MAC3702 Assignment 1 (ANSWERS) Semester 1 2026 - DISTINCTION GUARANTEED

Comprehensively structured MAC3702 Assignment 1 (ANSWERS) Semester 1 2026 - DISTINCTION GUARANTEED. Prepared to a distinction standard with detailed and well-developed responses.. A forward rate agreement FRA is used primarily to Trade commodities Lock in a future exchange rate Hedge currency risk Lock in a future borrowing or lending rate The value of a bond is equal to The book value The face value only The present value of interest payments plus the present value of redemption value The coupon rate multiplied by years Which of the following best describes the primary objective of financial management Maximising short term profits Maximising shareholder wealth Minimising operational costs only Avoiding all forms of risk The internal rate of return IRR is defined as The discount rate that makes NPV equal to zero The rate of return required by investors The accounting rate of return The average return over time A company’s cost of equity is influenced by Only inflation Risk and expected return Tax rates only Accounting standards Which of the following is a characteristic of ordinary shares Fixed dividend payments No voting rights Residual claim on profits Guaranteed returns Working capital management focuses on Long term investments Short term assets and liabilities Equity financing only Capital structure decisions Which of the following is a source of long term finance Trade payables Bank overdraft Debentures Accrued expenses A positive net present value indicates that The project should be rejected The project adds value to the firm The project breaks even The project has no risk The payback period method considers Time value of money Cash flows only Risk adjustments Market value Which of the following increases financial leverage Issuing more equity Reducing debt Increasing debt Reducing assets A dividend is A loan repayment A distribution of profits to shareholders An operating expense A tax payment When evaluating foreign finance, a key additional consideration is Exchange rate risk Office rental cost Number of employees Local tax incentives only An advantage of debt finance is that It dilutes shareholder control Interest is tax deductible It increases agency costs automatically Dividends are compulsory An aggressive financing policy generally Eliminates refinancing risk Increases risk but may increase profitability Increases liquidity Reduces risk but lowers profitability Real strategic options allow flexibility in investment decisions True False The net present value NPV of a project is calculated as Average annual profit divided by investment Present value of cash inflows minus present value of cash outflows Internal rate of return less WACC Initial investment minus total profits When considering IT strategy, organisations must assess Share price only Only risks The costs and strategic impact of technology Only benefits Diversification reduces Inflation risk Market risk Unsystematic risk Systematic risk A currency swap typically involves Exchanging interest payments in the same currency Trading on the JSE Swapping principal and interest payments in different currencies Buying foreign shares The cash operating cycle affects a firm’s liquidity True False Enterprise Risk Management ERM is best described as A structured and organisation wide approach to managing risk Managing risks in isolated departments Managing financial risk only Eliminating operational risks only Just in Time JIT systems rely on efficient supplier relationships True False Investors consider risk and expected return when providing finance True False Which of the following is a feature of preference shares Voting rights Variable dividends Fixed dividends No claim on assets The weighted average cost of capital is used to Calculate tax liability Discount future cash flows Measure liquidity Determine inventory levels A company with high liquidity Cannot meet short term obligations Has excess fixed assets Can easily meet short term obligations Has high long term debt Which ratio measures profitability Current ratio Debt ratio Return on equity Inventory turnover The primary purpose of a budget is to Avoid taxes Plan and control financial resources Increase liabilities Reduce revenue Which of the following is a capital budgeting decision Hiring employees Purchasing machinery Paying salaries Buying inventory Risk in finance refers to Guaranteed outcomes Uncertainty of returns Fixed returns Tax obligations Which of the following is a derivative instrument Bond Share Option Inventory A call option gives the holder the right to Sell an asset Buy an asset Lease an asset Exchange currencies A put option gives the holder the right to Buy an asset Sell an asset Borrow funds Invest in bonds The capital asset pricing model CAPM is used to Calculate dividends Estimate expected return Determine tax rates Measure liquidity Systematic risk is Diversifiable Company specific Market related Eliminated through diversification Unsystematic risk is Market wide Non diversifiable Company specific Always fixed Which of the following improves cash flow Increasing expenses Reducing revenue Efficient receivables collection Increasing inventory A high debt to equity ratio indicates Low risk High leverage No liabilities High liquidity Which of the following is a liquidity ratio Return on assets Current ratio Debt ratio Gross profit margin Inventory turnover measures Profitability Efficiency in managing inventory Liquidity Solvency Which of the following is an example of a fixed cost Raw materials Direct labour Rent Sales commission Break even analysis determines Profit after tax Sales level with no profit or loss Maximum profit Total liabilities Which of the following is a benefit of diversification Eliminates all risk Reduces unsystematic risk Increases systematic risk Guarantees profit A sinking fund is used to Pay dividends Repay debt over time Increase equity Fund daily expenses