UNIVERSITY OF SOUTH AFRICA (UNISA)
College of Economic and Management Sciences
⋄
FIM3701 ASSIGNMENT 01
Semester 1 Assignment 01 — 2026
⋄
Module Code: FIM3701
Module Name: Financial Management
Assignment No.: 01
Due Date: May 2026
Semester: Semester 1, 2026
Submitted in partial fulfilment of the requirements for Financial Management
at the University of South Africa.
,UNISA | FIM3701 Assignment 01 — 2026
Question 1: Risk in Capital Budgeting and Portfolio Diversification
Question: Select only the statement that is true:
A. Companies with well-diversified portfolios of projects should only be concerned with the
market risk as quantified by the Beta coefficient of the portfolio.
B. One method of incorporating risk into a capital budget is to use a risk-adjusted discount
rate.
C. None of the other statements/options is correct.
D. It is impossible to reduce diversifiable or unsystematic risk by adding more projects to a
portfolio.
Correct Answer: B
Statement B is correct. A risk-adjusted discount rate (RADR) is a recognised technique for
incorporating risk into capital budgeting decisions. When a project carries greater risk than
the firm’s average, a higher discount rate is applied to future cash flows, reducing their present
value and reflecting the additional uncertainty (Correia, Flynn, Uliana, Wormald and Dique,
2019:7-3).
Key Distinction
Why the other statements are false:
• Statement A is false. Companies with diversified portfolios still face both sys-
tematic risk (market risk, captured by Beta) and firm-specific risk. They should be
concerned with total risk in their capital budgeting process, not just Beta.
• Statement D is false. Diversifiable (unsystematic) risk can be reduced by adding
more, uncorrelated projects to a portfolio. This is the fundamental principle of
diversification in finance (Correia et al., 2019:7-2).
• Statement C is therefore also false, since Statement B is correct.
Page 1 of 16
, UNISA | FIM3701 Assignment 01 — 2026
Question 2: Financial Management and Life Cycle Cost
Question: Select only the statement that is true:
A. Approval of projects can be delayed or even cancelled because of the financial situation in a
country.
B. Economic feasibility and efficiency are two economic objectives of the engineering design
process.
C. None of the other statements/options is correct.
D. Procurement cost is just one of a number of costs that form part of life cycle cost.
Correct Answer: D
Statement D is correct. Life cycle cost (LCC) encompasses all costs associated with owning,
operating, maintaining, and disposing of an asset over its entire useful life. Procurement (pur-
chase) cost is merely one element of this total cost (Correia et al., 2019:1-8). Other compo-
nents include installation, operating, maintenance, and disposal costs.
Implementation Insight
South African Context: South African public sector entities applying the Public
Finance Management Act (PFMA) are required to consider life cycle costs when procur-
ing capital assets, confirming that procurement cost is only one input into the broader
cost analysis (National Treasury, 2020).
Key Distinction
Why the other statements are false:
• Statement A can be true in practice, but it is not a universally correct statement
in isolation. Project delays due to country-level financial conditions are situational.
• Statement B is partially correct, but economic feasibility and efficiency are not
the only objectives; social, environmental, and technical objectives also apply in
engineering design.
• Statement C is false, since Statement D is correct.
Page 2 of 16
College of Economic and Management Sciences
⋄
FIM3701 ASSIGNMENT 01
Semester 1 Assignment 01 — 2026
⋄
Module Code: FIM3701
Module Name: Financial Management
Assignment No.: 01
Due Date: May 2026
Semester: Semester 1, 2026
Submitted in partial fulfilment of the requirements for Financial Management
at the University of South Africa.
,UNISA | FIM3701 Assignment 01 — 2026
Question 1: Risk in Capital Budgeting and Portfolio Diversification
Question: Select only the statement that is true:
A. Companies with well-diversified portfolios of projects should only be concerned with the
market risk as quantified by the Beta coefficient of the portfolio.
B. One method of incorporating risk into a capital budget is to use a risk-adjusted discount
rate.
C. None of the other statements/options is correct.
D. It is impossible to reduce diversifiable or unsystematic risk by adding more projects to a
portfolio.
Correct Answer: B
Statement B is correct. A risk-adjusted discount rate (RADR) is a recognised technique for
incorporating risk into capital budgeting decisions. When a project carries greater risk than
the firm’s average, a higher discount rate is applied to future cash flows, reducing their present
value and reflecting the additional uncertainty (Correia, Flynn, Uliana, Wormald and Dique,
2019:7-3).
Key Distinction
Why the other statements are false:
• Statement A is false. Companies with diversified portfolios still face both sys-
tematic risk (market risk, captured by Beta) and firm-specific risk. They should be
concerned with total risk in their capital budgeting process, not just Beta.
• Statement D is false. Diversifiable (unsystematic) risk can be reduced by adding
more, uncorrelated projects to a portfolio. This is the fundamental principle of
diversification in finance (Correia et al., 2019:7-2).
• Statement C is therefore also false, since Statement B is correct.
Page 1 of 16
, UNISA | FIM3701 Assignment 01 — 2026
Question 2: Financial Management and Life Cycle Cost
Question: Select only the statement that is true:
A. Approval of projects can be delayed or even cancelled because of the financial situation in a
country.
B. Economic feasibility and efficiency are two economic objectives of the engineering design
process.
C. None of the other statements/options is correct.
D. Procurement cost is just one of a number of costs that form part of life cycle cost.
Correct Answer: D
Statement D is correct. Life cycle cost (LCC) encompasses all costs associated with owning,
operating, maintaining, and disposing of an asset over its entire useful life. Procurement (pur-
chase) cost is merely one element of this total cost (Correia et al., 2019:1-8). Other compo-
nents include installation, operating, maintenance, and disposal costs.
Implementation Insight
South African Context: South African public sector entities applying the Public
Finance Management Act (PFMA) are required to consider life cycle costs when procur-
ing capital assets, confirming that procurement cost is only one input into the broader
cost analysis (National Treasury, 2020).
Key Distinction
Why the other statements are false:
• Statement A can be true in practice, but it is not a universally correct statement
in isolation. Project delays due to country-level financial conditions are situational.
• Statement B is partially correct, but economic feasibility and efficiency are not
the only objectives; social, environmental, and technical objectives also apply in
engineering design.
• Statement C is false, since Statement D is correct.
Page 2 of 16
