 |
FTP801S- FINANCIAL TECNIQUES FOR PROCUREMENT AND SUPPLY CHAIN MANAGEMENT- 2ND OPP- JULY 2024 |
|
|
1 Page 1 |
▲back to top |
nAmI BIA un IVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTYOF COMMERCE,HUMAN SCIENCESAND EDUCATION
DEPARTMENTOF MARKETING, LOGISTICSAND SPORTMANAGEMENT
QUALIFICATION: POST GRADUATE DIPLOMA IN PROCUREMENT MANAGEMENT
QUALIFICATION CODE: 08PDPM
COURSE CODE: FTP801 S
SESSION: MAY 2024
LEVEL:8
COURSE NAME: FINANCIAL TECHNIQUES FOR
PROCUREMENT AND SUPPLY CHAIN MANAGEMENT
PAPER: THEORY AND CALCULATIONS
DURATION: 3 HOURS
MARKS: 100
SECOND OPPORTUNITY FINAL ASSESSMENT QUESTION PAPER
EXAMINER
MR LAMECK ODADA
MODERATOR MR JOHANNES NDJULUWA
INSTRUCTIONS
1. This question paper consists of FOUR (4) questions.
2. Answer ALL FOUR (4) questions in blue or black ink only. NO PENCIL.
3. Start each question on a new page, number the answers correctly and clearly.
4. Write clearly, neatly and show all your workings/calculations/assumptions.
5. Unless otherwise stated, work with four (4) decimal places in all your calculations and
only round off final answers to two (2) decimal places.
6. Questions relating to this assessment may be raised in the initial 30 minutes after the
start of the examination. Thereafter, candidates must use their initiative to deal with any
perceived error or ambiguities and any assumptions made by the candidate should be
clearly stated.
PERMISSIBLEMATERIALS
• Silent, non-programmable calculators
THIS FINALASSESSMENTCONSISTSOF _9_ PAGES(including this cover page, not tables)
|
|
2 Page 2 |
▲back to top |
QUESTION 1
[30 MARKS]
For questions 1.1 - 1.15, write only the answer (the correct letter chosen) in your answer
book and not on the question paper. Do not copy the question again.
(2 marks each)
1.1 Which of the following is an example of a capital investment project?
A Replacement of worn out equipment
B. Expansion of production facilities
C. Development of employee training programs
D. All of these.
1.2 Which of the following is an appropriate way to measure cash flows?
A Treat depreciation as a negative cash flow
B. Consider only incremental costs and revenues
C. Consider only after-tax cash flows
D. All of these.
1.3 The net present value of a project is equal to
A The present value of all net cash flows that result from the project.
B. The present value of all revenues minus the present value of all costs that result from
the project.
C. The present value of all future net cash flows that result from the project minus the initial
investment required to start the project.
D. All of these.
1.4 The accounting rate of return is measured as follows:
A Average annual profit expressed as a percentage of the total funds invested in the
project.
B. Average annual profit expressed as a percentage of the average funds invested in the
project.
C. Total profits expressed as a percentage of the average funds invested in the project.
D. Total profits expressed as a percentage of the total funds invested in the project.
1.5 The objective of portfolio analysis is best described as:
A To analyse the individual risk of each investment project
B. To analyse the incremental risk that each individual investment contributes to the overall
risk
C. To reduce the overall risk of investments by investing in many rather than few
D. To eliminate risk completely
1.6 When calculating the expected value we are:
1
|
|
3 Page 3 |
▲back to top |
A. Looking at the most likely result that is going to occur
B. Looking at the average result likely to occur
C. Looking at the best result that can be expected
D. Looking at the worst result that can be expected
1.7 If we have a portfolio of two products whose results are perfectly negatively correlated, risk
will be minimised by investing :-
A. In the product that yields the highest expected value
B. In the product that has the lowest standard deviation
C. In both products equally
D. Risk can be minimised by
1.8 Which of the following statements concerning the NPV is not true?
A. The NPV technique takes account of the time value of money.
B. The NPV of a project is the sum of all the discounted cash flows associated with a
project.
C. The NPV technique takes account of all the cash flows associated with a project.
D. If two competing projects are being considered, the one expected to yield the lowest
NPV should be selected.
1.9 Which of the following statements concerning the payback period, is not true?
A. The payback period is simple to calculate and understand.
B. The payback period measures the time that a project will take to generate enough cash
flows to cover the initial investment.
