) for the debt funding is after-tax rates. Ordinary shares issued. 1 000 000 Market value of debentures at 11% R DA-NC Ltd. has a beta of 0,9, a risk-free rate of 7% and a market risk premium of 6,5%. Their shares are currently trading at R82,30 per share. REQUIRED: Calculate the weighted average cost of capital (WACC) for DA-NC Limited by using the WACC formula. The cost of equity should be calculated by using the CAPM (round to full percentage). [Set your calculator on four decimal places for the calculations of this question and round your final answers to two decimal places. Show the formulas used and detailed calculations.] (10) [20]