 |
FAM601Y-FINANCIAL MANAGEMENT 200-1ST OPP-NOV 2024 |
|
|
1 Page 1 |
▲back to top |
Financial Management 200 (FAM601Y) November 2024 Assessment
nAm I BI A u n IVE RS ITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES & EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING & FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING (CHARTERED ACCOUNTANCY)
QUALIFICATION CODE: 07BACC
LEVEL: 6
COURSE CODE: FAM601Y
COURSE NAME: FINANCIAL MANAGEMENT 200
DATE: NOVEMBER 2024
DURATION: 3 HOURS 8 Minutes
COMPRISING:
READING TIME: 25 MINUTES
WRITING TIME: 2 HOURS & 43 MINUTES
PAPER: PRACTICAL AND THEORY
MARKS: 125
EXAMINER:
NOVEMBER 2024 ASSESSMENT QUESTION PAPER
Mr. S. Nghiwilepo
MODERATOR: Mr. H. Namwandi
INSTRUCTIONS
• This question paper is made up of five (5) questions.
• Answer All the questions in blue or black ink.
• Show all your workings in the answer sheet.
• Start each question on a new page in your answer booklet and show all your workings.
• Questions relating to this paper may be raised in the initial 30 minutes after the start of
the paper. Thereafter, candidates must use their initiative to deal with any perceived error
or ambiguities and any assumption made by the candidate should be clearly stated.
PERMISSIBLE MATERIALS
Non-programmable calculator/financial calculator
THIS QUESTION PAPER CONSISTS OF 6 PAGES (Including this front page)
1
|
|
2 Page 2 |
▲back to top |
Financial Management 200 (FAM601Y) November 2024 Assessment
QUESTION 1
PART A
[25 MARKS]
15 MARKS
You have just completed your studies and have started working in a company called
NX Investments (Pty) Ltd ("NX"). This company has been in operation for over 10 years in the
financial services industry.
NX is an asset management company. They currently manage R12 billion worth of investment
assets, with their clients being mainly government institutions and pension funds. The main
products of the company are listed global equity funds. NX has a main office in the business
hub of Sandton, Johannesburg. The company culture and ethos is about stakeholder
inclusivity and sustainability. This culture has formed a reputation that most industry players
admire and envy, which is why you feel elated to have been selected from all the students in
your graduation class, to join the company.
In your second year of work, the chief financial officer (CFO) was allocated as your mentor
and a part of that entails her providing you with exposure to some of her daily tasks and
responsibilities. She invited you to attend one of the executive committee meetings where the
other four executive directors were in attendance. The following decisions were proposed:
Investing decision
There is an opportunity for the company to grow its market share by buying another company
-Nazzare Investments (Pty) Ltd ("Nazzare"). The company is also in the financial services
industry, but is a smaller player and has a good management and operations team. The
negotiations are currently underway to determine whether the offer is well priced and if the
executive committee should go ahead with the acquisition. They have provided the expected
cash flows from the transaction below:
Purchase price/ Offer: R10 000 000
Discount rate: 6%
Expected cash inflows
Year1
R'OOO
1 000
Year 2
R'OOO
3 000
Year3
R'OOO
2 000
Year4
R'OOO
4 000
Years
R'OOO
5 000
Financing decision
The company needs to raise funding for the investments. Each director offers to loan the
company R2 000 000 their personal capacity in order to finance this investment and the terms
of the loans are as follows:
The loans are payable in annual instalments over a period of four years. The interest rate is
7% per annum (compounded annually). The directors suggested that the interest rate should
be lower than the market related rate as this is a related party transaction. The board decided
to reduce the rate from the beginning of year three to 5% per annum (compounded annually).
2
|
|
3 Page 3 |
▲back to top |
Financial Management 200 (FAM601Y) November 2024 Assessment
PARTS
10 MARKS
You decided it would be wise to invest a lump sum in a savings account so that when your
child (who has just been born) starts school, you want to receive annual payments of R30 000
for a period of 14 years. You decide it best to invest the money for three years before you start
receiving the R30 000 annual payments, which works as that is when you expect your child to
start school. The bank gives you a nominal rate of 6% per annum (compounded annually).
Source: NWU
Question 2
[35 MARKS]
You have recently joined MVP (Pty) Ltd as an assistant financial manager. MVP (Pty) Ltd is a
retail company selling electronic gadgets. The company has warehouses and retail stores in
all the major cities across South Africa, with the head office situated in Rustenburg, North
West. You have been asked by Mr Kero, the financial manager, to assist in the review of the
risk management processes of the company. With some research conducted by a reputable
external company, it was noted that competitors of MVP (Pty) Ltd in the industry have an
average degree of operating leverage of 1.9. Mr Kero had invited you to the previous board
meeting, and during the meeting, there was a debate about whether there is still goal
congruence in creating shareholder value within the company; one of the divisional managers
(Mr George) made the following comment:
"To create shareholder value, we need to cut costs where we can so the company can remain
profitable as increasing shareholder value is the same as increasing profits. We need to cut
our advertising costs and lay off some workers in our Secunda branch, as we have too many
there and cut back our corporate social funding we pay out to communities, because we are
not getting anything in return."