C. The payback period ignores cash flows after the payback point has been reached.
D. It takes account of the time value of money.
1.10 The _____
describes the linear relationship between expected rates of return for
individual securities (or portfolios) and ____
_
A. characteristic line; standard deviation
B. characteristic line; beta
C. security market line; standard deviation
D. security market line; beta
1.11 Which of the following items describes an index measure of systematic risk?
A Beta.
B. Standard deviation.
C. Coefficient of variation.
D. Variance.
2
|
|
4 Page 4 |
▲back to top |
1.12 Which of the following items is a model that describes the relationship between risk and
expected return (in this model the expected return is equal to the risk-free return plus a
premium based on the systematic risk of the security)?
A. Beta.
8. Characteristic line.
C. Capital asset pricing model.
D. Efficient markets model.
1.13 This type of risk is avoidable through proper diversification.
A. portfolio risk
8. systematic risk
C. unsystematic risk
D. total risk
1.14 The term "capital structure" refers to:
A. long-term debt, preferred stock, and common stock equity.
B. current assets and current liabilities.
C. total assets minus liabilities.
D. shareholders' equity.
1.15 What is meant by the cost of capital of a company?
A. It is the equity shares of the company that will provide variable rates of dividend over a
set period.
B. It is a metric that is inversely proportional to the overall pile of debts.
C. It is the return on investment recorded against each fixed asset owned by the company.
D. Cost of capital of a company is a stat that represents the internal return rates.
(2 marks each, 2 x 15 = 30 marks)
3
|
|
5 Page 5 |
▲back to top |
QUESTION 2
[25 MARKS]
The Roads Authority (hereafter RA), whose core business is to construct and maintain
Namibia's road sector, plays a pivotal role in road safety in Namibia. Namibia's road network
has been ranked among the safest, most efficient, and sustainable, and is the envy of many
countries. The growth of the road infrastructure and the expansion of the road network have
contributed immensely to the economic development of Namibia and the SADC sub-region.
Assume that RA is looking to expand its interests by purchasing an interest in either company A
or company 8. The management of RA believes that the expected returns from the acquisition
of any of the companies are dependent on the state of the economy. The following information
is made available: The company uses five percent cost of capital.
Estimated Returns
State of economy
Probability of
Company Company MARKET
occurrence
A
B
Boom
0.3
16%
20%
14%
Recession
0.4
10%
12%
8%
Depression
0.3
2%
0%
6%
Market value in million
N$8m
N$12m
-
REQUIRED:
MARKS
a) Calculate the expected return together with the standard deviation for 12
both companies and the market
b) If RA is to select only one company to invest in, which one would you
3
advise RA to select? Motivate your answer with appropriate
calculations.
c) Determine expected return together with the standard deviation of the 10
portfolio, if RA invests in both companies to form a portfolio.
TOTAL
25
4
|
|
6 Page 6 |
▲back to top |
QUESTION 3
[25 MARKS]
Dineo Manufacturing and Supplies (hereafter OMS) is a 100% Namibian custom garment
manufacturer. The target audience of OMS is corporate companies, public services, and
schools and is not limited to local and international brands. Below are the summarized financial
statements of OMS for the year ended 31 December 2023.
