MAC3761 TEST 4 SUGGESTED SOLUTIONS

WEPASS



MAC3761 TEST 4
SUGGESTED SOLUTIONS

, ### (a) Classifications (Types) of Projects SIG is Exploring



**Capital Budgeting Types:**



1. **Expansion Projects:**

- **Explanation:** SIG is considering buying a 35% equity stake in Southpoint Limited to
expand its existing property investment portfolio. This is an expansion project as it seeks to
grow the current business by acquiring additional assets.



2. **Replacement Projects:**

- **Explanation:** Purchasing four apartment buildings from Joe Burden Properties (JBP)
involves the replacement or renovation of existing assets to enhance their value. Although
SIG is not directly replacing its own assets, it is replacing JBP’s ownership with its own to
potentially improve profitability.



3. **Strategic Projects:**

- **Explanation:** Both investment alternatives can be classified as strategic projects
because they align with SIG’s long-term goal of diversifying and growing its investment
portfolio, particularly in the high-demand area of student accommodation.



### (b) Evaluation of Key Performance Indicators for Southpoint Limited



**Calculations:**



1. **Net Interest Cover Ratio:**

- \[