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FAM601Y-FINANCIAL MANAGEMENT 200- 2ND OPP- JAN 2025 |
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Financial Management 200 (FAM601Y) January 2025 Assessment 2nd Opp
n Am I BI A u n IVER s I TY
OF SCIEnCE
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: FAM601 Y
COURSE NAME: FINANCIAL MANAGEMENT 200
DATE: JANUARY 2025
DURATION: 3 HOURS 8 Minutes
COMPRISING:
READING TIME: 25 MINUTES
WRITING TIME: 2 HOURS & 43 MINUTES
PAPER: PRACTICAL AND THEORY
MARKS: 125
EXAMINER:
JANUARY 2025 ASSESSMENT 2nd Opp QUESTION PAPER
Mr. S. Nghiwilepo
MODERATOR: Mr. H. Namwandi
INSTRUCTIONS
• This question paper is made up of four (4) 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 5 PAGES (Including this front page)
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Financial Management 200 (FAM601Y) January 2025 Assessment 2nd Opp
QUESTION 1
[34 MARKS]
Kaizer Ltd, established in 1994, is the leading manufacturer of spare parts that are used in the
industry. The company produces five products which are manufactured in three separate
production departments - Engine parts, Electric parts and Brake parts.
The products produced by Kaizer Ltd are supplied to the African retail motor market.
The Engine parts department and the Electric parts department are machine intensive while
the brake parts department is labour intensive. The company operates with two service
departments - Mnyama and Mhlophe.
The accountant has carried out an overhead cost allocation to the production and service
departments as follows:
Production departments
Engine parts
Electric parts
Brake parts
N$'000
66 000
50 000
32 000
Service departments
Mnyama
Mhlophe
Total
28 000
24 000
200 000
The service departments' costs are to be apportioned as follows:
Mnyama
Mhlophe
Production Departments
%
%
%
EnQine
Electric
Brake
30
30
20
40
20
20
Service department
%
%
Mnvama Mhlophe
-
20
20
-
Question 2
[37 MARKS]
Squash (Pty) Ltd (Squash) grows, processes, cans, and sells three main pineapple products:
o Sliced pineapple
o Crushed pineapple and
o Pineapple juice
The outside skin is cut off in the cutting department and processed as animal feed. The skin
is treated as a by- product.
Squash's production process is as follows:
1. Pineapples are first processed in the cutting department, where they are washed and
the outside skin is cut away. Then the pineapples are cored and trimmed for slicing.
The three main products (sliced, crushed, juice) and the by- product (animal feed) are
recognizable after processing in the cutting department. Each product is then
transferred to a separate department for final processing.
2. The trimmed pineapples are forwarded to the slicing department, where they are sliced
and canned. Any juice generated during the slicing process is packed in the cans with
the slices.
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Financial Management 200 (FAM601Y) January 2025 Assessment 2nd Opp
3. The pieces of pineapple trimmed from the fruit are diced and canned in the crushing
department. Again, the juice generated during this operation is packed in the can with
the crushed pineapple.
4. The core and surplus pineapple generated from the cutting department are pulverished
into a liquid in the juicing department. There is an evaporation loss equal to 8% of the
weight of the good output produced in this department. This loss occurs as the juices
are heated.
5. The outside skin is chopped into animal feed in the feed department.
Squash Ltd uses the net realisable value method to assign the costs of the joint process
to its main products. The by-product income I expenditure is charged to the joint product
costs.
A total of 310 000 kilograms (kg) of pineapple entered the cutting department during May.
The scheduled presented below shows the costs incurred in each department, the
proportion by weight transferred to the four final processing departments, and the selling
price of each end product.
