FIN2603 ASSIGNMENT 2 FOR 2ND SEMESTER 2024

Question 1 Complete Marked out of 1.00 Flag question Question text The financial manager is evaluating a proposal for a new project with a cost of capital of 13.5%. The cash flows for the project are estimated as follows: Year Net cash flows 0 -R 1 000 000 1 R 650 000 2 R 450 000 3 R 350 000 The IRR is ... a. 12.03% b. 17.04% c. 20.05% d. 24.03% Question 2 Complete Marked out of 1.00 Flag question Question text Calculate the difference between the following two investment proposals.(a) R1 401.82 invested annually for five successive years at 9% per annum.(b) R5 209.22 invested for five years at 10% per annum compound interest. a. R0 b. R 80.25 c. R100.35 d. R 36.10 Question 3 Complete Marked out of 1.00 Flag question Question text If accounts receivable increases by R300, inventory increases by R600 and accounts payable increases by R200, net working capital would ... a. decrease by R1 100. b. increase by R700. c. decrease by R700. d. increase by R1 100. Question 4 Complete Marked out of 1.00 Flag question Question text The before-tax cost of debt for a firm, which has a 45% marginal tax rate, is correctly calculated at 11%. Calculate the after-tax cost of debt. a. 6.05% b. 4.20% c. 12.06% d. 9.60% Question 5 Complete Marked out of 1.00 Flag question Question text Green Hill Ltd has made an initial investment of R500 000 in a new project. Due to unfortunate miscalculations, an additional R100 000 had to be invested to successfully start up the project. The cost of capital is 12%. The investment is expected to generate the following cash inflows over the next five years: Year 1: R 80 000 Year 2: R 85 000 Year 3: R150 000 Year 4: R140 000 Year 5: R300 000 The IRR is ...; therefore, the investment should ... a. 12.34%; be undertaken. b. 6.60%; not be undertaken. c. 8.23%; not be undertaken. d. 15.67%; be undertaken. Question 6 Complete Marked out of 1.00 Flag question Question text Musa, the financial manager of an international company, wishes to replace a machine five years from now with a new machine that will cost R700 000 in six years' time. If equal end-of-year deposits are made into an account paying an annual interest of 11%, calculate the size of each deposit. a. R95 345.78 b. R23 535.24 c. R88 463.60 d. R49 382.38 Question 7 Complete Marked out of 1.00 Flag question Question text A firm has a loan with an interest rate of 15%. The firm is subject to a tax rate of 30%. Calculate the firm’s after-tax cost of debt? a. 15.0% b. 22.5% c. 10.5% d. 4.5% Question 8 Complete Marked out of 1.00 Flag question Question text If Adrian invests R20 000 in a unit trust offering a rate of return of 16% per annum, calculate how long it will take for the investment to reach R100 000. a. 15 years b. 10 years c. 14 years d. 11 years Question 9 Complete Marked out of 1.00 Flag question Question text Calculate the growth rate of the following stream of cash flows: YEAR CASH FLOW 2023 R 34 600 2022 R 31 000 2021 R 11 900 2020 R 10 000 a. 26% b. 51% c. 43% d. 23% Question 10 Complete Marked out of 1.00 Flag question Question text Clearwater Ltd. has determined its optimal capital structure, which comprises the following: FORM OF CAPITAL WEIGHT AFTER-TAX COST Long-term debt 70% 4% Preference shares 20% 13% Ordinary shares 10% 10% The weighted average cost of capital is ... a. 9.1% b. 8.4% c. 6.4% d. 5.3% Question 11 Complete Marked out of 1.00 Flag question Question text A construction company consumes 1700 litres of petrol per day for its current mining operations. Mr Burton, the financial analyst, has estimated that the mine will increase its current operations, and therefore, petrol consumption will increase by 5% for the 2024 financial year. It takes three days from placing the order until the petrol is delivered. Calculate the reorder point for the 2024 financial year. a. 5355 litres b. 6400 litres c. 7040 litres d. 8340 litres Question 12 Complete Marked out of 1.00 Flag question Question text Calculate the future value (FV) of R15 000 invested for six years at an interest rate of 8%, compounded semi-annually. a. R14 106 b. R26 734 c. R14 026 d. R24 015 Question 13 Complete Marked out of 1.00 Flag question Question text Blue Bay Ltd. has made an initial investment of R 500 000 in a new project. The firm’s