FIN3701 EXAM PACK 2023

FIN3701 FINANCIAL MANAGEMENT MAY/JUNE 2017 MEMO (Q1) 2 cost 1 000 000 Accumulated depreciation (20% x 1 000 000) x 3 (600 000) 400 000 (Q2) 2 proceeds 200 000 Book value (400 000) Loss (200 000) Tax benefit (29% x 200 000) 58 000 (Q3) 1 200 000 + 58 000 (Q4) 3 750 000+20 000 (Q5) 2 (Q6) 2 (Q7) 1 (Q8) 2 NPV = PI (initial investment)-initial investment (Q9) 2 (Q10) 1 (Q11) 1 discount rate= 6%+0.9(9-6) =8.7 NPV= 400 000{(1.0875 -1)/0.087(1.0875 )}-1 500 000 (Q12) 1 (Q13) 1 (Q14) 3 7-2.5 (Q15) 4 {5/90 + ((4/3.2)1/2-1)} x 100 (Q16) 3 (Q17) 1 2.52/(30-(2.5%x30)) (Q18) 1 (7%x 1000) + (1000-985.56)/20 (1000+985.56)/2 Multiply by 100 and then by (1-0.3) (Q19) 1 (Q20) 1 in units = 10 000/ (25-19) in value = 1000x25 Distribution of this document is illegal SECTION B (Q1) (1.1) capital structure A = 55% x 10 000 = 5 500 shares Capital structure B = 35% x 10 000 = 3 500 shares (1.2) Structure A Structure B Sales Fixed costs (270 000) (270 000) Variable costs (220 500) (220 500) Interest expense (25 025) (18 375) Profit before tax Tax @ 29% (33 342) (35 271) Profit for the year EPS 81 633/4500 86 354/6500 18.14 13.29 Calculations Interest expense Structure A = 13% (5500x35) Structure B = 15% (3500 x 35) (1.3) Structure A Component Contribution Weight After tax costs WACC Debt % 9.23 5.08 Equity % 51.83 23.32 28.4 Calculations After tax costs: debt 13% (1-0.29) Equity (18.4/35) x 100 Structure B Component Contribution Weight After tax costs WACC Debt % 10.65 3.73 Equity % 37.97 24.68 28.41 Calculations Downloaded by: salina18019 | Distribution of this document is illegal S - The study-notes marketplace After tax costs: debt = 15% (1-0.29) Equity (13.29/35) x 100 (Q2) (2.1) Sales in units Sales Variable costs (150 000) (175 000) Fixed costs (120 000) (120 000) EBIT Percentage change in EBIT= x 100 366 000 = 34.28% Percentage change in sales = x 100 636 000 = 23.66% DOL= 34.28/23.66 = 1.45 Calculations Sales in 2017 = 30 000 units x (20 x 1.06) Sales in 2018 = 35 000 units x (21.2x 1.06) round the price to 2 decimal places before multiplication (2.2) component costs of capital Component Weight After tax costs WACC Debt 25% 13.29 3.32 Preference shares 15% 10.96 1.64 Ordinary shares 60% 13.48 8.09 13.05 Calculations After tax costs of: debt = 180 + (1000-950)/20 (1000+950)/2 flotation costs are deducted to arrive at 950 Multiply by 100 and then by (1-0.29) Preference dividends = {8/ (80-7)} x 100 S - The study-notes marketplace Downloaded by: salina18019 | Distribution of this document is illegal S - The study-notes marketplace Ordinary dividends = 4/ (50-4.90) + {(3.72/2.97)1/5-1} multiply by 100 (2.3) DFL = 366 000 -((8000/ (1-0.29)) =1.44 It is assumed the company issued 1000 preference shares Breaking points: equity= 300 000/0.6 = 500 000 Debt= 400 000/0.25 = 1 600 000 S - The study-notes marketplace Downloaded by: salina18019 | Distribution of this document is illegal S - The study-notes marketplace FIN3701 FINANCIAL MANAGEMENT MAY/JUNE 2016 MEMO (Q1) 2 (Q2) 4 250 000 + 12 000 (Q3) 3 installed costs (300 000 + 10 000) 310 000 Terminal cash flow () (100 