Mr Kero recently identified two potential companies that MVP (Pty) Ltd could invest in,
however, he is unsure about the decision he has to make. The following information of the
respective companies was gathered:
Expected return
Standard deviation
Revenue for the current vear
Laav (Pty) Ltd
12%
7,20%
R8 000 000
Otch (Pty) Ltd
15%
9,60%
R9 000 000
The following extract information for MVP (Pty) Ltd, for the current financial year, was also
presented to you:
MVP (Ptv) Ltd
Income and expenses
Revenue
Variable costs
Contribution
Fixed operatinq costs
Earnings before interest & taxation
Interest expense
Taxation expense
Profit for the year
R
800 000
(480 000)
320 000
(21 000)
299 000
(16 500)
(54 000)
228 500
3
|
|
4 Page 4 |
▲back to top |
Financial Management 200 (FAM601Y) November 2024 Assessment
Assets and liabilities
Land and buildings
Plant and equipment
Motor vehicles
Inventory
7% Lonq term loan
Account payables
R
12 000 000
5 200 000
1 200 540
210 000
(8 450 000)
(199 000)
QUESTION 3
[20 MARKS]
PART A
Reptron Limited sells small appliances to hardware stores. The financial manager is
considering changing the firm's credit policy in order to attract customers away from
competitors.
The current policy charges 2/15 net 30, and the new policy will charge 5/10 net 60. Currently,
20% of the customers take the discount by paying within 15 days after purchases and the rest
(excluding bad debts) pay within 30 days after purchases.
Under the new policy it is expected that 50% of customers will take the discount by paying
within 10 days and the rest (excluding bad debts) wil pay within 60 days. Bad debts comprise
4% of credit sales and it is expected to change to 2% under the new policy. It is also expected
that annual credit sales will increase from R400 000 to R500 000 as a result of the change in
credit policy.
The increased sales will also have an effect on the inventory level that Reptron is carrying.
The average inventory that Reptron is carrying, is based on determining a EOQ. Unit sales of
small appliances will increase from 16 000 to 20 000 units. The order cost of each order is
R100 and the annual carrying cost per unit is R2. The company does not carry any buffer
stock. Each unit in stock has an average cost of R15.
Cost of sales is equal to 60% of sales. The increase in accounts receivable has an opportunity
cost of 12%.
PARTS
A company is currently buying a specific item in order quantities of 1 250. The annual use of
this item is 6 250 units. Order costs are R200 per order, and carrying costs are R10 per unit per
year.
4
|
|
5 Page 5 |
▲back to top |
Financial Management 200 (FAM601Y) November 2024 Assessment
QUESTION 4
[20 MARKS]
Basics Ltd is a manufacturing company situated in the Kunene Region. The company
manufactures several products which pass through three manufacturing departments.
The company also has a service department that charges its costs to the production
departments in the following ratio:
o Machining 50%
o Assembly 30%
o Finishing 20%
You have been given the following information relating to the three manufacturing departments
and service department:
Value of Machinery (N$'000)
Floor area occupied (Square meters
Machine power consumption
Labour hours
Machine Hours
Machining
2 500
2 600
60%
100 000
250 000
Assembly
500
1 200
10%
200 000
60 000
Finishing
1 000
800
30%
60 000
180 000
Service
nil
400
nil
40 000
nil
Budgeted manufacturing and service department overheads:
Machine insurance
Machine depreciation
Factory rent
Municipal levies
General overheads
Indirect waQes and salaries
Total
N$
160 000
400 000
5 400 000
600 000
400 000
2 400 000
9 360 000
Service department costs: N$280 000
Direct manufacturing and service costs have been budgeted as follows:
MachininQ
Assembly
Finishing
Service
Total
N$
1 520 000
980 000
640 000
220 000
3 360 000
5
|
|
6 Page 6 |
▲back to top |
Financial Management 200 (FAM601Y) November 2024 Assessment
Actual Results for the period were as follows:
The actual direct and indirect overheads incurred by the company for the period under review
amounted to N$13 800 000.
Actual labour and machine hours for the three production departments were as follows:
Labour hours
Machine hours
Machining
120 000
280 000
Assembly
160 000
40 000
Finishing
80 000
160 000
QUESTION 5
[32 MARKS]
Pipes (Pty) Ltd manufactures plastic pipes and is in its fourth year of trading. Management
feels the time is right to consider changes in the business but doesn't want profits to decrease.
The marketing manager feels that the selling price would directly influence sales volumes and
that a properly structured marketing and advertising campaign should increase sales volumes.
Management just received the latest management accounts from the accountant and want to
use this as a base to do planning for 2025.