Processing data and costs May 2024
Department
Cuttinq
Slicing
Crushinq
Juicing
Animal Feed
Total
Cost Incurred (N$)
900 000
70 500
158 700
48 750
10 500
N$1 188 450
Proportion
of
product by weight
transferred
to
departments
-
35%
28%
27%
10%
100%
Selling price per
kg of final product
-
N$9
N$8.25
N$4.50
N$1.50
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Financial Management 200 (FAM601Y) January 2025 Assessment 2nd Opp
QUESTION 3
[20 MARKS]
Kalkrand Meat (Pty) Ltd (KM) is a wholesale family butchery and deli, selling grain-fed beef,
chicken and pork to both wholesale and retail customers. For the past five years, the company
followed an aggressive working capital management policy. The company's forecasted end-
of-year financial outcomes if they continue with this type of policy follow:
N$'000
Debtors
7 800
Inventory
3 225
Cash
525
Non-current assets
21 750
Current liabilities
6 750
Sales
Operating costs
Operating profit
Earnings after tax
26 250
21 000
5 250
3 780
There are 2.5 million ordinary shares in issue, assume that the tax rate is 28%.
The company experienced a series of problems relating to the aggressive working capital
management policy and is considering an alternative approach to working capital
management.
If a more conservative policy is adopted, it is anticipated that the above forecast will change
as follows:
• Sales are expected to decrease with 3% while the operating profit and earnings after tax
are expected to increase by 5%.
• The change in working capital will be as follows:
Debtors - decrease of 35%
Inventory - increase of 15%
Current liabilities - decrease of 25%
Cash will increase to N$1 000 000
• The change in policy will have no effect on the non-current assets.
Source:NWU
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Financial Management 200 (FAM601Y) January 2025 Assessment 2nd Opp
QUESTION 4
[20 MARKS]
Wishbone (Pty) Ltd "Wishbone or the holding company" is a holding company with investments
in various industries. Its directors are currently considering several projects which will increase
the range of the business activities undertaken by Wishbone. The directors would like to use
discounted cash flow techniques in their evaluation of these projects, but as of yet, no
weighted average cost of capital has been calculated.
Wishbone has an authorized share capital of 10 million 25 cent ordinary shares, of which 8
million have been issued. The current ex div market price per ordinary share is R1.10, a
dividend of R0.10 per share having been paid recently. The company's project analyst has
established the following information:
1. The current long therm gilt yield is 12% per annum.
2. Wishbone's historic beta has been calculated at 1.5
3. The Johannesburg Stock Exchange market required return is 16%.
Extracts from the latest statement of financial position (SOFP) for both the group and the
holding company are given below:
Issued share capital
Share premium
Reserves
Total Equity
4% non-redeemable preference shares
10% non-redeemable debentures
12% bank loans
Overdraft
Total liabilities
Wishbone (Pty) Ltd
consolidated SOFP
R'000
3 000
500
7 400
10 900
2 800
3 600
3 200
800
10 400
Wishbone
(Pty) Ltd
R'000
3 000
500
900
4400
1 400
1 500
2 000
50
4 950
All debt interest is payable annually, and all the current year's payments will be made shortly.
The current market yield on preference shares and debentures is 8% and 14% respectively.
The 12% bank loans are not traded on the open market, but the analyst estimates that the
effective pre-tax cost is 2% above the overdraft rate (which is currently 14%). The loans are
repayable in 5years. The effective company tax rate is 50%.
The End
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Financial Management 200 (FAM601Y) January 2025 Assessment 2nd Opp
nAmI BI AunIVE RSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES & EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING & FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING (CHARTERTED ACCOUNTANCY)
COURSE CODE: FAM601Y
DATE: JANUARY 2025
DURATION: 3 HOURS 8 MINUTES
COURSE NAME: FINANCIAL MANAGEMENT
200
PAPER: PRACTICAL AND THEORY
MARKS: 125
JANUARY 2025 2nd Opp ASSESSMENT REQUIRED
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Financial Management 200 (FAM601Y) January 2025 Assessment 2nd Opp
QUESTION 4
[20 marksj
Required:
a) Calculate the weighted average cost of capital as required by the (14)
directors.
b) Outline the fundamental assumptions that are made whenever the (3)
weighted average cost of capital of a company is used as the
discount rate to evaluate investments in new projects.
c) Discuss what is meant by a "target WACC". How should a company (3)
decide on how to finance ah investment project that has a positive
Net Present Value (NPV)?
TOTAL MARKS FOR THE PAPER
(125)