MBA5903 ASSIGNMENT 1 2026 (INDIVIDUAL AND REPEATERS ASSIGNMENT) 1.2. John plans to deposit R1 000 in First National Bank (FNB) in a savings account that pays a nominal interest rate of 8% per annum. a) If FNB compounds interest annually how much woul

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Table of Contents

Question 1: Interest Rates [20 Marks] ........................................................................ 6

1.1 Explanation of terms ............................................................................................. 6

a. Compounding (2 Marks) ......................................................................................... 6

b. Effective Annual Rate (EAR) (2 Marks) .................................................................. 6

c. Nominal Interest Rate (2 Marks) ............................................................................. 6

c. Nominal Interest Rate ............................................................................................. 6

d. Daily Compounding (2 Marks) ................................................................................ 7

1.2 Calculations .......................................................................................................... 7

a) Annual compounding (2 Marks) ............................................................................. 7

b) Quarterly compounding (4 Marks) .......................................................................... 8

c) Four payments of R250 at the end of years 1, 2, 3 and 4 (3 Marks) ...................... 8

d) Equal payments required to obtain the balance in Part (a) (3 Marks) .................... 9

Question 2: Loan Amortization Schedule [15 Marks] ................................................ 10

2.1 Jack's loan [3 Marks] .......................................................................................... 10

2.2 Peter's loan [3 Marks] ......................................................................................... 11

2.3 Ladesh's loan [4 Marks]...................................................................................... 11

2.4 Mary's Loan Amortization Schedule [5 Marks] .................................................... 13

Question 3: Financing Methods [6 Marks] ................................................................ 14

Option 1: Finance the R2 million through debt ......................................................... 15


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Option 2: Finance the R2 million through new equity ............................................... 16

Question 4: Project Appraisal [8 Marks] ................................................................... 17

4(a) Expected NPV of the project [3 Marks] ............................................................. 17

4(b) Standard deviation of NPV [3 Marks] ................................................................ 17

4(c) Coefficient of variation [2 Marks] ....................................................................... 18

Question 5: Weighted Average Cost of Capital (WACC) [7 Marks]........................... 19

5(a) Calculate Jude's WACC [2 Marks] .................................................................... 20

5(b) How much profit must be generated to satisfy the capital providers? [5 Marks] 20

Verification using individual capital providers ........................................................... 21

Question 6: Mergers and Acquisitions [25 Marks] .................................................... 21

I. New shares issued to existing shareholders [7 Marks].......................................... 22

Effect on existing Kaizer shareholders ..................................................................... 23

II. New shares issued to new shareholders [3 Marks] .............................................. 24

III. Financing the acquisition through borrowing [7 Marks] ....................................... 25

Effect of debt financing ............................................................................................. 25

IV. Share exchange [8 Marks] .................................................................................. 26

Exchange ratio ......................................................................................................... 26

Effect on existing Kaizer shareholders ..................................................................... 27

Summary of effects on Kaizer's existing shareholders ............................................. 28

Question 7: Scenario Analysis [19 Marks] ................................................................ 28


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