Actual statement of profit or loss for 2024:
Sales
Less: Cost of Sales
• Raw materials
• Other materials
• Labour
• Overheads
Gross Profit
Less: Administrative and selling costs
Profit before taxation
Taxation at 28%
Net profit after taxation
N$
14 400 000
3 600 000
23 143 000
8 000 000
N$
72 000 000
49 143 000
22 857 000
3 700 000
19 157 000
5 364 000
13 793 000
Only the costs of all materials and 70% of labour costs can be regarded as variable. As a
result of inflationary trends, it is expected that prices of all costs will rise by 7% on average in
2025.
During 2024, 450 000 units were sold. Production capacity can be readily extended without
incurring any further fixed costs. Assume a taxation rate of 28% in all years.
The End
6
|
|
7 Page 7 |
▲back to top |
FINANCIAL MANAGEMENT 200 (FAM601Y) NOVEMBER 2024 ASSESSMENT
nAmlBIA unlVERSITY
OF SCIEn CE Ano TECHn OLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES & EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING & FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING (CHARTERTED ACCOUNTANCY)
COURSE CODE: FAM601Y
DATE: NOVEMBER 2024
DURATION: 3 HOURS 8 MINUTES
COURSE NAME: FINANCIAL MANAGEMENT
200
PAPER: PRACTICAL AND THEORY
MARKS: 125
NOVEMBER 2024 ASSESSMENT REQUIRED
|
|
8 Page 8 |
▲back to top |
FINANCIAL MANAGEMENT 200 {FAM601Y) NOVEMBER 2024 ASSESSMENT
QUESTION 1
REQUIRED
[25 marks]
USE THE INFORMATION IN PART A ONLY TO ANSWER THE FOLLOWING
QUESTIONS
(a) Calculate the net present value of the investment opportunity of Nazzare
Investments.
Round off all amounts to the nearest R'000.
(b) Assuming that one director has paid the loan amount into the company
account already, what is the capital portion of the instalment repaid on his
loan at the end of the third year?
Round off all amounts to two decimal places.
(Use the amorlisation schedule)
Marks
(3)
(12)
REQUIRED
USE THE INFORMATION IN PART 8 ONLY TO ANSWER THE FOLLOWING
QUESTIONS
(c) How much should you invest today in order to be able to receive those
annual payments of R30 000 in the future?
(d) Assuming the annual payments would be received indefinitely and expected
to increase annually by inflation (5%) - what would the value be of those
annual payments when your child starts school?
Marks
(8)
(2)
|
|
9 Page 9 |
▲back to top |
FINANCIAL MANAGEMENT 200 (FAM601Y) NOVEMBER 2024 ASSESSMENT
QUESTION 2
[18 marks]
REQUIRED
(a) Calculate and interpret the following indicators for the current
financial year for MVP (Pty) Ltd:
Marks
i. Degree of Operating Leverage
(4)
ii. Degree of Financial Leverage
(2)
iii. Degree of Combined Leverage
(2)
(b) Based on risk and return principles, advise Mr Kero on which
investment should be undertaken between Laav (Pty) Ltd and Otch
(Pty) Ltd. Give reasons and show calculations (if any).
(4)
(c) Based on the main objective of financial management, comment on
the statement made by Mr George during the board meeting on
creating shareholder value.
(6)
QUESTION 3
Using the information in (Part a)
[20 marks]
a) Advise with relevant calculations whether or not the new cash (10)
discount policy should be implemented.
Using the information in (Part b)
b) Determine the economic order quantity.
(1)
c) Determine the amount of annual cost savings if they change from (5)
an order quantity of 1 250 units to the economic order quantity.
d) The supplier offers a discount of R0.70 per unit on the purchase (4)
price in quantities of 1 875 units or more. What do you
recommend?
TOTAL MARKS
(20)
|
|
10 Page 10 |
▲back to top |
FINANCIAL MANAGEMENT 200 {FAM601Y) NOVEMBER 2024 ASSESSMENT
QUESTION 4
[30 marks]
a) Prepare a schedule allocating all overheads to the production (22)
departments and determine the appropriate pre-determined
recovery rate for each department.
You are required to justify the recovery basis that you use for each
department.
b) Calculate the under or over recovery of overheads for the period (8)
under review and state how the company should make the
adjustments to the financial accounts.
TOTAL MARKS
(30)
QUESTION 5
[32 marks]
a) Calculate the break even sales units in 2025, assuming no changes (9)
in selling prices.
b) Calculate the break even sales units for 2025 if the selling prices (5)
also increase by 7%.
c) Determine at what unit selling price 2024 profits can be maintained (5)
in 2025, assuming a 5% increase in physical units sold, and the 7%
increase in costs as stated above.
d) Assuming that for every 1% increase in 2025 prices over 2024 there (5)
is a 1% fall on the 2024 unit sales, how many units will be sold if the
selling price determined in part c above is applicable, and what will
the profit or loss be at this level of turnover?
e) Taking the situation in part d above as a basis for the three levels of (7)
advertising set out below, comment on what should be spent to
restore profits to 2024 levels:
Advertising cost
Increase in unit sales
N$1 500 000
10%
N$2 000 000
15.5%
N$2 500 000
22%
Communication and clarity of expression
(1)
TOTAL MARKS
(32)