Which of the following affects exchange rates Interest rates Weather conditions only Employee numbers Office size Hedging is used to Increase risk Eliminate all costs Reduce risk exposure Avoid taxes A forward contract is an agreement to Buy or sell an asset at a future date Issue shares Pay dividends Borrow money The term maturity refers to Interest rate End date of a financial instrument Tax rate Dividend payment A bondholder receives Dividends Interest payments Voting rights Ownership control Which of the following is a short term financing source Equity shares Debentures Trade credit Long term loans A company’s capital structure refers to Asset allocation Mix of debt and equity Employee structure Revenue streams Operating leverage relates to Debt levels Fixed operating costs Equity financing Tax rates Financial leverage relates to Operating costs Debt usage Inventory levels Sales growth The primary market is where Existing securities are traded New securities are issued Foreign exchange is traded Commodities are sold The secondary market is where New shares are issued Existing securities are traded Loans are granted Dividends are paid Which of the following is a money market instrument Treasury bills Ordinary shares Debentures Preference shares A company’s beta measures Liquidity Profitability Market risk Tax rate A high beta indicates Low risk High volatility No risk Fixed returns The time value of money means Money loses value over time Money today is worth more than in the future Money has no value Money value is constant Compounding refers to Discounting future cash flows Earning interest on interest Reducing interest rates Paying dividends Discounting refers to Calculating future value Calculating present value Increasing profits Reducing costs An annuity is A single payment A series of equal payments over time A loan A bond Perpetuity is Payments for a fixed period Payments forever No payments Variable payments Company Zitron has 15 million shares in issue with a current market price of R225 This company tendered for a new fuel contract that they were successful in This led to the market price per share to increase to R250 What is the market’s consensus of the NPV that the new contract will generate for Zitron R375 million R3 375 million R3 750 million R300 million An advantage of debt compared to equity is that Interest may be tax deductible Debt holders gain voting rights Debt increases ownership dilution Debt does not require repayment Risk aggregation refers to Ignoring minor risks Reducing risk appetite Combining multiple risks to understand total exposure Transferring risk to shareholders Convertible debt differs from ordinary debt because it Cannot be redeemed Pays no interest Can be converted into equity Has no maturity date When evaluating whether to extend credit terms management should consider Only increased sales Historical profits only Only bad debt losses Incremental costs and benefits using an NPV approach A stricter collection policy will generally Increase credit sales Increase inventory levels Increase bad debts Reduce the average collection period A forward rate agreement FRA is used primarily to Trade commodities Lock in a future exchange rate Hedge currency risk Lock in a future borrowing or lending rate The value of a bond is equal to The book value The face value only The present value of interest payments plus the present value of redemption value The coupon rate multiplied by years Which of the following best describes the primary objective of financial management Maximising short term profits Maximising shareholder wealth Minimising operational costs only Avoiding all forms of risk The internal rate of return IRR is defined as The discount rate that makes NPV equal to zero The rate of return required by investors The accounting rate of return The average return over time A company’s cost of equity is influenced by Only inflation Risk and expected return Tax rates only Accounting standards Which of the following is a characteristic of ordinary shares Fixed dividend payments No voting rights Residual claim on profits Guaranteed returns Working capital management focuses on Long term investments Short term assets and liabilities Equity financing only Capital structure decisions Which of the following is a source of long term finance Trade payables Bank overdraft Debentures Accrued expenses A positive net present value indicates that The project should be rejected The project adds value to the firm The project breaks even The project has no risk The payback period method considers Time value of money Cash flows only Risk adjustments Market value Which of the following increases financial leverage Issuing more equity Reducing debt Increasing debt Reducing assets A dividend is A loan repayment A distribution of profits to shareholders An operating expense A tax payment When evaluating foreign finance, a key additional consideration is Exchange rate risk Office rental cost Number of employees Local tax incentives only An advantage of debt finance is that It dilutes shareholder control Interest is tax deductible It increases agency costs automatically Dividends are compulsory An aggressive financing policy generally Eliminates refinancing risk Increases risk but may increase profitability Increases liquidity Reduces risk but lowers profitability Real strategic options allow flexibility in investment decisions True False The net present value NPV of a project is calculated as Average annual profit divided by investment Present value of cash inflows minus present value of cash outflows Internal rate of return less WACC Initial investment minus total profits When considering IT strategy, organisations must assess Share price only Only risks The costs and strategic impact of technology Only benefits Diversification reduces Inflation risk Market risk Unsystematic risk Systematic risk A currency swap typically involves Exchanging interest payments in the same currency Trading