100%
FIN4801
EXAM PACK
DISTINCTION QUALITY
UNISA EXAM
, UNIVERSITY EXAMINATIONS
MAY/ JUNE 2025
FIN4801
Advanced Financial Management
100 Marks
Duration: 4 Hours
Examiners:
Primary: Dr. P.N. Kotze Secondary : Mr. A.M. Phenya
External examiner: Dr. J.S. Kasozi
Instructions:
• This paper consists of 12 pages, plus appendix A (financial tables) on pages 9 to 12.
• This examination is an assessment. It should therefore be your own work and you must
remember to tick the Declaration of Honesty.
• Plagiarism checks will be run on your submission on Turnitin and the invigilator
application. In addition, manual checks will be done.
• Your answers must be typed. You can use + - / * and ( ) as your mathematical operators
where necessary. You do not need to use the equation editor.
• Remember to save your file as a PDF before submitting it.
• Start submitting it as soon as the writing time for the paper has stopped (after the four
hours). Do not use your upload time to answer the paper.
• Ensure that your answers are uploaded on time.
• Contact us immediately if you are experiencing any issues with uploading or during the
examination.
• Answer all the questions.
• Show all your calculations clearly and label your answers.
• Submit your answers on myExams and make sure to utilise the Invigilator application as
per the instructions, it is compulsory.
, CONFIDENTIAL FIN4801
Page 3 of 12 MAY/ JUNE 2025
QUESTION 1 [10 Marks]
You were recently employed as an analyst and are tasked to determine the capital structure
plans followed by industrial companies involved in the packing of foods. The debt ratios of the
three companies are shown below for the past five years while the risk-free rate, the cost of a
government bond, is also shown:
Cost of debt, 2020 to 2025
160%
150%
140%
120% 120%
100% 100% 100% 100%
90%
80% 80%
60% 60% 60%
50% 50% 50% 50% 50%
40%
20% 20%
4% 3% 4% 5% 6%
5%
0%
2020 2021 2022 2023 2024 2025
Fishpack Meatpack Chickenpack Gov bond rate
Required:
Provide a discussion and argument of how all three companies change their capital structures
in response to changes in borrowing costs. Refer to specific details in the above chart and to
specific capital structure theories or capital structure policies (for example target structures).
QUESTION 2 [35 Marks]
Question 2.1 (27 Marks)
Steel Ltd., a steel manufacturer is considering a new project, namely expansion into
construction machinery manufacturing. The company wishes to diversify operations but has
concerns about the potential profitability of the project, the risk thereof and the impact of
uncertain inflation expectations. It is expected that the risk profile of the new division would be
similar to that of current players in the construction machinery sector.
[TURN OVER]
, CONFIDENTIAL FIN4801
Page 4 of 12 MAY/ JUNE 2025
The previous financial manager was nearing completion of a net present value (NPV) analysis
of the project, and his work was shared with you. The calculations done thus far are as follows:
Year 0 1 2 3
Sales R - R 4 080 000 R 5 100 000 R 6 120 000
Variable costs R - -R 1 632 000 -R 2 040 000 -R 2 448 000
Gross CF R 2 448 000 R 3 060 000 R 3 672 000
Initial outflow -R 7 000 000
Recoupment R -
Tax -R 30 960 -R 196 200 -R 631 440
Net flow -R 7 000 000 R 2 417 040 R 2 863 800 R 3 040 560
Tax effects
0 1 2 3
table (Year)
Gross flows R 2 448 000 R 3 060 000 R 3 672 000
Recoupment R 1 000 000
Depreciation -R 2 333 333 -R 2 333 333 -R 2 333 333
Net taxable R 114 667 R 726 667 R 2 338 667
Tax R 30 960 R 196 200 R 631 440
Upon the previous financial manager’s resignation, it was made clear that the calculations
were not completed nor checked by anyone else in the finance department. Other information
in the spreadsheet is as follows:
• Approach to adjust for inflation = Nominal approach (inflate cash flows).
• Inflation rate: 2% over the period.
• Sales: Year 1 = R4 million; Year 2 = R5 million; Year 3: R6 million.
• Depreciation: Straight line over 3 years.
• Length of project: 3 Years.
• Variable costs : 40% of inflation-adjusted sales.
• Cost of project: R7 000 000
• Tax rate: 27%
• Recoupment expected at the end of the project: R1 000 000.
