FIN3701 Assignment 1 Semester 1 2026 (224276)

Financial Management - FIN3701 Assignment 1 Semester 1 2026 (Unique Number: 224276) - Due 30 March 2026; 100 % TRUSTED workings, Expert Solved, Explanations and Solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)........... Assignment 01 NOTE THAT THERE ARE TWO COMPULSORY ASSIGNMENTS FOR THE FIRST SEMESTER. Assignment number Semester 1 01 Due date: 30 March 2026 Unique number: 224276 Assignment 01 – Semester 1 Due date: 30 March 2026 Unique number: 224276 The purpose of this assignment is to evaluate your knowledge and understanding of the fundamental aspects of decision-making for long-term investment. To complete the assignment, you need to study chapters 9, 10, 11 and 12 of the prescribed book, along with the relevant learning units. QUESTION 1 [24 marks] Bottling Ltd is a manufacturer of glass bottles. The company has been advised by a consultant to introduce plastic bottles for the 2027 Rugby World Cup, as glass bottles will not be allowed in any of the stadiums. The consultant charged a fee of R14 000 for conducting the market study. To produce the plastic bottles, the company will need to purchase a machine costing R120 000, as well as two moulds – one for the containers and one for the lids – at a total cost of R22 000. The machine will be depreciated using the straight-line method over a useful life of two years. At the end of the two year period, the machine is expected to be sold for 23% of its original cost. The consultant estimates sales of R80 000 in the first year, with a projected decrease of 10% in the second year. The total fixed costs are expected to be R4 500 per year, while variable costs are estimated at 15% of sales. Bottling Ltd will need plastic material valued at R1 200 to commence production. Of this amount, R1 000 will be financed using the company’s overdraft facility. The company’s cost of capital is 10%, and both income and capital gains are taxed at a rate of 29%. REQUIRED: 1.1 Calculate the initial investment required for the purchase of the new machine and the two moulds. (4 marks) 1.2 Calculate the operating cash inflows generated by the new machine and the two moulds for year 1 and year 2. (10 marks) 1.3 What will be the tax effect on the terminal cash flow arising from the disposal of the machine at the end of its useful life? (4 marks) 1.4 Calculate the internal rate of return (IRR) of the investment in the new machine and the two moulds. (6 marks) 10 QUESTION 2 FIN3701/101/2/2025 [18 marks] Evans Industries needs additional aluminium extrusion capacity and has to choose between three machines: A, B and C. Each machine can meet the company’s needs and carries the same level of risk. The company will evaluate all three options using a cost of capital of 12%. The table below shows the initial investment and the expected annual cash inflows for each machine over its useful life. Year Machine A Machine B 0 (R92 000) Machine C (R65 000) 1 R12 000 (R100 500) R10 000 2 R12 000 R30 000 R20 000 3 R12 000 R30 000 R30 000 4 R12 000 R30 000 R40 000 5 R12 000 R13 000 - 6 R12 000 R30 000 - REQUIRED: 2.1 Calculate the net present value (NPV) of each machine over its useful life. 2.2 Calculate the annualised net present value (ANPV) of each machine. (6 marks) (6 marks) 2.3 Based on the calculated NPV and ANPV, which machine(s) should the firm purchase? (2 marks) 2.4 A firm is considering two mutually exclusive projects. Project M has a life of four years and an NPV of R2 855 000. Project N has a life of six years and an NPV of R4 540 800. The firm’s cost of capital is 15%. Calculate the ANPV of both project M and project N. (4 marks) QUESTION 3 [4 marks] Tyres Manufacturers plans to expand its production capacity in 2026 by investing R14 million in new plants and machinery. Management aims to maintain the current 40% debt in the firm’s capital structure. Moreover, management expects a net income of R2,8 million and intends to base dividend payments on the residual dividend theory. Debt financing can be obtained at a before-tax cost of 16%. The firm may also issue ordinary shares, which are currently selling for R30 each, at a net price of R20 per share after flotation costs. The firm paid a dividend (Do) of R1,50 per share in the previous financial year, and dividends have grown at an average rate of 7% in recent years. This growth rate is expected to continue in the future. The corporate tax rate is 40%. REQUIRED: 3.1 Identify the different forms and amounts of new financing required to fund the project. (4 marks) 3.2 Calculate the component costs. (6 marks) [TOTAL: 50 marks]