FIN3701 Exam Pack.

INDEX Welcome Pg. 2 May/June 2017 Exam Pg. 4 May/June 2017 Suggested Solutions Pg. 11 October/November 2016 Exam Pg. 17 October/November 2016 Suggested Solutions Pg. 26 May/June 2016 Exam Pg. 31 May/June 2016 Suggested Solutions Pg. 40 October/November 2015 Exam Pg. 45 October/November 2015 Suggested Solutions Pg. 52 October/November 2014 Exam Pg. 57 October/November 2014 Suggested Solutions Pg. 64 May/June 2014 Exam Pg. 10 May/June 2014 Suggested Solutions Pg. 77 October/November 2013 Exam Pg. 81 October/November 2013 Suggested Solutions Pg. 88 May/June 2013 Exam Pg. 94 May/June 2013 Suggested Solutions Pg. 102 Thank You Pg. 109 lOMoARcPSD| FIN3701 Exam Pack. Pg.4 This paper consists of 18 pages including 4 pages for rough work (pp.15-18), plus Appendix A (pp.i-iv), (interest tables) and instructions for the completion of a mark reading sheet. INSTRUCTIONS: SECTION A: Answer all 20 multiple choice questions on the mark reading sheet. SECTION B: Answer all long questions using the space provided below the question. No rough work will be marked. lOMoARcPSD| Pg.5 SECTION A (20 MARKS) Use the information provided below to answer Questions 1 to 4. Selby Industries is considering replacing its existing machine which was purchased 3 years ago at a cost of R1 million. The machine is depreciated at 20% per annum and can be sold today at R200 000. The new machine will cost R750 000 with R20 000 installation cost and R5 000 transportation costs. The use of the new machine will decrease the working capital by R7 000. Assume a 29% capital gains tax. 1. Calculate the book value of the existing machine. 1. R200 000 2. R400 000 3. R640 000 4. R800 000 2. Calculate the tax implication from the sale of the existing machine. 1. R 58 000 tax liability 2. R 58 000 tax benefit 3. R160 000 tax liability 4. R160 000 tax benefit 3. Calculate the after-tax proceeds from the sale of the existing machine. 1. R258 000 2. R640 000 3. R840 000 4. R920 000 4. Calculate the initial investment associated with the replacement of the existing machine. 1. R 18 750 2. R 25 750 3. R510 000 4. R577 000 5. What is the most common motive for adding fixed assets to the firm? 1. Renewal 2. Expansion 3. Replacement 4. Transformation Use the following information to answer questions 6 & 7. Running Free Ltd is considering the following investment projects: Year Project Stability Project Lace Project Cushion 0 (R150 000) (R150 000) (R160 000) lOMoARcPSD| Pg.6 1 R 50 000 R 40 000 R100 000 2 R 50 000 R 60 000 R 60 000 3 R 50 000 R110 000 R 0 4 R 50 000 R 40 000 R 60 000 5 R 50 000 R 30 000 R 90 000 Cost of capital 11% 6. The NPV for the three projects would be closest to: Project Stability Project Lace Project Cushion 1 R 35 000 R 29 000 R 70 000 2 R 35 000 R 59 317 R 70 000 3 R150 000 R170 000 R180 000 4 R250 000 R280 000 R310 000 7. The payback period for the three projects would be closest to: Project Stability Project Lace Project Cushion 1 3 3 2 2 3 4 4 3 3 5 4 4 3 6 6 8. A company has a profitability index of 2.2 and initial investment of R220 000. The NPV for the company is closest to … 1. R100 000 2. R260 000 3. R480 000 4. R700 000 9. A firm is considering two mutually exclusive projects. Project Alpha has a life of 5 years and an NPV of R400 606. Project Bravo has a life of 7 years and an NPV of 700 000. The firm has a cost of capital of 10%. Which one of the following statement is correct? 1. The annualized net present value of project Alpha is R 728 981 2. The annualized net present value of project Alpha is R 105 672 3. The annualized net present value of project Bravo is R 1 000 000 4. The annualized net present value of project Bravo is R 1 105 000 10. Risk in capital budgeting cash flows can be adjusted for by using the… 1. risk-adjusted discount rate 2. Required rate of return 3. Certainty equivalents 4. Risk premium