000) Increase In working capital (30 000) 70 000 280 000 (Q4) 3 installed costs 60 000 Terminal cash flow (26 400) Proceeds 24 000 Tax benefit () x 40% 2 400 33 600 (Q5) 1 3 years + {()/120 000} x 12 3 years 1 month (Q6) 1 (Q7) 4 (Q8) 3 proceeds 10 000 Book value (30 000) (15 000) Loss 5 000 Tax benefit (5 000 x 29%) 1450 (Q9) 3 Component of capital Weight After tax costs WACC Long-term debt 40% 6.5 2.6 Preference shares 10% 11 1.1 Ordinary shares 50% 15 7.5 11.2% (Q10) 4 10%x 100 100-2%x100 = (10/98) x 100 = 10.2% (Q11) 2 use the Gordon model Po = D1/ (ks-g) Ks = 7%+ 1.5(15-7) = 19% Po= 0.34/ (0.19-0.1) = 3.78 S - The study-notes marketplace Downloaded by: salina18019 | Distribution of this document is illegal S - The study-notes marketplace (Q12) 3 BP equity BP debt 300 000/0.6 150 000/0.4 (Q13) 4 (Q14) 2 (Q15) 3 4500/ (12-7) 7 is variable costs per unit, i.e. 7000/1000 900 (Q16) 4 80%/50% 1.6 (Q17) 2 200 000/ {-(4000/1-0.29)} = 1.4 (Q18) 3 1.4 x 1.6 =2.24 (Q19) /0.2 (Q20) 4 (Q21) 3 (Q22) 2 (Q223) 3 (Q24) 2 equity needed= 60% x 4 200 000 = 2 520 000 Dividend to paid 000 = 480 000 (Q25) 3 PART B (Q1) (Q1.1) initial investment Installed costs 30 000 Terminal cash flow of old machine (18 840) Proceeds 20 000 Tax () x 29% (liability) (1160) 11 160 (1.2) Operating cash flows of both machines S - The study-notes marketplace Downloaded by: salina18019 | Distribution of this document is illegal S - The study-notes marketplace Current machine new machine Sales Variable costs (10 400) (24 500) Fixed costs including depreciation (6 000) (14 000) Profit before tax Tax (1 276) (5 075) Profit for the year Depreciation Operating cash flows Calculations Depreciation: current machine-35 000/5 new machine- 30 000/5 (1.3) incremental 0perating cash flows = = 8301 (1.4) NPV= 8301[(1.15 )-1/ (0.1(1.15 )] – 11 160 = 20 307.32 (Q2) (2.1) number of shares to be issued Structure A Structure B Debt financing Shares to be purchased (140 000/35) (175 000/35) (2.2) EPS for each proposed A B Sales Variable costs (30% of sales) (159 000) (159 000) Fixed costs (251 000) (251 000) Interest expense (28 000) (31 500) Profit before tax Tax @29% (26 680) (25 665) S - The study-notes marketplace Downloaded by: salina18019 | Distribution of this document is illegal S - The study-notes marketplace Profit for the year EPS (65 320/6000) (62 835/5 000) 10.89 12.57 (2.3) Structure A Component of capital Contribution Weight After tax costs WACC Debt % 14.2 5.68 Equity % 31.11 18.67 24.35% Calculations After tax cost Debt= 20 %( 1-0.29) equity= (10.89/35) x 100 Structure B Component of capital Contribution Weight After tax cost WACC Debt % 12.78 6.39 Equity % 35.91 17.96 24.35 Calculations After tax cost of Debt= 18% (1-0.29) equity = (12.57/35) x 100 (2.4) EBIT (1-t) are the same on both projects. WACC is also the same, so any of the capital structure can be implemented. END!!!!!!!!!!!!!! S - The study-notes marketplace Downloaded by: salina18019 | Distribution of this document is illegal S - The study-notes marketplace FIN 3701 MAY/JUNE 2015 SECTION A 1. 2 EXPANSION 2. 1 THERE ARE USED FOR INVESTMENTAL OCF 3. 4 P1 =