 |
MFN710S- MANAGERIAL FINANCE 320- 1ST OPP- NOV 2023 |
|
|
1 Page 1 |
▲back to top |
nAmlBIA UnlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FA CUL TY OF COMMERCE, HUMAN SCIENCES, AND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING, AND FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 07BOAC LEVEL:?
COURSE CODE: MFN710S
COURSE NAME: MANAGERIAL FINANCE 320
SESSION: NOVEMBER 2023
PAPER: THEORY AND CALCULATIONS
DURATION: 3 HOURS
MARKS: 100
EXAMINERS
MODERATOR:
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
Alina Gustav and Lameck Odada
Alfred Makosa
INSTRUCTIONS
1. This examination question paper consists of FOUR (4) questions
2. Answer ALL the 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, and neatly showing all your workings/assumptions.
5. Work with at least four (4) decimal places in all your calculations and round off only final
answers to two (2) decimal places.
6. Questions relating to this examination 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 errors or ambiguities and any assumptions made by the candidate should be
clearly stated.
PERMISSIBLE MATERIALS
1. Silent, non-programmable calculators
THIS QUESTION PAPER CONSISTS OF _6_ PAGES (excluding this front page)
|
|
2 Page 2 |
▲back to top |
QUESTION 1
[30 MARKS]
Namibia Country Lodges (hereafter NCL) is a truly Namibian hospitality company. They provide their
guests with unmatched experiences at unique properties with a true sense of place in the landscape.
Staying at one of their lodges is a once-in-a-lifetime experience that is grounded in genuine, warm
hospitality and a love of the land they come from. Developing a passionate and dedicated team is
foremost in their philosophy, as only a great team can provide their guests with a first-class
experience. They continually pursue excellence by enhancing our skills and evolving with the
hospitality and tourism industry of Namibia. NCL is looking to expand its hospitality and tourism
interest in Namibia by investing in two companies in the hospitality and tourism sector. NCLcan invest
400 000 Namibia dollars in one of the two companies or a portfolio of the two companies. The
following risk/return profiles have been provided.
Estimated Returns{%)
Economic State
Probability {%) SLM Safaris ATI Holidays
Market
Recession
30
2
25
-
Boom
50
10
22
-
Depression
20
12
-2
-
Expected return
-
-
12%
Standard deviation
-
-
6%
Covariance with the market
25.2
39.6
-
The risk-free rate is 3% per annum and there is no company or personal taxation.
REQUIRED
MARKS
Calculate the expected returns together with the risk of SLM Safaris and ATI
6
a)
Holidays.
If NCL is to select only one company to invest in, which one would you advise NCL
2
b)
to select? Motivate your answer with appropriate calculations.
Determine the expected return together with the risk of the portfolio, assuming
10
c) that NCL invests 160 000 Namibia dollars in SLM Safaris. Advise NCL on whether
to invest in the portfolio or not.
Calculate the required return for both companies according to the Capital Asset
10
d) Pricing Model (CAPM). Explain which of the two companies you would advise NCL
to invest in.
e) Identify and two (2) limitations of the Capital Asset Pricing Model (CAPM).
2
1
|
|
3 Page 3 |
▲back to top |
QUESTION 2
[25 MARKS]
Cleanergy Solutions Namibia, a joint venture between the Ohlthaver & List (O&L) Group and
CMB.TECH, announced the bricklaying of Africa's first public green hydrogen refuelling station. The
hydrogen production plant established in Walvis Bay, Namibia, uses solar energy for hydrogen
production onsite. This innovative facility will supply hydrogen to trucks, port equipment, and railway
applications. As an integral part of this project, a Hydrogen Academy will be established to educate
and train local individuals on hydrogen technology and its wide-ranging applications. The hydrogen
refuelling station is expected to be fully operational by mid-2024.
The Directors of Cleanergy Solutions Namibia have set out to calculate the Weighted Average Cost of
Capital (WACC) for the company. The assets of the company are currently financed as detailed below:
Cleanergy Solutions Namibia issued corporate bonds with a coupon rate of 8%. The face value is N$100
and the bonds are stated on the statement of financial position at its total par value of N$80m. The
bonds are currently trading at a price of N$94. Interest is payable annually in arrears. The maturity
date is in five years' time. Cleanergy Solutions Namibia has also issued variable loan finance of N$10m
at a current interest rate of 9% per year.