• Current beta for the company: 1.5
• Beta for construction machinery sector: 1.2
• Risk- free rate: 5%
• Market risk premium : 5%
[TURN OVER]
FIN4801
EXAM PACK
DISTINCTION QUALITY
UNISA EXAM
, UNIVERSITY EXAMINATIONS
MAY/ JUNE 2025
FIN4801
Advanced Financial Management
100 Marks
Duration: 4 Hours
Examiners:
Primary: Dr. P.N. Kotze Secondary : Mr. A.M. Phenya
External examiner: Dr. J.S. Kasozi
Instructions:
• This paper consists of 12 pages, plus appendix A (financial tables) on pages 9 to 12.
• This examination is an assessment. It should therefore be your own work and you must
remember to tick the Declaration of Honesty.
• Plagiarism checks will be run on your submission on Turnitin and the invigilator
application. In addition, manual checks will be done.
• Your answers must be typed. You can use + - / * and ( ) as your mathematical operators
where necessary. You do not need to use the equation editor.
• Remember to save your file as a PDF before submitting it.
• Start submitting it as soon as the writing time for the paper has stopped (after the four
hours). Do not use your upload time to answer the paper.
• Ensure that your answers are uploaded on time.
• Contact us immediately if you are experiencing any issues with uploading or during the
examination.
• Answer all the questions.
• Show all your calculations clearly and label your answers.
• Submit your answers on myExams and make sure to utilise the Invigilator application as
per the instructions, it is compulsory.
, CONFIDENTIAL FIN4801
Page 3 of 12 MAY/ JUNE 2025
QUESTION 1 [10 Marks]
You were recently employed as an analyst and are tasked to determine the capital structure
plans followed by industrial companies involved in the packing of foods. The debt ratios of the
three companies are shown below for the past five years while the risk-free rate, the cost of a
government bond, is also shown:
Cost of debt, 2020 to 2025
160%
150%
140%
120% 120%
100% 100% 100% 100%
90%
80% 80%
60% 60% 60%
50% 50% 50% 50% 50%
40%
20% 20%
4% 3% 4% 5% 6%
5%
0%
2020 2021 2022 2023 2024 2025
Fishpack Meatpack Chickenpack Gov bond rate
Required:
Provide a discussion and argument of how all three companies change their capital structures
in response to changes in borrowing costs. Refer to specific details in the above chart and to
specific capital structure theories or capital structure policies (for example target structures).
QUESTION 2 [35 Marks]
Question 2.1 (27 Marks)
Steel Ltd., a steel manufacturer is considering a new project, namely expansion into
construction machinery manufacturing. The company wishes to diversify operations but has
concerns about the potential profitability of the project, the risk thereof and the impact of
uncertain inflation expectations. It is expected that the risk profile of the new division would be
similar to that of current players in the construction machinery sector.
[TURN OVER]
, CONFIDENTIAL FIN4801
Page 4 of 12 MAY/ JUNE 2025
The previous financial manager was nearing completion of a net present value (NPV) analysis
of the project, and his work was shared with you. The calculations done thus far are as follows:
Year 0 1 2 3
Sales R - R 4 080 000 R 5 100 000 R 6 120 000
Variable costs R - -R 1 632 000 -R 2 040 000 -R 2 448 000
Gross CF R 2 448 000 R 3 060 000 R 3 672 000
Initial outflow -R 7 000 000
Recoupment R -
Tax -R 30 960 -R 196 200 -R 631 440
Net flow -R 7 000 000 R 2 417 040 R 2 863 800 R 3 040 560
Tax effects
0 1 2 3
table (Year)
Gross flows R 2 448 000 R 3 060 000 R 3 672 000
Recoupment R 1 000 000
Depreciation -R 2 333 333 -R 2 333 333 -R 2 333 333
Net taxable R 114 667 R 726 667 R 2 338 667
Tax R 30 960 R 196 200 R 631 440
Upon the previous financial manager’s resignation, it was made clear that the calculations
were not completed nor checked by anyone else in the finance department. Other information
in the spreadsheet is as follows:
• Approach to adjust for inflation = Nominal approach (inflate cash flows).
• Inflation rate: 2% over the period.
• Sales: Year 1 = R4 million; Year 2 = R5 million; Year 3: R6 million.
• Depreciation: Straight line over 3 years.
• Length of project: 3 Years.
• Variable costs : 40% of inflation-adjusted sales.
• Cost of project: R7 000 000
• Tax rate: 27%
• Recoupment expected at the end of the project: R1 000 000.
• Current beta for the company: 1.5
• Beta for construction machinery sector: 1.2
• Risk- free rate: 5%
• Market risk premium : 5%
[TURN OVER]
