MAC3702 ASSIGNMENT 2 – SEMESTER 1OF
2021
QUESTION 1
(a) Financing of new coding infrastructure
Total capital after funding the project = (2 020 000 + 800 000)
= 𝑹𝟐 𝟖𝟐𝟎 𝟎𝟎𝟎
Desired Capital Structure After Funding
1
Equity = (2 820 000 ∗ ) = 𝑹𝟏 𝟒𝟏𝟎 𝟎𝟎𝟎
1 2
Debt = (2 820 000 ∗
2) = 𝑹𝟏 𝟒𝟏𝟎 𝟎𝟎𝟎
Determination of Funding of New Coding Infrastructure
Form of Current Desired Funding of New
Funding Structure Structure Coding
Infrastructure
Equity 1 220 000 1 410 000 190 000
Debt 800 000 1 410 000 610 000
2 020 000 2 820 000 800 000
Debt = (120 000 + 680 000) = 𝑹𝟖𝟎𝟎 𝟎𝟎𝟎
1
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, Conclusion
The new project should be financed as follows
(i) The entity should issue 15 833 (190 000) shares at R12 each to raise the
12
required R190 000 to achieve the target;
(ii) A loan from Crypto Bank of R200 000;
(iii) A top – up loan from FNB Bank of R50 000;
(iv) The remainder to be raised from preference shares
Remainder = (800 000 − 190 000 − 200 000 − 50 000) = 𝑹𝟑𝟔𝟎 𝟎𝟎𝟎
360 000
Number of Preference shares =( ) = 𝟑 𝟔𝟎𝟎 𝑷𝒓𝒆𝒇𝒆𝒓𝒆𝒏𝒄𝒆 𝒔𝒉𝒂𝒓𝒆𝒔
100
(b) Calculation of Weighted Average Cost of Capital
Ordinary Shares
500 000
Number of shares = [( ) + 15 833] = 𝟔𝟒𝟎 𝟖𝟑𝟑 𝒔𝒉𝒂𝒓𝒆𝒔
0.8
Market Value = (640 833 ∗ 12) = 𝑹𝟕 𝟔𝟖𝟗 𝟗𝟗𝟔
Cost of equity = 𝑫𝟏 +𝒈
( 𝑷 𝟎 − 𝒇)
(1.099438)
= 1.052 + 0.099438
(12∗96%)
= 0.1998
= 𝟏𝟗. 𝟗𝟖%
Calculation of g
𝑃𝑉 = −0.72
𝐹𝑉 = 105.2
𝑛=4
𝒈 = ? 𝟗. 𝟗𝟒𝟑𝟖%
2
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, Preference Shares
120 000
Number of shares = [ + 3 600] = 𝟒 𝟖𝟎𝟎 𝒔𝒉𝒂𝒓𝒆𝒔
100
Market value = (4 800 ∗ 96) = 𝑹𝟒𝟔𝟎 𝟖𝟎𝟎
Cost of preference shares = 11%
Long term loan – FNB Bank
Market value = (680 000 + 50 000) = 𝑹𝟕𝟑𝟎 𝟎𝟎𝟎
Cost of loan = (16.67 ∗ 72%) = 𝟏𝟐%
Loan from Crypto Bank
Market value = R200 000
Cost of loan = (10.5 + 0.8) ∗ 72% = 𝟖. 𝟏𝟒%
Calculation of WACC
Form of Capital Market Value Weight Cost Weighted
Average
R % %
Ordinary shares 7 689 996 0.85 19.98 16.98
Preference share capital 460 800 0.05 11 0.55
Loan – Crypto Bank 200 000 0.02 12 0.24
Loan – FNB Bank 730 000 0.08 8.14 0.65
9 080 796 1 18.42%
(c) Calculation of discounted payback period
Year Cash Flow Discount Present Value Cumulative
Factor @ Cash Flow
18.42%
R R R
0 (800 000) 1 (800 000) (800 000)
1 491 200 0.8445 414 818 (385 182)
2 491 200 0.7131 350 275 (34 907)
3 491 200 0.6022 295 801 260 894
34 907
Discounted payment = (2 + ) = 𝟐. 𝟏𝟐 𝒚𝒆𝒂𝒓𝒔
295 801
3
For academic needs contact 065 160 9781/unitutorials.co.za