Cleanergy Solutions Namibia has 200 000 non-redeemable preference shares which were issued at a
price of N$100 each. Preference dividends are payable annually in arrears. The non-redeemable
preference shares are currently priced at N$106. The dividend rate is 7.8% and Cleanergy Solutions
Namibia has recently paid the preference dividends for the current year.
Cleanergy Solutions Namibia has an equity beta of 1.15 (based on a similar listed company after
making all necessary adjustments), and the risk-free rate is 6%. Cleanergy Solutions Namibia uses a
market premium of 6.5% as this is the average between 5-8% which is the range of the market risk
premium recommended by some analysts. The current share price is N$3.20 and Cleanergy Solutions
Namibia has 30 million ordinary shares in issue. The corporate tax rate is 30%
REQUIRED
MARKS
a) Explain the meaning of WACC in your own words
4
b) Calculate the market value of the bonds and the after-tax cost of debt
4
c) Calculate the market value and the cost of preference shares
3
d) Calculate the market value and the cost of equity using CAPM
3
Estimate the WACC for Cleanergy Solutions Namibia. Round off the weights to
6
e)
the nearest whole number
f) Identify any five (5) limitations of the Dividend Growth Model
5
2
|
|
4 Page 4 |
▲back to top |
QUESTION 3
[25 MARKS]
Financial analysis is the process of examining a company's performance in the context of its industry
and economic environment to arrive at a decision or recommendation. Often, the decisions and
recommendations addressed by financial analysts pertain to providing capital to companies.
Fundamental financial analysis starts with the information found in a company's financial reports. The
following information relating to the Airport Lodge has been made available to you.
Statement of comprehensive income (extract) for the year ended 30 June 2023
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Interest expense
Profit before tax
Taxation
Profit after tax
Dividends paid
N$
1200 000
(920 000)
280 000
(120 000)
160 000
(20 000)
140 000
(54 200)
85 800
40000
Statement of financial position as at 30 June 2023
Non-current assets
Property plant and equipment
Current assets
Inventory
Accounts receivable
Cash and cash equivalents
TOTAL ASSETS
Ordinary share capital (100 000 shares)
Retained earnings
Equity
Non-current liabilities
Long-term debt
Current liabilities
Accounts payable
Accrued expenses
EQUITY AND LIABILITIES
N$
540 000
164 000
68 200
44400
816 600
220 400
146 200
366 600
300 000
114 000
36 000
816 600
3
|
|
5 Page 5 |
▲back to top |
REQUIRED
a) Compute the five (5) profitability ratios of Airport Lodge.
MARKS
5
b) Calculate the two (2) key liquidity ratio of Airport Lodge.
2
c) Determine the cash conversion cycle of Airport Lodge.
4
Identify and explain the five (5) factors that credit managers should consider before
10
d)
granting a credit facility to a potential customer.
e) Identify and discuss any two (2) limitations of ratio analysis.
4
QUESTION 4
[20 MARKS]
The time value of money is a financial principle that states the value of a dollar today is worth more
than the value of a dollar in the future. This philosophy holds true because money today can be
invested and potentially grow into a larger amount in the future.
Work with whole numbers throughout your calculations
MARKS
Penda is a young Financial Director of a listed company. Although he enjoys his 10
work, he wants to retire at the age of 55 (in 30 years' time) and will require a
monthly income of N$20 000 for 10 years after retirement date. If the return he can
a)
obtain is 12% per annum with interest compounded monthly, how much should Mr
Miller contribute every month for the next 30 years to obtain an annuity of
N$20 000 per month for 10 years after the retirement date?
Amortization is an accounting technique used to periodically lower the book value
10
of a loan or an intangible asset over a set period. Concerning a loan, amortization
focuses on spreading out loan payments over time. You are about to take out a 30-
b) year fixed-rate mortgage. The terms of the loan specify an initial principal balance
of two million Namibia dollars and an effective annual rate of 6.75 percent.
Payments will be made monthly. Draw a loan amortization table for the fist six
months of the loan.
END OF EXAMINATION QUESTION PAPER
4