FIN3701
Together We Pass
Exam Pack 2021
Written by The Together We Pass Team
www.togetherwepass.co.za
,Welcome
Welcome to your FIN3701 2021 Exam Pack, which was made and created by a team of individuals
dedicated to provide students with the best possible document in order to guide students on
what to possibly expect in their exams.
Complete with past examination papers and memorandums, this Exam Pack will guide you in the
right direction, leaving you well-prepared for your upcoming FIN3701 exam.
- The Together We Pass Team
© 2021 Together We Pass. All rights reserved.
2
,Table of Contents
Welcome ............................................................................................................................................... 2
FIN3701 June/July 2021 Exam Paper ............................................................................................ 4
FIN3701 June/July 2021 Exam Memo ........................................................................................... 7
FIN3701 Jan/Feb 2021 Exam Paper ............................................................................................ 11
FIN3701 Jan/Feb 2021 Exam Memo ........................................................................................... 15
FIN3701 May/June 2020 Exam Paper ......................................................................................... 19
FIN3701 May/June 2020 Exam Memo ........................................................................................ 23
FIN3701 Oct/Nov 2019 Exam Paper ........................................................................................... 29
FIN3701 Oct/Nov 2019 Exam Memo .......................................................................................... 32
FIN3701 May/June 2019 Exam Paper ......................................................................................... 36
FIN3701 May/June 2019 Exam Memo ........................................................................................ 40
© 2021 Together We Pass. All rights reserved.
3
, FIN3701 Financial Management
FIN3701 June/July 2021 Exam
Question 1 [40 marks]
Trax Ltd is a manufacturer of high-quality plastic products made to demanding specifications,
which makes replication of designs difficult. The company relies on marketing programmes to
ensure that models are constantly changed, and that demand follows new designs. This allows the
company to maintain margins in a highly competitive environment.
Trax Ltd is considering the replacement of outdated equipment, which will allow the firm to
manufacture a new line of products. The cost of the new equipment is R8,5 million and the
company qualifies for a depreciation deduction of 40% of cost for the first year, and 20% in each
of the subsequent three years. The equipment is also expected to reduce the cost of producing an
existing product line by R180 000,00 per annum before tax for another four years, when the life of
this product line is expected to end. The expected residual value of the equipment is R2,1 million
in four years’ time. The new line of products will result in a selling price of R85,00 per unit and
variable cost of R38,00 per unit. The product line is expected to result in a constant demand of 70
000 units per annum for four years.
The current tax value of the present equipment is R300 000,00 and its current market value is
R410 000,00. The equipment is expected to have a residual value of zero in four years’ time.
The investment in net working capital will amount to R475 000,00. The marginal tax rate is 28%
and the firm has a cost of capital of 12%.
REQUIRED
1.1 Calculate the net present value (NPV), internal rate of return (IRR) and payback period (Pb) for
the replacement. (37 marks)
1.2 State on the basis of the NPV, IRR and Pb whether the company should replace the equipment.
(3 marks)
Question 2 [25 marks]
Marx Ltd is interested in measuring its overall cost of capital. The cost of capital will be used to
evaluate potential investment projects. The company’s bookkeeper has gathered the following
data:
Ordinary shares (55%): Marx Ltd reported retained earnings of R3 800 000,00 in the previous
year. The company paid a dividend of R2,35 on each of its 900 000 ordinary shares issued. The
market price of the ordinary shares is R55 and the dividends are expected to grow at a rate of
© 2021 Together We Pass. All rights reserved.
4
Together We Pass
Exam Pack 2021
Written by The Together We Pass Team
www.togetherwepass.co.za
,Welcome
Welcome to your FIN3701 2021 Exam Pack, which was made and created by a team of individuals
dedicated to provide students with the best possible document in order to guide students on
what to possibly expect in their exams.
Complete with past examination papers and memorandums, this Exam Pack will guide you in the
right direction, leaving you well-prepared for your upcoming FIN3701 exam.
- The Together We Pass Team
© 2021 Together We Pass. All rights reserved.
2
,Table of Contents
Welcome ............................................................................................................................................... 2
FIN3701 June/July 2021 Exam Paper ............................................................................................ 4
FIN3701 June/July 2021 Exam Memo ........................................................................................... 7
FIN3701 Jan/Feb 2021 Exam Paper ............................................................................................ 11
FIN3701 Jan/Feb 2021 Exam Memo ........................................................................................... 15
FIN3701 May/June 2020 Exam Paper ......................................................................................... 19
FIN3701 May/June 2020 Exam Memo ........................................................................................ 23
FIN3701 Oct/Nov 2019 Exam Paper ........................................................................................... 29
FIN3701 Oct/Nov 2019 Exam Memo .......................................................................................... 32
FIN3701 May/June 2019 Exam Paper ......................................................................................... 36
FIN3701 May/June 2019 Exam Memo ........................................................................................ 40
© 2021 Together We Pass. All rights reserved.
3
, FIN3701 Financial Management
FIN3701 June/July 2021 Exam
Question 1 [40 marks]
Trax Ltd is a manufacturer of high-quality plastic products made to demanding specifications,
which makes replication of designs difficult. The company relies on marketing programmes to
ensure that models are constantly changed, and that demand follows new designs. This allows the
company to maintain margins in a highly competitive environment.
Trax Ltd is considering the replacement of outdated equipment, which will allow the firm to
manufacture a new line of products. The cost of the new equipment is R8,5 million and the
company qualifies for a depreciation deduction of 40% of cost for the first year, and 20% in each
of the subsequent three years. The equipment is also expected to reduce the cost of producing an
existing product line by R180 000,00 per annum before tax for another four years, when the life of
this product line is expected to end. The expected residual value of the equipment is R2,1 million
in four years’ time. The new line of products will result in a selling price of R85,00 per unit and
variable cost of R38,00 per unit. The product line is expected to result in a constant demand of 70
000 units per annum for four years.
The current tax value of the present equipment is R300 000,00 and its current market value is
R410 000,00. The equipment is expected to have a residual value of zero in four years’ time.
The investment in net working capital will amount to R475 000,00. The marginal tax rate is 28%
and the firm has a cost of capital of 12%.
REQUIRED
1.1 Calculate the net present value (NPV), internal rate of return (IRR) and payback period (Pb) for
the replacement. (37 marks)
1.2 State on the basis of the NPV, IRR and Pb whether the company should replace the equipment.
(3 marks)
Question 2 [25 marks]
Marx Ltd is interested in measuring its overall cost of capital. The cost of capital will be used to
evaluate potential investment projects. The company’s bookkeeper has gathered the following
data:
Ordinary shares (55%): Marx Ltd reported retained earnings of R3 800 000,00 in the previous
year. The company paid a dividend of R2,35 on each of its 900 000 ordinary shares issued. The
market price of the ordinary shares is R55 and the dividends are expected to grow at a rate of
© 2021 Together We Pass. All rights reserved.
4
