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    Test Financial Management

    Uploaded by

    Hafeni tulongeni Hamukoto

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    © All Rights Reserved
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    Test Financial Management

    Uploaded by

    Hafeni tulongeni Hamukoto
    10 views5 pages

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    Copyright:

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    10 views5 pages

    Test Financial Management

    Uploaded by

    Hafeni tulongeni Hamukoto

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    Faculty Economics and Management Sciences

    Department Namibia Business School


    Subject Financial Management Test
    Subject Code CBFM4829/ B5811BF
    Date 28 May 2024
    Duration 4 Hours Marks: 100

    Examiner: Hildebert NT Shisaande (University of Namibia)

    1. Please show your formulas and details of how you arrive at answers
    2. Leave all your answers to two decimals when necessary.
    3. You have 1 to 5 questions please choose the one best that give you 100
    marks. For example: 1(a), 2 (a), 2(b), 3(a), 3(c), 4(all) or 5(all).
    4. Do not split Question 4 and 5 if you choose whole of it.

    1
    Question:1 (30 marks)

    a) As business environment is evolving there are numerous issue (s) that affect
    business financial performances and management at large when striving to do
    away with ancient ways of doing things. Pick an organization of your choice that
    has been at worse edge. Highlight the issue(s) in specific that is being
    experienced and recommended way(s) forward?
    (15 marks)
    b) Indicate why agency problems exist between management and shareholders.
    What factors will ensure an alignment between the objectives of shareholders
    and management?
    (15 marks)

    Question 2. (15 Marks)


    a) Ms. Sema is planning to travel to Mauritius when his current savings of $ 10
    000.00 reach $ 20 000.00 if he is earning 7% per year compounded semi-
    annually on his savings how long will it take before him to have adequate funds
    to take your holiday? (3 marks)
    b) Helao a student at UNISA student borrowed $ 5 600.00 at the beginning of each
    year at 8% per annum compound interest. How much is owed at the end of the
    third year? (3 marks)
    c) How long will it take $ 20 000.00 to become $ 50 000.00 if an investment offers
    6% per year interest compounded annually? (3 marks)
    d) How much will you accumulate if you are offered the following investments,
    Option 1: $ 10 000 invested for 12 years at a simple interest rate compounded
    annually? Option 2: $ 12 000 invested at 6 years at an interest rate of 6%
    interest compounded quarterly per annum? (6 marks)

    Question 3. (45 Marks)

    a) Redrack Ltd operates in the retailer sector. The company has experienced
    tough trading conditions in the last year. The company’s net profit margin was
    3 % the company achieved an asset turnover of 1.7. The company’s debt -
    equity ratio is 40%. (15 marks)
    i) What is the company’s Return on Asset?
    ii) What is the company’s Return on Equity?
    iii) Assume the company increases its profit margin to 10 %and its asset
    turnover is expected to be 2.5 in the coming year. The company debt

    2
    equity ratio will be 66.67%. what will these changes have on the
    company’s ROE?

    b) Ms. Adda has purchased 100 000 shares in Coca-Cola Company at a share of
    $ 15 per share. The company has recently paid a dividend of $ 0.90 the current
    earnings per share is $1.25. The company is expected to achieve constant
    growth in earnings and dividends of 6% per year.

    i) What is the expected rate of return that shareholders expect to achieve?


    (4 marks)
    ii) What is the current dividend yield? (3 marks)
    iii) What is the company’s current Price Earnings (P/E) ratio? (3 marks)

    c) The following are details of Umklomelo ltd company at the end of the year 2020.
    The current liabilities include short-term interest-bearing debt of $ 10 million.
    The company has 10 million ordinary shares in issue and the current share
    price is $ 8.20.

    i) What is the company’s debt-to-equity ratio? (5 marks)


    ii) What is the company’s market capitalization? (5 marks)
    iii) What is the company’s current ratio? (5 marks)

    Question 4 (25 marks)

    The following are various states of economy presented by the team of economist
    analysts. Some of the possible states of the economy depend on factors such as the
    national debt, foreign investment prospects, and internal political factors. The financial
    manager of manufacturers of fashion wear teenagers has predicted the most likely
    return to shareholders.

    3
    State of the Economy Probability of state of Expected return
    Economy
    Boom 5% 40%
    Strong Economy 15% 20%
    Moderate Economy 60% 10%
    Recession 15% 0%
    Deep Recession 5% -10%

    a) Calculate the expected return for the portfolio (5 marks)


    b) Calculate the variance and standard deviation of the expected return.
    (15
    marks)
    c) Calculate the coefficient of variance (3 marks)
    d) Conclude what your answer(s) means to the shareholders. (2 marks)

    Question 5 (25 marks)

    The owner of Gate Farm in Outapi wants to invest in either one of the two irrigation
    machines, Machine A and Machine B. Due to the Donation option offered by USAID,
    the farm can only choose one machine. The policy of depreciating all the farming
    equipment is based on a straight-line method. After the usage of the machine, it will
    have any residual value.

    The following are cash flows expected from each machine

    Years Cash flows (A) Cash flows (B)


    0 investment (240 000) (90 000)
    1 $ 28,000.00 $ 40,000.00
    2 $ 38,000.00 $ 40,000.00
    3 $ 100,000.00 $ 30,000.00
    4 $ 200,000.00 $ 7,000.00

    Additional information

    ✓ NSS requires a minimum accounting rate of return of 25 % on all its investments

    4
    ✓ NSS applies a payback period of no more than 3.5 years
    ✓ Their after-tax cost of capital is 12%
    ✓ Applicable tax rate is 30 %

    2.1. Which project is more attractive if the payback rule is applied? (5 marks)
    2.2. Using the Accounting Rate of Return (ARR) test, which project is more viable? (8
    marks)

    2.3. Determine which project is more lucrative if the NPV rule is applied. (8
    marks)

    2.4. Using the calculations performed above, explain which of the project should be
    undertaken and why?
    (4 marks)

    The end!!!!!!!

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