MAC3702
EXAM PACK
EXAM REVISION PACK
2015
, LUCIANO SCHOOL OF LAW & SOCIAL SCIENCE [LSLSS]
“Inspired to impact with a difference”
Page |1
Contents
.................................................................................................. 4
......................................................................................................... 4
.......................................................................................................................... 5
Ratios ....................................................................................................................................................... 5
Profitability ratios ............................................................................................................................ 6
Liquidity ratios .................................................................................................................................. 9
Activity ratios (Efficiency Ratios) ................................................................................................ 10
Debt ratios (leveraging ratios) ..................................................................................................... 12
Market ratios.................................................................................................................................... 13
DEFINITION of 'DuPont Analysis' ..................................................................................................... 15
INVESTOPEDIA EXPLAINS 'DuPont Analysis'................................................................................. 15
Return, Risk and the Security Market Line - An Introduction to Risk and Return ................. 21
Return, Risk And The Security Market Line - Expected Return, Variance And Standard
Deviation Of A Portfolio ..................................................................................................................... 22
Systematic And Unsystematic Risk .................................................................................................. 42
Security Market Line And Beta Basics............................................................................................. 51
Chapter objectives .............................................................................................................................. 60
Structure of the chapter ..................................................................................................................... 60
Sources of funds .................................................................................................................................. 61
Ordinary (equity) shares ................................................................................................................... 61
Loan stock ............................................................................................................................................. 67
Retained earnings ............................................................................................................................... 70
Bank lending ........................................................................................................................................ 71
Leasing .................................................................................................................................................. 73
Hire purchase....................................................................................................................................... 77
Government assistance ...................................................................................................................... 78
Venture capital .................................................................................................................................... 78
Franchising ........................................................................................................................................... 80
www.lslss.co.za
, LUCIANO SCHOOL OF LAW & SOCIAL SCIENCE [LSLSS]
“Inspired to impact with a difference”
Page |2
Weighted Average Cost of Capital ........................................................................................................ 83
Formula ................................................................................................................................................. 83
Example................................................................................................................................................. 84
Uses of WACC........................................................................................................................................ 85
DEFINITION of 'Capital Budgeting' .................................................................................................. 85
INVESTOPEDIA EXPLAINS 'Capital Budgeting' .............................................................................. 86
Chapter objectives .............................................................................................................................. 89
Structure of the chapter ..................................................................................................................... 89
Capital budgeting versus current expenditures ........................................................................... 90
The classification of investment projects....................................................................................... 91
The economic evaluation of investment proposals...................................................................... 93
Net present value vs internal rate of return ................................................................................ 103
Allowing for inflation ....................................................................................................................... 123
Key terms ............................................................................................................................................ 130
Mergers and Acquisitions: Valuation Matters ................................................................................. 139
Mergers and Acquisitions: Why They Can Fail ................................................................................ 142
DEFINITION of 'Working Capital Management' .......................................................................... 145
INVESTOPEDIA EXPLAINS 'Working Capital Management' ...................................................... 146
Take control of your working capital management ................................................................... 146
DEFINITION of 'Cash Management'................................................................................................ 148
INVESTOPEDIA EXPLAINS 'Cash Management' ........................................................................... 149
Treasury Functions ............................................................................................................................... 149
TYPICAL EXAMINATION PAPER ................................................................................................................. 153
VARIOUS QUESTIONS ................................................................................................................................ 178
www.lslss.co.za
, LUCIANO SCHOOL OF LAW & SOCIAL SCIENCE [LSLSS]
“Inspired to impact with a difference”
Page |3
STUDY NOTES
www.lslss.co.za
EXAM PACK
EXAM REVISION PACK
2015
, LUCIANO SCHOOL OF LAW & SOCIAL SCIENCE [LSLSS]
“Inspired to impact with a difference”
Page |1
Contents
.................................................................................................. 4
......................................................................................................... 4
.......................................................................................................................... 5
Ratios ....................................................................................................................................................... 5
Profitability ratios ............................................................................................................................ 6
Liquidity ratios .................................................................................................................................. 9
Activity ratios (Efficiency Ratios) ................................................................................................ 10
Debt ratios (leveraging ratios) ..................................................................................................... 12
Market ratios.................................................................................................................................... 13
DEFINITION of 'DuPont Analysis' ..................................................................................................... 15
INVESTOPEDIA EXPLAINS 'DuPont Analysis'................................................................................. 15
Return, Risk and the Security Market Line - An Introduction to Risk and Return ................. 21
Return, Risk And The Security Market Line - Expected Return, Variance And Standard
Deviation Of A Portfolio ..................................................................................................................... 22
Systematic And Unsystematic Risk .................................................................................................. 42
Security Market Line And Beta Basics............................................................................................. 51
Chapter objectives .............................................................................................................................. 60
Structure of the chapter ..................................................................................................................... 60
Sources of funds .................................................................................................................................. 61
Ordinary (equity) shares ................................................................................................................... 61
Loan stock ............................................................................................................................................. 67
Retained earnings ............................................................................................................................... 70
Bank lending ........................................................................................................................................ 71
Leasing .................................................................................................................................................. 73
Hire purchase....................................................................................................................................... 77
Government assistance ...................................................................................................................... 78
Venture capital .................................................................................................................................... 78
Franchising ........................................................................................................................................... 80
www.lslss.co.za
, LUCIANO SCHOOL OF LAW & SOCIAL SCIENCE [LSLSS]
“Inspired to impact with a difference”
Page |2
Weighted Average Cost of Capital ........................................................................................................ 83
Formula ................................................................................................................................................. 83
Example................................................................................................................................................. 84
Uses of WACC........................................................................................................................................ 85
DEFINITION of 'Capital Budgeting' .................................................................................................. 85
INVESTOPEDIA EXPLAINS 'Capital Budgeting' .............................................................................. 86
Chapter objectives .............................................................................................................................. 89
Structure of the chapter ..................................................................................................................... 89
Capital budgeting versus current expenditures ........................................................................... 90
The classification of investment projects....................................................................................... 91
The economic evaluation of investment proposals...................................................................... 93
Net present value vs internal rate of return ................................................................................ 103
Allowing for inflation ....................................................................................................................... 123
Key terms ............................................................................................................................................ 130
Mergers and Acquisitions: Valuation Matters ................................................................................. 139
Mergers and Acquisitions: Why They Can Fail ................................................................................ 142
DEFINITION of 'Working Capital Management' .......................................................................... 145
INVESTOPEDIA EXPLAINS 'Working Capital Management' ...................................................... 146
Take control of your working capital management ................................................................... 146
DEFINITION of 'Cash Management'................................................................................................ 148
INVESTOPEDIA EXPLAINS 'Cash Management' ........................................................................... 149
Treasury Functions ............................................................................................................................... 149
TYPICAL EXAMINATION PAPER ................................................................................................................. 153
VARIOUS QUESTIONS ................................................................................................................................ 178
www.lslss.co.za
, LUCIANO SCHOOL OF LAW & SOCIAL SCIENCE [LSLSS]
“Inspired to impact with a difference”
Page |3
STUDY NOTES
www.lslss.co.za
