MAC3761
EXAM
PACK
2026
, lOMoARcPSD|58918787
Page 7 of 17
MAC3761 OCT/NOV 2025
QUESTION 1 (56 Marks; 112 Minutes)
1. BACKGROUND AND COMPANY INFORMATION
Fawt Auto & Parts Group (“FAPG”) is an American conglomerate that manufactures and sells fossil-
fuel-powered motor vehicles and major vehicle-parts (for example, engines, chassis). Listed on the
New York Stock Exchange, the group operates several manufacturing plants (companies) across the
globe, one of which is Fawt South Africa Limited (“FSA”). These companies are incorporated and
regulated in their countries of operation and are also listed in those countries’ primary stock
exchanges, such as the Shanghai Stock Exchange and the Australian Securities Exchange. Each of
these companies are run independently of each other. FSA began operating in the 1920s.
FAPG divested outright from South Africa (SA) around the 1970s amid apartheid-related sanctions
but re-entered the South African market in the 1990s via renewed investment in FSA. Since then, FSA
has grown exponentially, particularly in the last 5 years, increasing its: (i) annual vehicle sales units
from 110 000 in 2021 to 180 000 in 2025; (ii) factory staff from 120 000 (2021) to 150 000 (2025); and
(iii) market capitalisation to R54,6 billion as of the 2025 financial year end. In line with FSA’s
commitment to comply with SA’s Broad-Based Black Economic Empowerment (B-BBEE) framework,
FSA is 30% owned by a B-BBEE consortium comprising of mysterious billionaires and several secret
yet wealthy, politically connected individuals. The South African Public Servants Pension Fund
Manager (PSFM) owns 5%, public shareholding accounts for 12%, and FAPG is the only other
shareholder of FSA. The majority of PSFM beneficiaries are historically disadvantaged individuals.
Minority shareholders are not involved in FSA’s management.
FSA’s export markets include the United States of America (USA), Australia, Europe, New Zealand,
and the rest of Africa. FSA’s vehicle parts are only sold to the USA market while the company only
sells motor vehicles to the other export markets and locally in South Africa.
2. RECIPROCAL TRADE TARIFF and PROPOSED SHARE BUY-BACK
Following a first-of-its-kind announcement by the USA of a 30% “reciprocal trade 1*tariff ” on SA’s
exports to the USA, FSA is strongly reconsidering its continued relationship with FAPG and the supply
of vehicle parts to the USA market. FSA hopes to maintain its current cost-to-income ratio by avoiding
the envisaged increase in tariffs. In response to the trade tariff, the B-BBEE consortium is leading a
drive for FSA to buy back FAPG’s full equity stake for R29,8 billion. The share buy-back should be
financed in line with FSA’s target capital structure. However, FSA’s ability to issue new ordinary shares
is restricted to the current maximum authorised ordinary shares. Any shortfall in equity funding should
be covered by debt instruments (see Notes 3.9 and 3.10). FSA had notable cash reserves at the end
of its 31 August 2025 financial year (FY), but these are not intended to fund the proposed buy-back.
3. FINANCIAL PERFORMANCE AND OTHER SALIENT INFORMATION
FSA is statutorily required to submit its annual financial performance reports to FAPG. In this regard,
the Statement of Profit or Loss (income statement) is made available in USA dollar ($) based.
However, because the company is debt-funded by prominent South African banks, its Statement of
Financial Position (balance sheet) is also presented in the South African currency (Rand).
1*
Reciprocal trade tariffs stem from a policy strategy where one country responds to tariff rates imposed by another. For
example, if South Africa place a 20% import duty on the USA’s exports to South Africa, the USA might respond with a
reciprocal tariff (say 15%, 22%, or 30%) on importing all or selected South African products and services.
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Page 8 of 17
MAC3761 OCT/NOV 2025
QUESTION 1 (continued)
FSA’s extract of the Statement of Profit or Loss for the year ended Notes 2021 2025
31 August $ mil $ mil
Revenue 3.1 2 035 5 300
Cost of manufacturing and vehicle assembly 3.2 ? ?
Other costs (net of dividend income) 3.3 (182,8) (317,5)
Net finance income/(costs) 3.4 (39,1) (77,25)
Net profit after tax for the year 3.5 $375 $739
Notes and additional information:
3.1. Inter-company sales between FSA and FAPG were 5% (2021) and 8% (2025) of the total
revenue. Since FY2022, FSA’s vehicle prices for its popular vehicle range, double-cabs
(bakkies), have steadily increased in line with their increasing popularity and competition.
