 |
FTL821S - FINANCIAL TECHNIQUES OF LOGISTICS MANAGEMENT - 2ND OPP - JAN 2020 |
|
|
1 Pages 1-10 |
▲back to top |
|
|
1.1 Page 1 |
▲back to top |
afial aa 7:; fBeee ;
ffon ed
Riek
we
‘
vmBfadeeeess ajen e
SRua s jes }
j
.
NAMIBIA UNIVERSITY
OF SCIENCE AND TECHNOLOGY
FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF MARKETING AND LOGISTICS
QUALIFICATION: BACHELOR OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT
HONOURS
QUALIFICATION CODE: O8HLSCH
LEVEL: 8
CLOOGUIRSSTEI:CS FMINAANNACGIAELMETNETCHNOIPQERUAETSIONFSO.R | COURSE CODE: FIL 821S
SESSION: JANUARY 2020
PAPER: THEORY AND PRACTICAL
DURATION: 3 HOURS
MARKS: 100
SECOND OPPORTUNITY EXAMINATION
EXAMINER
Mr. T. Nakweenda (UNAM)
MODERATOR: | Mr. Johannes Ndjuluwa (UNAM)
QUESTION
PAPER
INSTRUCTIONS
Answer all questions.
Number your answers accordingly.
The use of PV and FV tables attached as appendix is permissible.
Round your answers to four decimal places wherever applicable.
THIS QUESTION PAPER CONSISTS OF 6 PAGES (Including this front page)
|
|
1.2 Page 2 |
▲back to top |
Question 1 (10 Marks, 18 Minutes)
REQUIRED:
1.1. | What is the primary role of a financial manager?
Briefly describe the nature of principal-agent relationship between the
1.2. | owners and managers of a corporation. Clearly explain how various
corporate governance mechanisms attempt to manage agency
problems.
TOTAL MARKS FOR QUESTION 1
MARKS
4
6
10
Question 2 (30 Marks, 54 Minutes)
This question is divided into two parts, namely: 2.1 and 2.2, which are independent of each
other. Under each part, try to answer the questions in the context in which they have been
asked. Be concise as much as possible.
2.1.
Suppose you have been provided with the following information which was extracted from
records of ABC Ltd.
Statement of Financial Statement
2018
2017
Share capital (par value N$ 2)
200 000
200 000
Retained earnings
510 000
490 000
Long term liabilities
424 000
250 000
Trade and other payables
66 000
60 000
Total equity and liabilities
1 200 000 | 1000 000
Non-current assets
Plant and equipment at cost
Accumulated depreciation
Net non-current assets
1 480 000 | 1 200 000
(560 000)
(500 000)
920 000
700 000
Current assets
|
|
1.3 Page 3 |
▲back to top |
Inventory
Trade and other receivables
Cash
Total current assets
Total Assets
150 000 | 150 000
120 000 | 100 000
10000 /| 50000
280 000
300 000
1 200 000 | 1 000 000
Statement of Comprehensive Income
Sales (40% cash sales)
Cost of sales
Gross profit
Operating expenses
Depreciation
Net profit before interest and taxes
Interest
Net profit before taxes
Taxes @ 30%
Net profit after tax
2018
2017
1 200 000 | 1 080 000
900 000
842 000
300 000
238 000
114 000
104 000
60 000
32 000
126 000
102 000
39 600
23 000
86 400
79 000
25 920
23 700
60 480
55 300
REQUIRED: Compute and comment on the following ratios for both years. | MARKS
2.1.1. | Total debt ratio
2
2.1.2. | Inventory turnover ratio
4
2.1.3. | Days sales in inventory
4
2.1.4. | Days sales in payables
4
2.1.5. | Net profit on sales
2
TOTAL MARKS FOR 2.1.
16
2.2.
|
|
1.4 Page 4 |
▲back to top |
Your uncle wants to start investing N$ 5 000 every year for the next five years of which he could
earn 10% interest per annum. He is currently not sure whether to invest at the end or beginning
of each year.
REQUIRED:
2.2.1. | Differentiate between an annuity due and ordinary annuity. Use the given
scenario to substantiate your answer.
2.2.2. | Which of the two options would you recommend to your uncle? Clearly
show the difference in benefits.
TOTAL MARKS FOR 2.2
TOTAL MARKS FOR QUESTION 2
MARKS
Z
12
14
30
Question 3 (25 Marks, 45 Minutes)
This question is divided into two parts, namely: 3.1 and 3.2, which are independent of each
other. Under each part, try to answer the questions in the context in which they have been
asked. Be concise as much as possible.
3.1. (10 Marks, 18 Minutes)
Ms. Pretty is contemplating to buy a share in one of the local equity brokers which has the
following features:
e Free risk rate
5%
e Market expected rate of return
16%
e Beta factor
1.1
REQUIRED:
3.1.1. | Using the Capital Asset Pricing Model (CAPM), what would be your
recommendation to Ms. Pretty?
Ms. Elna, a close ally of Ms. Pretty has this to say: My friend, if | were
you, | would only invest in that share if its market expected rate of return
3.1.2. | falls to 12% with a beta factor of 0.8. | expect the risk free rate to remain
the same — Ms. Elna narrates to her friend. What is your take on Ms.
