FIN3701 Assignment 2
(COMPLETE ANSWERS)
Semester 1 2025 (340720) -
DUE 24 April 2025
FOR ASSISTANCE CONTACT:
, FIN3701 Assignment 2 (COMPLETE
ANSWERS) Semester 1 2025 (340720) - DUE
24 April 2025
QUESTION 1 [20 marks] MathethePharm Ltd has
optimal capital structure weights of 40% debt and
60% equity. MathethePharm is in the 30% tax
bracket and is evaluating four independent
investment proposals. Project Initial investment (R)
Internal rate of return (IRR) (%) A 100 000 18 B 200
000 15 C 125 000 13 D 100 000 12
MathethePharm’s senior financial analyst has
gathered the following information:
MathethePharm can raise R160 000 through the
sale of a R1 000 par value, 8% annual coupon rate
and a ten-year debenture. The debenture will be
issued at 5% discount and R20 flotation cost per
debenture. Additional funds will be raised through
the bank loan with an after-tax cost of 10%. R425
000 is available through retained earnings.
Additional funds will be raised through the issue of
new ordinary shares. The company pays a regular
dividend of R10, has a growth rate of 3% and nets
R87.30 after flotation costs. The flotation costs are
calculated at 3% of the par value (R90) of a share.
KINDLY NOTE THAT THERE ARE TWO COMPULSORY
ASSIGNMENTS FOR THE SECOND SEMESTER. The
purpose of this assignment is to evaluate your
(COMPLETE ANSWERS)
Semester 1 2025 (340720) -
DUE 24 April 2025
FOR ASSISTANCE CONTACT:
, FIN3701 Assignment 2 (COMPLETE
ANSWERS) Semester 1 2025 (340720) - DUE
24 April 2025
QUESTION 1 [20 marks] MathethePharm Ltd has
optimal capital structure weights of 40% debt and
60% equity. MathethePharm is in the 30% tax
bracket and is evaluating four independent
investment proposals. Project Initial investment (R)
Internal rate of return (IRR) (%) A 100 000 18 B 200
000 15 C 125 000 13 D 100 000 12
MathethePharm’s senior financial analyst has
gathered the following information:
MathethePharm can raise R160 000 through the
sale of a R1 000 par value, 8% annual coupon rate
and a ten-year debenture. The debenture will be
issued at 5% discount and R20 flotation cost per
debenture. Additional funds will be raised through
the bank loan with an after-tax cost of 10%. R425
000 is available through retained earnings.
Additional funds will be raised through the issue of
new ordinary shares. The company pays a regular
dividend of R10, has a growth rate of 3% and nets
R87.30 after flotation costs. The flotation costs are
calculated at 3% of the par value (R90) of a share.
KINDLY NOTE THAT THERE ARE TWO COMPULSORY
ASSIGNMENTS FOR THE SECOND SEMESTER. The
purpose of this assignment is to evaluate your