3.2. Amongst other items, this includes depreciation charges of $112 million (2021) and $157,5
million (2025). Factors such as loadshedding and stringent labour laws (for instance, those
enforcing remuneration equality and fairness) have increasingly impacted FSA’s cost-to-income
ratio. of 75%
3.3. Includes only operational costs and dividend income. In FY2022, FSA acquired 50 million
ordinary shares in PEOPLES’ WAGON (PTY) LTD (“PW”), a South African company with a
31 August year-end, which specialises in selling vehicle parts and spares. On 31 August 2025,
when PW’s dividend yield was 7%, PW paid $0,5 million (R9,1 million) in dividends to FSA. This
is FSA’s only dividend income. Ignore dividend tax. PW’s management accounts reflect the
following dividend paid calculations (in Rand millions) for the past three financial year[s] (FY).
Regardless of the dividend category (primary or secondary), PW only pays a single total final
dividend annually, for example R9,1 million in FY2025, and does not pay interim dividends.
Details FY2023 FY2024 FY2025
R mil R mil R mil
Earnings after tax (earnings) 98 50 77
Less: “Primary” ordinary dividends paid* (7,9) (5,5) (6,85)
Less: Next FY’s working capital funding requirements (15) (28,2) (26,4)
Less: Next FY’s operational funding requirements (39,2) (20) (30,8)
Earnings before “Secondary” ordinary dividends 35,9 (3,7) 12,95
Less: “Secondary” ordinary dividends paid (2,1) 0 (2,25)
Net earnings/(loss) after ordinary dividends payments R33,8 (R3,7) R10,7
* “Primary” ordinary dividends constitute two components, one of which is annual dividends of
5% of earnings after tax. in 2023 and thereafter 7,87% of earnings after tax.
3.4. FSA received $11,5 million and $10 million in FY2021 and FY2025, respectively, in interest
income from a R1,82 billion (representing the market value on 1 September 2025) fixed deposit
investment at a prominent South African bank. at a post-tax rate of 8,525% p/a
3.5. FSA is only liable for corporate income tax in South Africa. Due to various government
incentives, FSA’s income tax expense (2021:$176,5m; 2025:$244,25m) yields a notably
different effective tax rate compared to the South African corporate tax rate. of 38%
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Page 9 of 17
MAC3761 OCT/NOV 2025
QUESTION 1 (continued)
A summary of FSA’s complete Statement of Financial Notes 2021 2025
Position as at 31 August R mil R mil
Property, plant, and equipment 3.6 23 200 40 950
Other current and non-current assets 3.7 34 075 46 410
TOTAL ASSETS R57 275 R87 360
Ordinary share capital and retained earnings 3.8 33 785 44 590
Current liabilities 2 103 5 096
Non-current liabilities 3.9 ? ?
TOTAL EQUITY AND LIABILITIES R? R?
Notes and additional information:
3.6. No capital investments were made in the current or in the previous few financial years.
3.7. Amongst other items, these balances include investment in PW (see Note 3.3) and a fixed
deposit (see Note 3.4), both carried at cost. FSA does not have any other similar investments.
3.8. The number of authorised and issued ordinary shares are 300 million and 250 million,
respectively. FSA’s historic beta is 1,2 while a premium of 2 percentage points above the risk-
free rate is generally expected by investors in the South African equity market.
3.9. Non-current liabilities are presented at book values and only consist of the following three debts
instruments and their related information as of 31 August 2025:
(i) A R18,2 billion (book value) term loan. The pre-tax rate of this loan is 6,8% per annum (p/a).
The cost of similar term loans was 7% (pre-tax) p/a. and 12,2%, whichever is higher
(ii) 8,5%, 504 million preference shares, each at a nominal and book value of R26, are in issue
and are all redeemable once-off at par on 01 September 2030. These preference shares are
currently trading at R25 each. plus 5%
(iii) Debentures with a coupon rate of 5,5% p/a. These are fully redeemable in three years’ time
at a 5% premium on book value. The pre-tax annual market return rate of similar instruments
was at 135 basis points below the prime lending rate. of 10,85% p/a.
3.10. Other salient information:
(i) FSA has a target capital structure of 4:6 (Debt:Equity). Within this structure, the company aims to
maintain the debt components proportions at 5:4:1 for term loans: preference shares: debentures.
FSA plans to continue moving towards this target structure into the future.
