MEMO – FIN3701 NOV 2019
+27 81 565 7602
, QUESTION 1
1.1
The capital budgeting process entails
▪ Proposal generation
▪ Review and analysis
▪ Decision making
▪ Implementation
▪ Follow up
1.2
Initial investment
Cost of new machine (2 500 000)
*After tax proceeds from old machine 288 000
Change in NWC -
2 212 000
*R400 000- 0 = R400 000
R400 000 x 0.28 =112 000
R400 000 -R112 000 =R288 000
Operating cashflow = EBIT(1-T) + depreciation
= 800 000 x (1-0.28) + 500 000
= R1 076 000
Discount rate = Wacc
Source Weight Cost Wacc
Long term debt 0.3 7.11 2.133
Preference shares 0.1 9.47 0.947
Ordinary shares 0.6 18.56 11.136
Total 14.216%
+27 81 565 7602
+27 81 565 7602
, QUESTION 1
1.1
The capital budgeting process entails
▪ Proposal generation
▪ Review and analysis
▪ Decision making
▪ Implementation
▪ Follow up
1.2
Initial investment
Cost of new machine (2 500 000)
*After tax proceeds from old machine 288 000
Change in NWC -
2 212 000
*R400 000- 0 = R400 000
R400 000 x 0.28 =112 000
R400 000 -R112 000 =R288 000
Operating cashflow = EBIT(1-T) + depreciation
= 800 000 x (1-0.28) + 500 000
= R1 076 000
Discount rate = Wacc
Source Weight Cost Wacc
Long term debt 0.3 7.11 2.133
Preference shares 0.1 9.47 0.947
Ordinary shares 0.6 18.56 11.136
Total 14.216%
+27 81 565 7602