DMS Statemen t off' mancI.a I posI"fI0n as of 31 Decem ber 2023
ASSETS
2023
Non-current assets
9 450 000
Property, plant, and equipment
9 450 000
Investments
-
Current assets
36 045 000
Inventories
20 925 000
Receivables
12 150 000
Cash assets
2 970 000
TOTAL ASSETS
45 495 000
EQUITY AND LIABILITIES
Share capital and reserves
16 335 000
Share capital
7 000 000
Other reserves
-250 000
Retained earnings
9 585 000
Redeemable -preference shares
2 700 000
Non-current liabilities: Long-term borrowings
7 425 000
Current liabilities
19 035 000
Trade and other payables
4 860 000
Short term borrowings
14 175 000
TOTAL EQUITY AND LIABILITIES
45 495 000
2022
8 640 000
8 640 000
-
29 632 500
14 850 000
9 990 000
4 792 500
38 272 500
15 120 000
7 000 000
-250 000
8 370 000
2 700 000
7 425 000
13 027 500
4 320 000
8 707 500
38 272 500
DMS Statement of compre hens1ve mcome for th e year ended 31 Decem ber 2023
2023
2022
Sales
85 320 000
74 250 000
Cost of sales
63 990 000
54 945 000
Gross profit
21 330 000
19 305 000
Operating expenses
12 636 000
11 070 000
Depreciation
810 000
675 000
Profit before interest and tax
7 884 000
7 560 000
Finance costs
2 430 000
1485000
Profit before tax
5 454 000
6 075 000
Income tax expense
2 430 000
2 160 000
Profit from continuing operations
3 024 000
3 915 000
loss on discontinued operations
1 080 000
-
Profit for the year
1 944 000
3 915 000
5
|
|
7 Page 7 |
▲back to top |
DMS Statement of chanQes in equity (extract) for the year ended 31 December 2023
2023
2022
Balance on 31 December
8 370 000
5 184 000
Comprehensive income for the vear
1 944 000
3 915 000
10 314 000
9 099 000
Dividends-preference shares
-324 000
-324 000
Dividends-ordinary shares
-405 000
-405 000
Balance on 31 December
9 585 000
8 370 000
REQUIRED
Compute the following liquidity ratios for 2022 and 2023 and comment
on the overall liquidity position of OMS.
a)
• Current ratio
• Quick ratio
• Debtors' collection period
• Creditors settlement period
Compute the debt ratio of OMS for 2022 and 2023 and comment on
b) your answer.
• Debt ratio
Compute the following profitability ratios for 2022 and 2023 and
comment on the overall profitability of OMS.
c) . • Gross profit margin
• Net profit margin
• Return on Assets
d) Explain any four (4) limitations offinancial statement/ratio analysis
MARKS
10
3
8
4
TOTAL
25
6
|
|
8 Page 8 |
▲back to top |
QUESTION 4
[20 MARKS]
Super Save needs to increase production capacity to meet the increasing demand for an
existing product, 'super' used in food processing. A new machine, with a useful life of four years
could be bought for N$1 million, payable immediately. The scrap value of the machine after four
years would be N$30 000. Forecast demand and production of super over the next four years
are as follows:
Year
1
2
3
4
Demand (kg)
1.4 million
1.5 million
1.6 million
1.7 million
The current selling price of super is N$8 per kilogram, and the variable cost of materials is N$5
per kilogram. Other variable costs of production are N$2.50 per kilogram. Fixed costs of
production associated with the new machine would be N$240 000 in the first year of production,
increasing by N$20 000 per year in each subsequent year of operation. Super Save uses a cost
of capital of 20% when appraising investment projects.
REQUIRED:
MARKS
Calculate the Net Present Value (NPV) of buying the new machine and advise on 20
the acceptability of the proposed purchase
TOTAL
20
END OF QUESTIONPAPER
7
|
|
9 Page 9 |
▲back to top |
Portfolio Expected Return
Portfolio standard deviation
FORMULASHEET
ERP= "i..WAX ERA+ Ws X ERs
O"Asv=W/xcr 2A+ Ws2Xcr2s+ 2xWAxWsXCOVAB
Beta (~)
Covariance of company with market)/variance of market
Cost of equity capital
Before tax cost of debt
Re= Rf+~ (Rm - Rf) and Re= [D1 +Po]+ g
kd= I + [Par value - Nd]/n + [Nd+ par value]/2
Frequency of compounding
FV= PV[l + (r/m)Jl•m
Effective Annual Rate
FV= PV[l + (r/m)]1•m
Payment
PMT=PV x r/[1-1/(1+r) 1]
Internal Rate of Return
Profitability Index
Profitability Index
Accounting Rate of Return
IRR= R1+ [N1x (R2-R1)]/N1+N2
Present value of future cash flows (excluding initial
NPV
1+
Initial investment
lnilial inveslmtml
.....
autlay)
Avernge
p[ofit
Average investment
Expected return (discrete distribution)
lP;XR;
Expected
distribution)
return
(continuous J.B.;
N
Standard
deviation
(discrete
distribution)
Standard
deviation
(continuous
distribution)
Covariance (discrete distribution)
/L[R;- E(R)]2x ( P;)
IL(&-=--E.(Ri
n
= Z:Pi [RA- E(RA)][Rs- E(Rs)]
Coefficient of variation
=
Expected return
Correlation coefficient
=
of tbe assets :l 2
0"1X 0"2
8