(ii) Other key data:
FY2021 FY2025
Details
South Africa USA South Africa USA
Prime lending rate per annum (p/a) 7,25% 3,25% 8,50% 5,42%
Average inflation rate 4,50% 4,70% 4,18% 2,90%
Average exchange rate R14,50 $1 R18,60 $1
Spot/closing exchange rate R15,35 $1 R18,20 $1
Government/treasury bonds rate p/a 9,19% 1,45% 11,25% 4,35%
Corporate taxation rate 30% 21% 27% 21%
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EXAM
PACK
2026
, lOMoARcPSD|58918787
Page 7 of 17
MAC3761 OCT/NOV 2025
QUESTION 1 (56 Marks; 112 Minutes)
1. BACKGROUND AND COMPANY INFORMATION
Fawt Auto & Parts Group (“FAPG”) is an American conglomerate that manufactures and sells fossil-
fuel-powered motor vehicles and major vehicle-parts (for example, engines, chassis). Listed on the
New York Stock Exchange, the group operates several manufacturing plants (companies) across the
globe, one of which is Fawt South Africa Limited (“FSA”). These companies are incorporated and
regulated in their countries of operation and are also listed in those countries’ primary stock
exchanges, such as the Shanghai Stock Exchange and the Australian Securities Exchange. Each of
these companies are run independently of each other. FSA began operating in the 1920s.
FAPG divested outright from South Africa (SA) around the 1970s amid apartheid-related sanctions
but re-entered the South African market in the 1990s via renewed investment in FSA. Since then, FSA
has grown exponentially, particularly in the last 5 years, increasing its: (i) annual vehicle sales units
from 110 000 in 2021 to 180 000 in 2025; (ii) factory staff from 120 000 (2021) to 150 000 (2025); and
(iii) market capitalisation to R54,6 billion as of the 2025 financial year end. In line with FSA’s
commitment to comply with SA’s Broad-Based Black Economic Empowerment (B-BBEE) framework,
FSA is 30% owned by a B-BBEE consortium comprising of mysterious billionaires and several secret
yet wealthy, politically connected individuals. The South African Public Servants Pension Fund
Manager (PSFM) owns 5%, public shareholding accounts for 12%, and FAPG is the only other
shareholder of FSA. The majority of PSFM beneficiaries are historically disadvantaged individuals.
Minority shareholders are not involved in FSA’s management.
FSA’s export markets include the United States of America (USA), Australia, Europe, New Zealand,
and the rest of Africa. FSA’s vehicle parts are only sold to the USA market while the company only
sells motor vehicles to the other export markets and locally in South Africa.
2. RECIPROCAL TRADE TARIFF and PROPOSED SHARE BUY-BACK
Following a first-of-its-kind announcement by the USA of a 30% “reciprocal trade 1*tariff ” on SA’s
exports to the USA, FSA is strongly reconsidering its continued relationship with FAPG and the supply
of vehicle parts to the USA market. FSA hopes to maintain its current cost-to-income ratio by avoiding
the envisaged increase in tariffs. In response to the trade tariff, the B-BBEE consortium is leading a
drive for FSA to buy back FAPG’s full equity stake for R29,8 billion. The share buy-back should be
financed in line with FSA’s target capital structure. However, FSA’s ability to issue new ordinary shares
is restricted to the current maximum authorised ordinary shares. Any shortfall in equity funding should
be covered by debt instruments (see Notes 3.9 and 3.10). FSA had notable cash reserves at the end
of its 31 August 2025 financial year (FY), but these are not intended to fund the proposed buy-back.
3. FINANCIAL PERFORMANCE AND OTHER SALIENT INFORMATION
FSA is statutorily required to submit its annual financial performance reports to FAPG. In this regard,
the Statement of Profit or Loss (income statement) is made available in USA dollar ($) based.
However, because the company is debt-funded by prominent South African banks, its Statement of
Financial Position (balance sheet) is also presented in the South African currency (Rand).
1*
Reciprocal trade tariffs stem from a policy strategy where one country responds to tariff rates imposed by another. For
example, if South Africa place a 20% import duty on the USA’s exports to South Africa, the USA might respond with a
reciprocal tariff (say 15%, 22%, or 30%) on importing all or selected South African products and services.
CONFIDENTIAL
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Page 8 of 17
MAC3761 OCT/NOV 2025
QUESTION 1 (continued)
FSA’s extract of the Statement of Profit or Loss for the year ended Notes 2021 2025
31 August $ mil $ mil
Revenue 3.1 2 035 5 300
Cost of manufacturing and vehicle assembly 3.2 ? ?
Other costs (net of dividend income) 3.3 (182,8) (317,5)
Net finance income/(costs) 3.4 (39,1) (77,25)
Net profit after tax for the year 3.5 $375 $739
Notes and additional information:
3.1. Inter-company sales between FSA and FAPG were 5% (2021) and 8% (2025) of the total
revenue. Since FY2022, FSA’s vehicle prices for its popular vehicle range, double-cabs
(bakkies), have steadily increased in line with their increasing popularity and competition.
