FIN exam pack- Jan 2018

FIN4801 Jan/Feb 2018 Exam
1.
a)
Discount rate = rf + b (MRP)
=8% + 0.25 (6%)
= 9.5%
Rreal = (1+ rnominal)/(1+i) - 1
=[(1 + 0.095) / (1 + 0.05)] – 1
=[1..05] – 1
= 4.28%
Discount rate to evaluate projects = 4.28 % + 0.25 (6%)
= 5.78%
b)
Year0 Year1 Year2 Year3 Year4 Year5
Cost of -1 500
machine 000
Cost of -2 000
property 000
Installation -500 000
cost of
machine
Sales 900 000 850 000 1 100 1 000 1 200
000 000 000
Residual 200 000
value
(machine)
Residual 2 000
value 000
(property)
Cost of sales 360 000 340 000 440 000 400 000 480 000
Fixed costs 0 0 0 0 0
Depreciation 300 000 300 000 300 000 300 000 300 000
(machine)
Depreciation 100 000 100 000 100 000 100 000 100 000
(building)
EBIT 140 000 110 000 260 000 200 000 2 520
000

, Tax 39 200 30 800 72 800 56 000 705 600
NOPAT 100 800 79 200 187 200 144 000 1 814
400
Add back 300 000 300 000 300 000 300 000 300 000
depreciation
(machine)
Add back 100 000 100 000 100 000 1000 100 000
depreciation 000
(Building)
NOWC -500 000 500 000
Net cash -4 500 500 800 479 200 587 200 544 000 2 714
flows 000 400


NPV = -R618 162
Reject the project because it has a negative NPV.
c)
2.1.
AFN = (A*/S0)∆S – (L*/S0) ∆S – MS1 (RR)
= (100m / 80m) 10m – (50m/80m) 10m – 0.2 x 90m x 0.75
= 12 500 000 – 6 250 000 – 13 500 000
= -R7 250 000
2019 fund needed = -7 250 000 + 15 000 000
= R7 750 000
2.2.
Cash budget in 000
Jan Feb March April
May
COLLECTIONS AND PURCHASES
Sales 500 600 400
600 1000
Collections

After one month of sales
(60% of month sales) 300
360 240 360
Two month later (40% )
200 240 160