[TYPE THE COMPANY NAME]
FIN3701 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 (224276) -
DUE 30 March 2026
NO PLAGIARISM
[Pick the date]
[Type the abstract of the document here. The abstract is typically a short summary of the contents of
the document. Type the abstract of the document here. The abstract is typically a short summary of
the contents of the document.]
,Exam (elaborations)
FIN3701 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 (224276) - DUE
30 March 2026
FIN3701 Assignment 1 (COMPLETE ANSWERS) Semester 1 2026 (224276) -
DUE 30 March 2026; 100% TRUSTED Complete, trusted solutions and
explanations Ensure your success with us.
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%. Calculate the initial investment required for the
purchase of the new machine Calculate the depreciation generated by ththe
two moulds for year year 2. (10 marks) 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) Calculate the NPV of the investment in the new
machine and the two moulds. Marombo currently has a portfolio of ordinary
shares representing several different companies. Marombo considers it to be
a well balanced investment portfolio, but he wants to reduce the overall risk
of the portfolio a bit more by including ordinary shares from Mamphela
Mining Corporation. The following information on Mamphela Mining
Corporation is available. For the period 2020 to 2023, the company paid the
following dividends per year respectively: R3,14; R3,55; R3,89; and R3,95.
The 2024 dividend is expected to increase by the average growth rate of the
dividends between 2020 and 2023, and the dividend will increase by 10
percent per year indefinitely from 2022 onwards. Marombo requires a return
of 12 percent on his investment portfolio and is not prepared to pay more
than R52,00 per ordinary share of Mamphela Mining Corporation. REQUIRED
Calculate the current price of Mamphela Mining Corporation ordinary share.
Should Marombo purchase Mamphela Mining Corporation shares to include in
,his investment portfolio? Provide reasons for your answer. The power
systems company, Raging Volts, is currently 80 percent equity financed and
aims to raise R2 million to fund a set of attractive investment opportunities.
Debt financing may be obtained at an after tax cost of 15 percent. The
company management wants to introduce 60 percent debt in the capital
structure while keeping the cost of each financing source together with its
market value the same. Ordinary shares are currently selling for R30 per
share. The company paid a dividend of R1,50 per share in the previous
financial year and had a growth rate of 7 percent over the past few years. It
is expected that this growth rate will be maintained in future. The company
tax rate is 29 percent. The company has a market value of R300 000.
REQUIRED Calculate the component costs associated with capital investment
financing. Calculate the weighted average cost of capital, the break point of
equity and the break point of debt under the current structure. Calculate the
weighted average cost of capital, the break point of equity and the break
point of debt under the proposed structure. Calculate the number of shares
under the current structure.
PART 1: Bottling Ltd – Plastic Bottle Investment
Given Data:
Consultant fee: R14,000 (sunk cost, not part of investment)
Machine cost: R120,000
Two moulds: R22,000
Machine useful life: 2 years
Machine residual value: 23% × R120,000 = R27,600
Depreciation method: straight-line
Sales Year 1: R80,000; Year 2: 10% decrease → R72,000
Fixed costs: R4,500/year
Variable costs: 15% of sales
Plastic material: R1,200 (R1,000 financed)
Cost of capital: 10%
Tax: 29%
1. Initial Investment Required
Initial Investment (I) includes:
1. Machine cost: R120,000
2. Moulds cost: R22,000
3. Plastic material: R1,200
, Consultant fee is not included in investment as it is a sunk cost.
Initial Investment=120,000+22,000+1,200=R143,200\text{Initial Investment} = 120,000 +
22,000 + 1,200 = \mathbf{R143,200}Initial Investment=120,000+22,000+1,200=R143,200
✅ Answer: Initial Investment = R143,200
2. Depreciation for the Two Moulds (Year 2)
Assuming moulds are depreciated straight-line over 2 years with no residual value:
Depreciation per year=Cost of mouldsUseful life=22,0002=R11,000/year\text{Depreciation per
year} = \frac{\text{Cost of moulds}}{\text{Useful life}} = \frac{22,000}{2} = \
mathbf{R11,000/year}Depreciation per year=Useful lifeCost of moulds=222,000=R11,000/year
✅ Depreciation Year 2 = R11,000
3. Tax Effect on Terminal Cash Flow of Machine
Machine sale price at end of 2 years: R27,600
Book value at end of 2 years: Machine cost – accumulated depreciation
Depreciation per year (machine):
Depreciation=Cost – ResidualUseful life=120,000−27,6002=92,4002=46,200 per year\
text{Depreciation} = \frac{\text{Cost – Residual}}{\text{Useful life}} = \frac{120,000 -
27,600}{2} = \frac{92,400}{2} = 46,200 \text{ per
year}Depreciation=Useful lifeCost – Residual=2120,000−27,600=292,400=46,200 per year
Book value at end of Year 2: 120,000 – 46,200×2 = 27,600 → equal to sale price, so
no gain/loss → no tax
✅ Tax effect on terminal cash flow = 0
4. NPV of Investment
Step 1: Cash Flows Before Tax
Year 1:
FIN3701 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 (224276) -
DUE 30 March 2026
NO PLAGIARISM
[Pick the date]
[Type the abstract of the document here. The abstract is typically a short summary of the contents of
the document. Type the abstract of the document here. The abstract is typically a short summary of
the contents of the document.]