on the JSE Swapping principal and interest payments in different currencies Buying foreign shares The cash operating cycle affects a firm’s liquidity True False Enterprise Risk Management ERM is best described as A structured and organisation wide approach to managing risk Managing risks in isolated departments Managing financial risk only Eliminating operational risks only Just in Time JIT systems rely on efficient supplier relationships True False Investors consider risk and expected return when providing finance True False Which of the following is a feature of preference shares Voting rights Variable dividends Fixed dividends No claim on assets The weighted average cost of capital is used to Calculate tax liability Discount future cash flows Measure liquidity Determine inventory levels A company with high liquidity Cannot meet short term obligations Has excess fixed assets Can easily meet short term obligations Has high long term debt Which ratio measures profitability Current ratio Debt ratio Return on equity Inventory turnover The primary purpose of a budget is to Avoid taxes Plan and control financial resources Increase liabilities Reduce revenue Which of the following is a capital budgeting decision Hiring employees Purchasing machinery Paying salaries Buying inventory Risk in finance refers to Guaranteed outcomes Uncertainty of returns Fixed returns Tax obligations Which of the following is a derivative instrument Bond Share Option Inventory A call option gives the holder the right to Sell an asset Buy an asset Lease an asset Exchange currencies A put option gives the holder the right to Buy an asset Sell an asset Borrow funds Invest in bonds The capital asset pricing model CAPM is used to Calculate dividends Estimate expected return Determine tax rates Measure liquidity Systematic risk is Diversifiable Company specific Market related Eliminated through diversification Unsystematic risk is Market wide Non diversifiable Company specific Always fixed Which of the following improves cash flow Increasing expenses Reducing revenue Efficient receivables collection Increasing inventory A high debt to equity ratio indicates Low risk High leverage No liabilities High liquidity Which of the following is a liquidity ratio Return on assets Current ratio Debt ratio Gross profit margin Inventory turnover measures Profitability Efficiency in managing inventory Liquidity Solvency Which of the following is an example of a fixed cost Raw materials Direct labour Rent Sales commission Break even analysis determines Profit after tax Sales level with no profit or loss Maximum profit Total liabilities Which of the following is a benefit of diversification Eliminates all risk Reduces unsystematic risk Increases systematic risk Guarantees profit A sinking fund is used to Pay dividends Repay debt over time Increase equity Fund daily expenses Which of the following affects exchange rates Interest rates Weather conditions only Employee numbers Office size Hedging is used to Increase risk Eliminate all costs Reduce risk exposure Avoid taxes A forward contract is an agreement to Buy or sell an asset at a future date Issue shares Pay dividends Borrow money The term maturity refers to Interest rate End date of a financial instrument Tax rate Dividend payment A bondholder receives Dividends Interest payments Voting rights Ownership control Which of the following is a short term financing source Equity shares Debentures Trade credit Long term loans A company’s capital structure refers to Asset allocation Mix of debt and equity Employee structure Revenue streams Operating leverage relates to Debt levels Fixed operating costs Equity financing Tax rates Financial leverage relates to Operating costs Debt usage Inventory levels Sales growth The primary market is where Existing securities are traded New securities are issued Foreign exchange is traded Commodities are sold The secondary market is where New shares are issued Existing securities are traded Loans are granted Dividends are paid Which of the following is a money market instrument Treasury bills Ordinary shares Debentures Preference shares A company’s beta measures Liquidity Profitability Market risk Tax rate A high beta indicates Low risk High volatility No risk Fixed returns The time value of money means Money loses value over time Money today is worth more than in the future Money has no value Money value is constant Compounding refers to Discounting future cash flows Earning interest on interest Reducing interest rates Paying dividends Discounting refers to Calculating future value Calculating present value Increasing profits Reducing costs An annuity is A single payment A series of equal payments over time A loan A bond Perpetuity is Payments for a fixed period Payments forever No payments Variable payments Company Zitron has 15 million shares in issue with a current market price of R225 This company tendered for a new fuel contract that they were successful in This led to the market price per share to increase to R250 What is the market’s consensus of the NPV that the new contract will generate for Zitron R375 million R3 375 million R3 750 million R300 million An advantage of debt compared to equity is that Interest may be tax deductible Debt holders gain voting rights Debt increases ownership dilution Debt does not require repayment Risk aggregation refers to Ignoring minor risks Reducing risk appetite Combining multiple risks to understand total exposure Transferring risk to shareholders Convertible debt differs from ordinary debt because it Cannot be redeemed Pays no interest Can be converted into equity Has no maturity date When evaluating whether to extend credit terms management should consider Only increased sales Historical profits only Only bad debt losses Incremental costs and benefits using an NPV approach A stricter collection policy will generally Increase credit sales Increase inventory levels Increase bad debts Reduce the average collection period