cost of capital is 12%. The investment is expected to generate the following cash inflows over the next five years: Year 1: R 50 000 Year 2: R 60 000 Year 3: R 150 000 Year 4: R 140 000 Year 5: R 500 000 The profitability index (PI) is ... ; therefore, the investment should ... a. 1.14; be undertaken. b. 1.14; not be undertaken. c. 1.29; not be undertaken. d. 1.29; be undertaken. Question 14 Complete Marked out of 1.00 Flag question Question text Gavin Sadler has arranged for a 60-day loan at an annual interest rate of 7.5% per annum. If the loan amount is R1 000 000, how much interest will Mr Johnson pay in rand terms? (Assume a 360-day year.) a. R25 000 b. R75 000 c. R0 d. R12 500 Question 15 Complete Marked out of 1.00 Flag question Question text The after-tax cost of debt for a firm which has a marginal tax rate of 40%, is 6%. Calculate the before-tax cost of debt. a. 8.1% b. 10.0% c. 6.0% d. 9.2% Question 16 Complete Marked out of 1.00 Flag question Question text Calculate the present value (PV) of R100 000 received 9 years from today at an interest rate of 12%. a. R36 061 b. R27 895 c. R37 980 d. R43 998 Question 17 Complete Marked out of 1.00 Flag question Question text A company has a cash conversion cycle of 50 days. Annual outlays are R10 million and the cost of negotiated financing is 9%. Calculate its annual savings if the company reduces its average age of inventory by 15 days. Assume 360 days per year. a. R125 000 b. R 15 679 c. R 87 500 d. R 37 500 Question 18 Complete Marked out of 1.00 Flag question Question text The minimum return that must be earned on a project in order to leave the firm’s value unchanged is the … a. interest rate. b. internal rate of return. c. compound rate. d. discount rate. Question 19 Complete Marked out of 1.00 Flag question Question text C and J Limited extend credit terms of 36 days to its customers. Its credit collection would likely be considered poor if its average collection period was ... a. 35 days. b. 0 days. c. 36 days. d. 39 days. Question 20 Complete Marked out of 1.00 Flag question Question text Blue Chip Ltd has made an initial investment of R200 000 in a new project. Due to unfortunate miscalculations, an additional R100 000 had to be invested to start up the project successfully. The cost of capital is 11.5%. The investment is expected to generate the following cash inflows over the next five years: Year 1: R 20 000 Year 2: R 100 000 Year 3: R 400 000 Year 4: R 400 000 Year 5: R 500 000 The IRR is ...; therefore, the investment should ... a. 53.02%; be undertaken. b. 60.60%; not be undertaken. c. 48.23%; not be undertaken. d. 70.22%; be undertaken. Question 21 Complete Marked out of 1.00 Flag question Question text Calculate the economic order quantity given the following information: 1 600 units used annually. Ordering costs amount to R210 per order. Carrying costs are R180 per unit per year. a. 4 units b. 61 units c. 52 units d. 43 units Question 22 Complete Marked out of 1.00 Flag question Question text Remix Ltd has made an initial investment of R1000 000 in a new project. The firm’s cost of capital is 13%. The investment is expected to generate the following cash inflows over the next five years: Year 1: R 50 000 Year 2: R 60 000 Year 3: R 70 000 Year 4: R400 000 Year 5: R500 000 The Net present value (NPV) is ... a. R1 b. -R343 542 c. R343 542 d. R400 879 Question 23 Complete Marked out of 1.00 Flag question Question text A company increasing its credit terms for customers from 2/15 net 60 to 2/18 net 75 will likely experience ... a. a decrease in the average collection period. b. an increase of cash in hand. c. an increase in the average collection period. d. higher net income. Question 24 Complete Marked out of 1.00 Flag question Question text A firm is offered payment terms of 3/15 net 60 by a supplier. Calculate the cost of giving up the cash discount. Assume a 365 day year. a. 15.05% b. 113.00% c. 25.09% d. 18.81% Question 25 Complete Marked out of 1.00 Flag question Question text A company has financed 40% of its assets through a 12% after-tax cost of debt loan. The remainder of its assets are financed through equity. The firm’s required return on equity is 14%. Calculate the company's weighted average cost of capital (WACC)? a. 13.75% b. 13.20% c. 13.56% d. 15.50%