FIN3701 Assignment 1 Semester 2 2025 (100% Complete Answers)

FIN3701
ASSIGNMENT 1 SEMESTER 2 2025

UNIQUE NO.
DUE DATE: 14 AUGUST 2025

,Financial Management

QUESTION 1 — Machine replacement (8)

Given: Old machine cost R1,000,000 (bought 3 years ago), depreciated at 30% p.a.
reducing balance; can be sold now for R900,000. New machine costs R700,000 + install
R20,000 + transport R5,000. Working capital decreases by R8,000. Capital gains tax =
40%.

1.1 Book value after 3 years (reducing balance, 30%) BV 3

1,000,000 × ( 1 − 0.30 ) 3

1,000,000 × 0.7 3

𝑅 343,000 BV 3

=1,000,000×(1−0.30) 3 =1,000,000×0.7 3 =R343,000

Answer: R343,000

1.2 Tax on sale

Gain = Sale − Book value = 900,000 − 343,000 = R557,000 Tax (40%) = 0.40 ×
557,000 = R222,800

Answer: R222,800 payable

1.3 After-tax sale proceeds

= Sale − Tax = 900,000 − 222,800 = R677,200

Answer: R677,200

1.4 Initial investment (net initial outlay) Initial outlay

= Cost new + Install + Transport + Δ NWC − After-tax proceeds

= 700,000 + 20,000 + 5,000 − 8,000 − 677,200

= 𝑅 39,800 Initial outlay

, =Cost new

+Install+Transport+ΔNWC−After-tax proceeds =700,000+20,000+5,000−8,000−677,200
=R39,800

Answer: R39,800

QUESTION 2 — Choose between Projects X and Y (12)

Cost of capital 11%.

Project X: Invest 400,000; inflows (yrs 1–4) = 140,000; 165,000; 190,000; 190,000.

Project Y: Invest 525,000; inflows (yrs 1–6) = 175,000; 150,000; 125,000; 100,000;
80,000; 50,000.

NPV at 11% NPV 𝑋

− 400,000 + 140,000 1.11 + 165,000 1.11 2 + 190,000 1.11 3 + 190,000 1.11 4

𝑅 124,129.08 NPV X

=−400,000+ 1.11 140,000

1.11 2 165,000

1.11 3 190,000

1.11 4 190,000

=R124,129.08 NPV 𝑌

− 525,000 + 175,000 1.11 + 150,000 1.11 2 + 125,000 1.11 3 + 100,000 1.11 4 +
80,000 1.11 5 + 50,000 1.11 6

− 𝑅 14,118.81 NPV Y

=−525,000+ 1.11 175,000

1.11 2 150,000