2021
QUESTION 1
(a) Financing of new coding infrastructure
Total capital after funding the project = (2 020 000 + 800 000)
= 𝑹𝟐 𝟖𝟐𝟎 𝟎𝟎𝟎
Desired Capital Structure After Funding
1
Equity = (2 820 000 ∗ ) = 𝑹𝟏 𝟒𝟏𝟎 𝟎𝟎𝟎
1 2
Debt = (2 820 000 ∗
2) = 𝑹𝟏 𝟒𝟏𝟎 𝟎𝟎𝟎
Determination of Funding of New Coding Infrastructure
Form of Current Desired Funding of New
Funding Structure Structure Coding
Infrastructure
Equity 1 220 000 1 410 000 190 000
Debt 800 000 1 410 000 610 000
2 020 000 2 820 000 800 000
Debt = (120 000 + 680 000) = 𝑹𝟖𝟎𝟎 𝟎𝟎𝟎
1
For academic needs contact 065 160 9781/unitutorials.co.za
, Conclusion
The new project should be financed as follows
(i) The entity should issue 15 833 (190 000) shares at R12 each to raise the
12
required R190 000 to achieve the target;
(ii) A loan from Crypto Bank of R200 000;
(iii) A top – up loan from FNB Bank of R50 000;
(iv) The remainder to be raised from preference shares
Remainder = (800 000 − 190 000 − 200 000 − 50 000) = 𝑹𝟑𝟔𝟎 𝟎𝟎𝟎
360 000
Number of Preference shares =( ) = 𝟑 𝟔𝟎𝟎 𝑷𝒓𝒆𝒇𝒆𝒓𝒆𝒏𝒄𝒆 𝒔𝒉𝒂𝒓𝒆𝒔
100
(b) Calculation of Weighted Average Cost of Capital
Ordinary Shares
500 000
Number of shares = [( ) + 15 833] = 𝟔𝟒𝟎 𝟖𝟑𝟑 𝒔𝒉𝒂𝒓𝒆𝒔
0.8
Market Value = (640 833 ∗ 12) = 𝑹𝟕 𝟔𝟖𝟗 𝟗𝟗𝟔
Cost of equity = 𝑫𝟏 +𝒈
( 𝑷 𝟎 − 𝒇)
(1.099438)
= 1.052 + 0.099438
(12∗96%)
= 0.1998
= 𝟏𝟗. 𝟗𝟖%
Calculation of g
𝑃𝑉 = −0.72
𝐹𝑉 = 105.2
𝑛=4
𝒈 = ? 𝟗. 𝟗𝟒𝟑𝟖%
2
For academic needs contact 065 160 9781/unitutorials.co.za
, Preference Shares
120 000
Number of shares = [ + 3 600] = 𝟒 𝟖𝟎𝟎 𝒔𝒉𝒂𝒓𝒆𝒔
100
Market value = (4 800 ∗ 96) = 𝑹𝟒𝟔𝟎 𝟖𝟎𝟎
Cost of preference shares = 11%
Long term loan – FNB Bank
Market value = (680 000 + 50 000) = 𝑹𝟕𝟑𝟎 𝟎𝟎𝟎
Cost of loan = (16.67 ∗ 72%) = 𝟏𝟐%
Loan from Crypto Bank
Market value = R200 000
Cost of loan = (10.5 + 0.8) ∗ 72% = 𝟖. 𝟏𝟒%
Calculation of WACC
Form of Capital Market Value Weight Cost Weighted
Average
R % %
Ordinary shares 7 689 996 0.85 19.98 16.98
Preference share capital 460 800 0.05 11 0.55
Loan – Crypto Bank 200 000 0.02 12 0.24
Loan – FNB Bank 730 000 0.08 8.14 0.65
9 080 796 1 18.42%
(c) Calculation of discounted payback period
Year Cash Flow Discount Present Value Cumulative
Factor @ Cash Flow
18.42%
R R R
0 (800 000) 1 (800 000) (800 000)
1 491 200 0.8445 414 818 (385 182)
2 491 200 0.7131 350 275 (34 907)
3 491 200 0.6022 295 801 260 894
34 907
Discounted payment = (2 + ) = 𝟐. 𝟏𝟐 𝒚𝒆𝒂𝒓𝒔
295 801
3
For academic needs contact 065 160 9781/unitutorials.co.za