TOTAL MElAnaR’KsSsenFtOiRmen3t.1s.? Clearly show all your workings.
MARKS
5
5
10
3.2. (15 Marks, 27 Minutes)
Company XYZ Ltd just paid a dividend of 60c per share. Shareholders demands a return of 12%
p.a. Growth for the next 3 years are expected to be 30% and after that growth will stabilize at
6% p.a.
REQUIRED: Clearly show all your workings.
MARKS
|
|
1.5 Page 5 |
▲back to top |
3.2.1. | Using the information above, determine the value of company XYZ Ltd
10
share today.
3.2.2. | Why do you think companies pay out dividends?
5
TOTAL MARKS FOR 3.2.
15
TOTAL MARKS FOR QUESTION 3
25
Question 4 (15 Marks, 27 Minutes)
Mr Oloman is the financial manager of Pick ‘n Pay Ltd (Pick ‘n Click), a subsidiary company of a
large food chain in Namibia. He is responsible for the acquisition of new companies for the
group and identified Food Lovers (Pty) Ltd (Food Lovers) as a potential acquisition.
Mr Oloman calculated the weighted average cost of capital to assist him in making his
acquisition decision of Food Lovers. Pick ‘n Pay has a target capital structure of 50% equity,
20% preference shares and 30% debentures.
The current market values of all sources of financing of Pick ‘n Pay are as follows:
Source of finance
Notes Market value (N$)
Equity
1
12 321 000
12% non-redeemable preference shares
2
1 596 000
8% redeemable debentures
3
5 897 000
Long-term loan
4
1 650 000
Bank overdraft
5
520 000
Notes:
te The company has authorised share capital of 500 000 ordinary shares of which 320 000
have been issued. A dividend of N$ 5.40 per ordinary share has just been paid and it is
expected that dividends will grow at 3% per year and that the growth will remain constant in
the future.
100 000 Preference shares are in issue. The current market related return on similar
preference shares is 10% before tax.
The company has 65 000 debentures in issue that are redeemable in 9 years at a premium
of 5%. Interest is payable annually. The interest rate of similar debentures is currently 9.5%
before tax.
The long-term loan is payable over 2 years in two equal instalments. The loan bears interest
at 14% per year and will not be renewed once it has been paid off.
|
|
1.6 Page 6 |
▲back to top |
5. The company has a bank overdraft that bears interest at prime + 4%. The bank overdraft is
only used if the company experiences cash flow problems.
6. The current tax rate applicable to Pick ‘n Pay is 28%. All other taxes can be ignored.
Mr Oloman made the following weighted average cost of capital calculation:
N$
Weight
Cost
Weighted cost
Equity*
12 321 000
56.05%
17.03%
9.54%
Preference shares
1 596 000
7.26%
10%
0.73%
Debentures
5 897 000
26.82%
9.5%
2.55%
Long-term loan*
1 650 000
7.51%
10.08%
0.76%
Bank overdraft
520 000
2.37%
13.25%
0.31%
21 984 000
13.89%
*Calculations:
Cost of equity
Ke = (R5.40/R38.50) + 0.03
= 17.03%
Cost of long-term loan
Kd = 14% x 72%
= 10.08%
REQUIRED: Clearly show all your workings:
4.1.
Advise Mr. Oloman on whether his calculation relating to the weighted
average cost of capital is correct. If not, provide reasons for your answer
as well as the correct calculations.
4.2.
Why do you think WACC is considered one of the useful indicators for
investment decisions?
TOTAL MARKS FOR QUESTION 4
MARKS
10
5
15
Question 5 (20 Marks, 36 Minutes)
Selma has just successfully completed her course in Logistics and Supply Chain Management
from NUST. As a way of putting her theory into practice, she is contemplating to come up with a
recreational centre in her area where residents could go to for recreational purposes. The
project would cost N$ 150 000 to implement, and it would have a useful life of five years with a
zero residual value. She would expect the project to generate after tax cash inflows of N$ 35
|
|
1.7 Page 7 |
▲back to top |
500 per annum for the first three years and N$ 32 000 per annum for the reminder years of its
useful life. Similar investments require an expected rate of return of 12% per annum.
REQUIRED:
5.1. | On the basis of Net Present Value (NPV), would it be sensible for Selma to
go ahead with her idea?
5.2. | Suppose you have further been provided with the following information:
applicable corporate tax rate is 30% and a residual value of N$ 20 O00.
Determine Selma’s Accounting Rate of Return (ARR). Clearly show all your
workings. It is Selma’s prerogative decision to only accept projects with a
minimum ARR of 65%. On the basis of ARR, should Selma go ahead with
her decision?
5.3. | With the help of your answers in 5.1 and 5.2, are there any conflicting
answers? If so, on the basis of the two techniques, which one would you
recommend to Selma and why?
TOTAL MARKS FOR QUESTION 5
MARKS
20
|
|
1.8 Page 8 |
▲back to top |
|
|
1.9 Page 9 |
▲back to top |
|
|
1.10 Page 10 |
▲back to top |
|
|
2 Pages 11-20 |
▲back to top |
