Exam (elaborations) FIN3701 - Financial Management (FIN3701)

FIN 3701
EXAM MEMO
MAY\JUNE 2022


Question 1

1.1Calculate the terminal cash flow from the use of the new grinding machine.
Show all calculations.
Description (R)
Current Net book Value after 2 years (workings) 38 000
Salvage value (55 000 – 4 000) (51 000)
Taxable income 13 000
Tax@40 (0.40 x 13 000) (5200)
After tax proceeds ( 51 000 – 5 200) 45 800



Workings
Depreciation of the Existing Grinding Machine
76 000
Yearly depreciation charge = = 19 000
4
Since it has been bought 2 years ago, Accumulated depreciation = 19 000 x 2 = 38
000.
Current book value = Cost – Accumulated depreciation
76 000 – 38 000 = 38 000
Question 2

2.1

Year Project X Project Y


0 - 350 000 - 425 000
1 140 000 175 000

, 2 165 000 150 000
3 190 000 125 000
4 100 000
5 75 000
6 50 000
I/Y 10 10
COMP NPV 56 386.18 95 066.34
Annualized NPV
PV -56 386.18 -95 066.34
N 3 6
I/Y 10 10
COMP PMT R22 673.72 R21 827.93



 Based on Annualized NPV the best project is Project X with the highest
Annualised NPV of R22 673.72



Question 3

3.1 WACC

 Cost of debt

Cost of debt
FV – 1 000
PV - (1 000 – (0.05 x 1000) – 20) -930
PMT – (8% x 1000) 80
N– 10
COMP I/Y 9.10%
Cost debt after tax = 9.10(1-0.30) = 6.37%
After tax cost = 10%
 Cost of retained share

Rre = D1 / Po +g
= 10(1.03)/90 + 0.03