3.2. Amongst other items, this includes depreciation charges of $112 million (2021) and $157,5
million (2025). Factors such as loadshedding and stringent labour laws (for instance, those
enforcing remuneration equality and fairness) have increasingly impacted FSA’s cost-to-income
ratio. of 75%
3.3. Includes only operational costs and dividend income. In FY2022, FSA acquired 50 million
ordinary shares in PEOPLES’ WAGON (PTY) LTD (“PW”), a South African company with a
31 August year-end, which specialises in selling vehicle parts and spares. On 31 August 2025,
when PW’s dividend yield was 7%, PW paid $0,5 million (R9,1 million) in dividends to FSA. This
is FSA’s only dividend income. Ignore dividend tax. PW’s management accounts reflect the
following dividend paid calculations (in Rand millions) for the past three financial year[s] (FY).
Regardless of the dividend category (primary or secondary), PW only pays a single total final
dividend annually, for example R9,1 million in FY2025, and does not pay interim dividends.
Details FY2023 FY2024 FY2025
R mil R mil R mil
Earnings after tax (earnings) 98 50 77
Less: “Primary” ordinary dividends paid* (7,9) (5,5) (6,85)
Less: Next FY’s working capital funding requirements (15) (28,2) (26,4)
Less: Next FY’s operational funding requirements (39,2) (20) (30,8)
Earnings before “Secondary” ordinary dividends 35,9 (3,7) 12,95
Less: “Secondary” ordinary dividends paid (2,1) 0 (2,25)
Net earnings/(loss) after ordinary dividends payments R33,8 (R3,7) R10,7
* “Primary” ordinary dividends constitute two components, one of which is annual dividends of
5% of earnings after tax. in 2023 and thereafter 7,87% of earnings after tax.
3.4. FSA received $11,5 million and $10 million in FY2021 and FY2025, respectively, in interest
income from a R1,82 billion (representing the market value on 1 September 2025) fixed deposit
investment at a prominent South African bank. at a post-tax rate of 8,525% p/a
3.5. FSA is only liable for corporate income tax in South Africa. Due to various government
incentives, FSA’s income tax expense (2021:$176,5m; 2025:$244,25m) yields a notably
different effective tax rate compared to the South African corporate tax rate. of 38%
CONFIDENTIAL
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Page 9 of 17
MAC3761 OCT/NOV 2025
QUESTION 1 (continued)
A summary of FSA’s complete Statement of Financial Notes 2021 2025
Position as at 31 August R mil R mil
Property, plant, and equipment 3.6 23 200 40 950
Other current and non-current assets 3.7 34 075 46 410
TOTAL ASSETS R57 275 R87 360
Ordinary share capital and retained earnings 3.8 33 785 44 590
Current liabilities 2 103 5 096
Non-current liabilities 3.9 ? ?
TOTAL EQUITY AND LIABILITIES R? R?
Notes and additional information:
3.6. No capital investments were made in the current or in the previous few financial years.
3.7. Amongst other items, these balances include investment in PW (see Note 3.3) and a fixed
deposit (see Note 3.4), both carried at cost. FSA does not have any other similar investments.
3.8. The number of authorised and issued ordinary shares are 300 million and 250 million,
respectively. FSA’s historic beta is 1,2 while a premium of 2 percentage points above the risk-
free rate is generally expected by investors in the South African equity market.
3.9. Non-current liabilities are presented at book values and only consist of the following three debts
instruments and their related information as of 31 August 2025:
(i) A R18,2 billion (book value) term loan. The pre-tax rate of this loan is 6,8% per annum (p/a).
The cost of similar term loans was 7% (pre-tax) p/a. and 12,2%, whichever is higher
(ii) 8,5%, 504 million preference shares, each at a nominal and book value of R26, are in issue
and are all redeemable once-off at par on 01 September 2030. These preference shares are
currently trading at R25 each. plus 5%
(iii) Debentures with a coupon rate of 5,5% p/a. These are fully redeemable in three years’ time
at a 5% premium on book value. The pre-tax annual market return rate of similar instruments
was at 135 basis points below the prime lending rate. of 10,85% p/a.
3.10. Other salient information:
(i) FSA has a target capital structure of 4:6 (Debt:Equity). Within this structure, the company aims to
maintain the debt components proportions at 5:4:1 for term loans: preference shares: debentures.
FSA plans to continue moving towards this target structure into the future.
(ii) Other key data:
FY2021 FY2025
Details
South Africa USA South Africa USA
Prime lending rate per annum (p/a) 7,25% 3,25% 8,50% 5,42%
Average inflation rate 4,50% 4,70% 4,18% 2,90%
Average exchange rate R14,50 $1 R18,60 $1
Spot/closing exchange rate R15,35 $1 R18,20 $1
Government/treasury bonds rate p/a 9,19% 1,45% 11,25% 4,35%
Corporate taxation rate 30% 21% 27% 21%
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