,Exam (elaborations)
FIN3701 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 (224276) - DUE
30 March 2026
FIN3701 Assignment 1 (COMPLETE ANSWERS) Semester 1 2026 (224276) -
DUE 30 March 2026; 100% TRUSTED Complete, trusted solutions and
explanations Ensure your success with us.
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%. Calculate the initial investment required for the
purchase of the new machine Calculate the depreciation generated by ththe
two moulds for year year 2. (10 marks) 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) Calculate the NPV of the investment in the new
machine and the two moulds. Marombo currently has a portfolio of ordinary
shares representing several different companies. Marombo considers it to be
a well balanced investment portfolio, but he wants to reduce the overall risk
of the portfolio a bit more by including ordinary shares from Mamphela
Mining Corporation. The following information on Mamphela Mining
Corporation is available. For the period 2020 to 2023, the company paid the
following dividends per year respectively: R3,14; R3,55; R3,89; and R3,95.
The 2024 dividend is expected to increase by the average growth rate of the
dividends between 2020 and 2023, and the dividend will increase by 10
percent per year indefinitely from 2022 onwards. Marombo requires a return
of 12 percent on his investment portfolio and is not prepared to pay more
than R52,00 per ordinary share of Mamphela Mining Corporation. REQUIRED
Calculate the current price of Mamphela Mining Corporation ordinary share.
Should Marombo purchase Mamphela Mining Corporation shares to include in
,his investment portfolio? Provide reasons for your answer. The power
systems company, Raging Volts, is currently 80 percent equity financed and
aims to raise R2 million to fund a set of attractive investment opportunities.
Debt financing may be obtained at an after tax cost of 15 percent. The
company management wants to introduce 60 percent debt in the capital
structure while keeping the cost of each financing source together with its
market value the same. Ordinary shares are currently selling for R30 per
share. The company paid a dividend of R1,50 per share in the previous
financial year and had a growth rate of 7 percent over the past few years. It
is expected that this growth rate will be maintained in future. The company
tax rate is 29 percent. The company has a market value of R300 000.
REQUIRED Calculate the component costs associated with capital investment
financing. Calculate the weighted average cost of capital, the break point of
equity and the break point of debt under the current structure. Calculate the
weighted average cost of capital, the break point of equity and the break
point of debt under the proposed structure. Calculate the number of shares
under the current structure.
PART 1: Bottling Ltd – Plastic Bottle Investment
Given Data:
Consultant fee: R14,000 (sunk cost, not part of investment)
Machine cost: R120,000
Two moulds: R22,000
Machine useful life: 2 years
Machine residual value: 23% × R120,000 = R27,600
Depreciation method: straight-line
Sales Year 1: R80,000; Year 2: 10% decrease → R72,000
Fixed costs: R4,500/year
Variable costs: 15% of sales
Plastic material: R1,200 (R1,000 financed)
Cost of capital: 10%
Tax: 29%
1. Initial Investment Required
Initial Investment (I) includes:
1. Machine cost: R120,000
2. Moulds cost: R22,000
3. Plastic material: R1,200
, Consultant fee is not included in investment as it is a sunk cost.
Initial Investment=120,000+22,000+1,200=R143,200\text{Initial Investment} = 120,000 +
22,000 + 1,200 = \mathbf{R143,200}Initial Investment=120,000+22,000+1,200=R143,200
✅ Answer: Initial Investment = R143,200
2. Depreciation for the Two Moulds (Year 2)
Assuming moulds are depreciated straight-line over 2 years with no residual value:
Depreciation per year=Cost of mouldsUseful life=22,0002=R11,000/year\text{Depreciation per
year} = \frac{\text{Cost of moulds}}{\text{Useful life}} = \frac{22,000}{2} = \
mathbf{R11,000/year}Depreciation per year=Useful lifeCost of moulds=222,000=R11,000/year
✅ Depreciation Year 2 = R11,000
3. Tax Effect on Terminal Cash Flow of Machine
Machine sale price at end of 2 years: R27,600
Book value at end of 2 years: Machine cost – accumulated depreciation
Depreciation per year (machine):
Depreciation=Cost – ResidualUseful life=120,000−27,6002=92,4002=46,200 per year\
text{Depreciation} = \frac{\text{Cost – Residual}}{\text{Useful life}} = \frac{120,000 -
27,600}{2} = \frac{92,400}{2} = 46,200 \text{ per
year}Depreciation=Useful lifeCost – Residual=2120,000−27,600=292,400=46,200 per year
Book value at end of Year 2: 120,000 – 46,200×2 = 27,600 → equal to sale price, so
no gain/loss → no tax
✅ Tax effect on terminal cash flow = 0
4. NPV of Investment
Step 1: Cash Flows Before Tax
Year 1:
