MNF2023/101/3/2011

IMPORTANT INFORMATION: READ THIS TUTORIAL LETTER FIRST. IT CONTAINS THE COMPULSORY ASSIGNMENTS. DEPARTMENT OF FINANCE AND RISK MANAGEMENT AND BANKING FINANCIAL MANAGEMENT MNF2023 Tutorial Letter 101/2011 Semesters 1 & 2 SCHEME OF WORK, STUDY RESOURCES AND ASSIGNMENTS Contents 1 2 3 4 5 6 7 A word of welcome Communication with your lecturers Student support system Study material How the assignment system works How the examination system works Suggested study programme

Appendix A Contact details Appendix B Prescribed material Appendix C Assignments Appendix D List of official booksellers Appendix E Study skills

MNF2023/101

A WORD OF WELCOME

We have pleasure in welcoming you to this module in Financial Management and hope that you will find it both interesting and rewarding. For our part, we will do our best to assist you with any academically related queries you may have. You will be well on your way to success if you start studying early in the semester/year and resolve to do the assignment(s) properly. You will receive a number of tutorial letters during the year. A tutorial letter is our way of communicating with you about teaching, learning and assessment. Please read all the tutorial letters you receive during the semester immediately and carefully, as they always contain important and, sometimes, urgent information. Tutorial Letter 101 (this one) contains important information about the scheme of work, resources and assignments for this module. We urge you to read it carefully and to keep it at hand when working through the study material, completing the assignments, preparing for the examination and directing questions to your lecturers. Please read Tutorial Letter 301 in combination with Tutorial Letter 101, as together they give you important information about studying via distance education through a particular college. This tutorial letter contains the assignments and assessment criteria, as well as instructions for completing and submitting the assignments. It also provides all the information you need with regard to the prescribed study material and other resources and how to obtain them. Please study this information carefully and make sure that you obtain the prescribed material as soon as possible. We have also included certain general and administrative information about this module. Please study this section of the tutorial letter carefully. 2 COMMUNICATION WITH YOUR LECTURERS

Refer to Appendix A for the contact details of the lecturer(s) for this module. Please note that all queries that are not of a purely administrative nature, but relate to the content of this module, should be directed to us. Please have your study material with you when you contact us. PLEASE NOTE You may contact your lecturers about academic matters only. Any other enquiries should be directed to the relevant administrative section. Follow the guidelines given in Tutorial Letter MNFALLJ/301/4/2011 in this regard. Letters to lecturers may NOT be enclosed with or inserted into assignments.

3 Communication with the university If you need to contact the university about matters not related to the content of this module, please consult the publication my Studies @ Unisa, which you received with your study material. This booklet contains information about how to contact the university (for example, whom to approach with various queries, important telephone and fax numbers, addresses and details of the times at which certain facilities are open). Always have your student number at hand when you contact the university. Please note that all administrative enquiries should be directed to the Unisa Contact Centre. Enquiries will then be channelled to the correct department. The details are as follows: Calls (RSA only) International calls Fax number (RSA) Fax number (international) E-mail Online address: 0861 670 411 +27 11 670 9000 012 429 4150 +27 12 429 4150 study-info@unisa.ac.za http://my.unisa.ac.za

MNF2023/101

STUDENT SUPPORT SYSTEM

For information about the various student support systems and services available at Unisa (for example, student counselling, tutorial classes, language support), please consult the publication my Studies @ Unisa. 3.1 Contact with fellow students

3.1.1 Study groups It is advisable to have contact with fellow students. One way to do this is to form study groups. The addresses of students in your area may be obtained from the following department: Directorate: Student Administration and Registration PO Box 392 Unisa 0003 Alternatively, please contact the Unisa Contact Centre at 0861 670 411.

4 3.1.2 MyUnisa

MNF2023/101

If you have access to a computer that is linked to the internet, you can quickly access resources and information at the university. If you do not have access to a computer, please contact the contact centre to enquire about using one at a Unisa computer centre. The myUnisa learning management system is Unisa's online campus, which will help you to communicate with your lecturers, with other students and with the administrative departments of Unisa all through the computer and the internet. To go to the myUnisa website, start at the main Unisa website, http://www.unisa.ac.za, and then click on the "Login to myUnisa" link on the right-hand side of the screen. This should take you to the myUnisa website. You can also go there directly by typing in http://my.unisa.ac.za. Please consult my Studies @ Unisa for more information about myUnisa. 3.2 Discussion classes

Consult Tutorial Letter 301 for information regarding discussion classes for this module. 4 4.1 STUDY MATERIAL Inventory letter

At the time of registration, you will have received an inventory letter telling you what you are to receive in your study package and indicating items that are still outstanding. Also see my Studies @ Unisa. Check the study material that you have received against the inventory letter. You should have received all the items listed in the inventory letter, unless any are marked "out of stock" or "not available". If any item is missing, follow the instructions on the back of the inventory letter without delay. PLEASE NOTE: Your lecturers cannot help you with missing study material. If you have access to the internet, you can view the study guides and tutorial letters for the modules for which you are registered on myUnisa at http://my.unisa.ac.za. If you do not have access to the internet, please contact the Unisa Contact Centre at 0861 670 411 (RSA only), or +27-11 670 9000 (international calls) (also see part 3 above). In addition to Tutorial Letters 101 and 301, you will also receive other tutorial letters during the semester. These tutorial letters will not necessarily be available at the time of registration. Tutorial letters will be despatched to you as soon as they are available or relevant (for instance, to give you feedback on assignments). 4.2 Prescribed textbook(s)

Refer to Appendix B for details of your prescribed material. Please consult the list of official booksellers and their addresses in my Studies @ Unisa. If you have any difficulties in obtaining books from these bookshops, please contact the Unisa Contact Centre at 0861 670 411 (RSA only), or +27 11 670 9000 (international calls).

5 Also refer to Appendix B for details regarding additional reading material for this module. 5 5.1 HOW THE ASSIGNMENT SYSTEM WORKS Assignments and learning

MNF2023/101

Assignments are seen as an integral part of the learning material for this module. As you do the assignment, study the reading texts, consult other resources, discuss work with fellow students or tutors or do research, you are actively engaged in learning. Paying attention to the assessment criteria for each assignment will help you to understand more clearly what is required of you. 5.2 General remarks

Information about assignments (e.g. whether or not the university has received your assignment or the date on which an assignment was returned to you) may be found on myUnisa. Alternatively, contact the Unisa Contact Centre at 0861 670 411 (RSA only), or +27-11 670 9000 (international calls) (also see part 3 above). Assignments should be addressed to: The Registrar PO Box 392 Unisa 0003 You may submit written assignments and assignments done on mark-reading sheets either electronically via myUnisa or by post. Assignments may not be submitted by fax or e-mail. For detailed information about assignments, see my Studies @ Unisa. To submit an assignment via myUnisa: Go to myUnisa Log in with your student number and password Select the module Click on Assignments in the left-hand menu Click on the assignment number you want to submit Follow the instructions on the screen

6 Compulsory assignments There are TWO compulsory assignments for this module, each consisting of 20 multiple-choice questions. There are nonnegotiable submission deadlines for each of these two assignments (see Appendix C) and you must submit the first of these assignments if you wish to gain admission to the examination. However, please note that both compulsory assignments contribute to your year mark, so it is important that you submit both of them. Self-evaluation assignment You will see that there is also a THIRD assignment, which has been set for self-evaluation purposes only. Do NOT submit this assignment to Unisa for marking. Instead, the solutions to this assignment have been provided in this tutorial letter directly following the questions. See Appendix C.

MNF2023/101

5.3

Commentaries and feedback on assignments

You will receive the correct answers to your assignment questions in Tutorial Letters 201 (for Assignment 01) and 202 (for Assignment 02). These tutorial letters will be sent to you after the due date of the assignment, and will also be available on myUnisa. The assignments and commentaries constitute an important part of your learning and should help you to be better prepared for the next assignment and the examination. The commentary on the self-evaluation assignment is included in this tutorial letter. This will enable you to mark your assignment as soon as you have completed it. 5.4 Submission dates

Refer to Appendix C for assignment questions and submission dates. 5.5 Year mark

Your year mark, based on the average mark obtained for the two compulsory assignments, contributes 10% towards your final mark, while your examination mark contributes 90%. The combined weighted average of your year mark and examination mark must be 50% or higher for you to pass the module/subject. However, you must obtain a minimum of 40% in the examination, regardless of your year mark. If you obtain less than 40% in the examination, your year mark will not be taken into account and you will fail.

7 For example: If you obtain the following: Mark for Assignment 01 = 60% Mark for Assignment 02 = 80% Average mark = 70% [(60% + 80%) / 2)] 10% of the assignment mark = 7% [(10%/100%) 70%] If you obtain an examination mark of 50%: 90% of the examination mark = 45% [(50%/100%) 90%] Final mark = (10% of the assignment mark) + (90% of the examination mark) = 7% + 45% = 52%

MNF2023/101

You will need a mark of at least 45% to qualify for a supplementary examination. Refer to Tutorial Letter 301 for more information. 6 HOW THE EXAMINATION SYSTEM WORKS

For general information about and requirements for assignments, see my Studies @ Unisa. 6.1 Examination admission

Examination admission will be granted to all students who submit the first compulsory assignment. Students who do not submit the assignment will NOT be allowed to write the examination. 6.2 Examination period

This module is offered on a semester basis, which means that there are two registrations each year. If you register at the start of the year (first semester registration), you will write the examination in May/June 2011, while the supplementary examination will be written in October/November 2011. If you register in the middle of the year (second semester registration), you will write the examination in October/November 2011, while the supplementary examination will be written in May/June 2012. During the year, the Examination Section will provide you with information regarding the examination in general, examination venues, examination dates and examination times. 6.3 Examination paper

The format of the examination paper for this module is as follows: 6.4 Section A is compulsory and is worth 50 marks. This section will consist of 50 multiple-choice questions. Section B consists of two compulsory questions worth a total of 20 marks.

Previous examination papers

See Appendix C of the study guide for a sample examination paper. We advise you, however, not to focus on past examination papers only, as the content of modules and, therefore, of examination papers changes from year to year. You may, however, accept that the type of questions that will be

MNF2023/101

asked in the examination will be similar to the questions asked in the activities in your study guide and in the assignments. 7 SUGGESTED STUDY PROGRAMME

Each student's circumstances are unique. Some students are studying part time, while others are studying full time; some students are registered for more modules per semester than others. Therefore, below you will find a proposed study programme. You should view this only as a guide to assist you in completing your studies on time. Follow it if you wish to utilise the 15 weeks available during a semester. We encourage you to interact and have discussions with fellow students registered for this module, either electronically, by e-mail, through contact sessions (where applicable) or through discussion forums on myUnisa. You will find these discussions very helpful. For students in South Africa, tutorial assistance is now available at the university's various regional centres. Contact the Unisa Contact Centre on 0861 670 411 for details about the tutorial classes closest to you. Lastly, do not hesitate to contact any of the lecturers responsible for this module by telephone or email should you encounter problems with your studies. Our contact details are contained in Appendix A. PROPOSED STUDY PROGRAMME FOR MNF2023 (FINANCIAL MANAGEMENT) Chapter 1 2 3 4 5 6 7 14 15 Topic Role and environment of managerial finance Financial statement analysis Cash flow and financial planning Time value for money Risk and return Interest rates and bond valuation Stock valuation Working capital and current asset management Current liabilities management Review and preparation for exams Study period (weeks) 1 2 1 2 1 1 1 2 2 2 Target date

We hope that you will enjoy this module and we wish you success with your studies. Mr JS Kasozi Department of Finance, Risk Management and Banking Unisa

9 Appendix A Contact details DEPARTMENTAL HELPDESK

MNF2023/101

The Department of Finance, Risk Management and Banking has created a helpdesk to assist students especially with queries of an academic nature. This helpdesk will, for example, assist you to contact the next available lecturer if the primary lecturer is unavailable. The numbers for the helpdesk are: 012 429 4949 and 012 429 6723 (in RSA) or +27 12 429 4949 and +27 12 429 6723 (internationally). The contact details of the lecturers for this module are given below: Mr AB Sibindi (Head of Module) Address: AJH 3-118 Telephone: 012 429 3757 Fax: 012 429 3552 Fax2Email: 086 569 8848 E-mail: sibinab@unisa.ac.za Dr MS Ngwenya Address: AJH 3-121 Telephone: 012 429 4937 Fax: +2712 429 3552 E-mail: ngwenms@unisa.ac.za Mr A Phenya Address: AJH 3-115 Telephone: 012 429 4493 Fax: +2712 429 3552 E-mail: phenyam@unisa.ac.za Mr A Bhema Address: AJH 3-90 Telephone: 012 429 4021 Fax: +2712 429 3552 E-mail: bimhaa@unisa.ac.za Mr SJ Kasozi Address: AJH 3-116 Telephone: 012 429 4684 Fax2Email: 086 569 8844 E-mail: kasozjs@unisa.ac.za Skype: kashogij1 Ms C Boonzaaier Address: AJH 3-119 Telephone: 012 429 2040 E-mail: cboonzaa@unisa.ac.za

10

MNF2023/101

Please note that you should contact your lecturers only if you have academic enquiries, that is, enquires about the content of the module. Administrative enquiries concerning fees, receipt of assignments, examination dates and so on should be directed to the relevant administrative departments via the contact centre at 086 167 0411. Appendix B Prescribed material The tutorial matter for this module is available in English and Afrikaans and consists of the following: ONE study guide and a number of tutorial letters (supplied by Unisa) ONE prescribed book (which you must obtain yourself)

The compulsory prescribed book for MNF2023 is: Gitman, LJ. 2009. Principles of managerial finance. 12th Edition. Boston: Addison Wesley. However, if you are already in possession of the 10th or 11th editions, these are also acceptable. When studying your prescribed material, take note of the following: The whole study guide is prescribed for examination purposes. Only the sections of the prescribed book referred to in the study guide are prescribed for examination purposes. Note that if the study guide instructs you to "study section 4 in your prescribed book", the whole of section 4 (including all subsections) is included, and may provide the basis for examination questions. The same applies to chapters in the prescribed book. Refer to Appendix D of this tutorial letter if you have any difficulties in acquiring any of the prescribed material. The use of a non-programmable financial calculator in the examination is permissible. The following calculator is recommended for this module: Hewlett Packard Financial HP10Bll

This calculator is available from stationers or FlatBrain and can be ordered from www.flatbrain.co.za. Please note that other non-programmable financial calculators, such as the Sharp EL 733 and Sharp EL 735, are also acceptable. However, we encourage you to familiarise yourself with their applications. We no longer recommend the Sharp EL 738 calculator, because several students struggle to master its applications. However, some students have successfully worked with it by using either the calculator manual or getting assistance from fellow students. We advise students who

11

MNF2023/101

obtain it to follow the same approach. The lecturers of this module will not be able to assist you with the applications of this calculator and you are advised to obtain and work through its manual in order to master these applications. A manual for this calculator is now available on myUnisa under "Additional resources". Appendix C Assignments As already mentioned, there are three assignments for this module. The first two assignments (the multiple-choice assignments) are compulsory, and must be submitted. Refer to section 5 of this tutorial letter for information about the submission of assignments. The third assignment is a self-evaluation assignment and must not be submitted to the university.

12

MNF2023/101

NOTE: THE FOLLOWING ASSIGNMENTS (UNIQUE NUMBERS 849318 AND 882217) ARE TO BE COMPLETED BY STUDENTS REGISTERED DURING THE FIRST SEMESTER ONLY. SECONDSEMESTER STUDENTS SHOULD REFER TO PAGE 24. Assignment 01 COMPULSORY (First semester only) When completing the mark-reading sheet or submitting this assignment via myUnisa, be sure to use the correct unique number as detailed below: First registration Due date 14-03-2011 Unique number 849318

This assignment consists of 20 multiple-choice questions. You will need to study chapters 1 to 7 in your prescribed textbook to successfully complete this assignment. The following information is available for Jade Ltd. Use this information to answer questions 1 to 6: Sales Inventory turnover Total assets turnover Earnings available for ordinary shareholders Ordinary shares equity Book value of shares Number of days in a year QUESTION 1 Suppose the net profit margin of Jade Ltd declines, but the CEO plans to maintain the company's return on shareholder's equity. He must therefore... 1 2 3 4 increase the firm's utilisation of assets. reduce the amount of debt in the firm's capital structure. increase the firm's total assets. increase the firm's total shareholder's equity. R5 000 000 3,20 0, 85 R900 000 R2 500 000 R5 365

QUESTION 2 The average age of inventory (AAI) of a rival company is 90 days. The AAI of Jade Ltd indicates that it 1 2 3 4 has a higher average number of days' sales in inventory than the rival company. has a lower average number of days' sales in inventory than the rival company. is more effective in utilising its inventory to generate sales. turns over its inventory faster than the rival company.

13 QUESTION 3

MNF2023/101

Assuming that the total liabilities for Jade Ltd are R3 500 000 and that the industry average for the debt ratio is 50%, the current debt ratio for Jade Ltd indicates that it has 1 2 3 4 a lower risk of becoming bankrupt compared with the firms in its industry. a higher risk of becoming bankrupt compared with the firms in its industry. half of its assets financed by debt. a lower proportion of lenders' funds that are being used to generate profits compared with the firms in its industry.

QUESTION 4 The return on investment (ROI) for Jade Ltd for the previous year was 10%. Its current ROI indicates that 1 2 3 4 Jade Ltd earned 10 cents on each rand of asset investment. the effectiveness of management in generating profits with the firm's available assets has deteriorated. the effectiveness of management in generating profits with the firm's available assets has improved. the effectiveness of management in generating profits with the firm's available assets has remained the same.

QUESTION 5 The price/earnings (P/E) ratio for Jade Ltd is currently 15. Given this value, their ordinary share will be selling at... 1 2 3 4 R23,52. R23,92. R25,92. R27,00.

QUESTION 6 Jade Ltd is expecting to pay a dividend of 50c per share and the return on treasury bills is 7%. Dividends are expected to grow at 6%. The return on the JSE All Share Index is currently 14%. A financial analyst has just revised the beta estimate to 0,9, owing to the recent stability of the returns for the company. The market/book value (M/B) ratio for Kukaya Holdings, a rival company in the industry, is currently 1, 2. Based on these facts, it would be correct to conclude that 1 2 3 4 investors are currently paying R1,20 for each R1,00 of book value of Jade Ltd. investors are willing to pay R1,40 less than the book value for Kukaya Holdings as compared with Jade Ltd. investors are willing to pay more than the book value for Kukaya Holdings as compared with Jade Ltd. from an investor's point of view, Jade Ltd has a more attractive outlook than Kukaya Holdings.

14 QUESTION 7

MNF2023/101

A firm has bills payable of R1 546 000, long-term debt of R13 000 000 and total interest expense of R1 300 000. If the firm pays 8% interest on its long-term debt, what rate does the firm pay on its notes payable? 1 2 3 4 8, 2% 13, 1% 16, 8% 18, 0%

QUESTION 8 A firm had year-end 2009 and 2010 retained earnings of R670 000 and R560 000 respectively. The firm reported net profits after tax of R100 000 in 2009. The firm paid dividends in 2009 of... 1 2 3 4 R 10 000. R100 000. R110 000. R210 000.

QUESTION 9 A firm has just ended the calendar year by selling R150 000 worth of merchandise that was purchased during the year at a cost of R112 500. Although the firm paid in full for the merchandise during the year, it has yet to collect on the sale at the end of the year. The net profit and cash flow for the year are... 1 2 3 4 R 0 and R150 000 respectively. R 37 500 and R150 000 respectively. R 37 500 and R112 500 respectively. R150 000 and R112 500 respectively.

QUESTION 10 Asset Y has a beta of 1,2. The risk-free rate of return is 6%, while the return on the market portfolio of assets is 12%. The asset's market risk premium is... 1 2 3 4 6, 00%. 7, 20%. 10, 00%. 13, 20%.

Use the following information to answer questions 11 to 15. Matthew plans to purchase a boat at the end of six years. He intends to hire it out immediately afterwards to a fishing company that will pay him R60 000 at the end of every year up to the end of the lease agreement, which is the end of the tenth year. Matthew further estimates that the boat will have a market value of R4 000 000 at the end of year six. The annual interest rates for the first six years are assumed constant at 16%. Thereafter, the annual interest rates are expected to increase to 18% up to the end of year ten.

15 QUESTION 11

MNF2023/101

Approximately how much should Matthew deposit at the end of every three months in order to purchase the boat? 1 2 3 4 R 88 991,64 R 102 347,33 R 102 825,25 R1 560 485,90

QUESTION 12 Matthew plans to deposit the proceeds from the hire of the boat immediately after receiving them. How much will he have in his account at the end of the tenth year? 1 2 3 4 R 312 925,92 R 357 710,69 R 429 252,59 R1 882 285,37

QUESTION 13 How much will Matthew have at the end of year ten if he deposits the cash inflows received from hiring out the boat at the beginning of every year? 1 2 3 4 R 312 925,92 R 357 710,69 R 369 252,58 R1 966 988,21

QUESTION 14 How much would the cash inflows received from hiring out the boat be worth today? 1 2 3 4 R66 248,95 R73 632,00 R74 444,22 R75 630,26

16 QUESTION 15

MNF2023/101

Estimate the total amount Matthew will have at the end of year ten if he decides to do the following: deposit R120 000 at the end of every quarter in order to purchase the boat for the same amount at the end of year six. spend R150 000 at the end of year six to renovate the boat deposit the balance back into the account at the end of year six; the money remains in the account up to the end of year ten. Your answer should include the total amount at the end of year ten, assuming that the proceeds from the hire of the boat are also received and deposited into the same account at the end of every year. 1 2 3 4 R 406 781,31 R1 326 277,10 R1 359 696,25 R1 362 277,10

QUESTION 16 Which of the following statements is correct? 1 An investor can eliminate all market risk if he or she holds a very large and well diversified portfolio of shares. 2 The higher the correlation between the shares in a portfolio, the lower the risk inherent in that portfolio. 3 It is impossible to have a situation where the market risk of a single share is less than that of a portfolio that includes the share. 4 An investor can eliminate all unsystematic risk if he or she holds a very large, well diversified portfolio of shares. QUESTION 17 An investment banker has recommended a R100 000 portfolio containing shares B, D and F. R20 000 will be invested in share B, with a beta of 1, 5; R50 000 will be invested in share D, with a beta 2,0; and the rest will be invested in share F, with a beta of 0,5. The beta of the portfolio is... 1 2 3 4 1,25 1,33 1,45 1,60

QUESTION 18 The current price of a 10-year, R1 000 par value debenture is R1 158, 91. Interest on this debenture is paid every six months and the simple annual yield is 14%. Given these facts, what is the annual coupon rate? 1 2 3 4 10% 12% 14% 17%

17 QUESTION 19

MNF2023/101

Tangshan's shares are currently selling for R160 per share and the firm's dividends are expected to grow at 5% indefinitely. Their most recent dividend was R5,50. If the expected risk-free rate of return is 3%, the expected market return is 8% and Tangshan has a beta of 1, 2, their share will be... 1 2 3 4 properly valued. overvalued. undervalued. Not enough information to tell

QUESTION 20 In October, a firm had an ending cash balance of R35 000. In November, the firm had a net cash flow of R40 000. The minimum cash balance required by the firm is R25 000. At the end of November, the firm had... 1 2 3 4 an excess cash balance of R75 000. an excess cash balance of R50 000. a required total financing of R15 000. a required total financing of R5 000.

18 Assignment 02 COMPULSORY (First semester only)

MNF2023/101

When submitting this assignment via myUnisa or completing the mark-reading sheet, be sure to use the correct unique number as detailed below: First registration Due date 11-04-2011 Unique number 882217

This assignment consists of 20 multiple-choice questions. You will need to study chapters 1 to 7, 14 and 15 in your prescribed textbook to successfully complete this assignment. QUESTION 1 Bond Corporation issued a R1 000 par value bond bearing a coupon rate of 16% and paying coupons semi-annually. This bond has three years remaining to maturity, and is currently priced at R940 per bond. What is the annual yield to maturity (YTM)? 1 2 3 4 13.99% 14.54% 17.66% 18.70%

QUESTION 2 James can buy a listed share at R45 today. He expects to receive dividends on this share of R3 in year one and R5 in year two. He plans to sell the share for R58 in two years. How much would James pay for this share today if his opportunity cost is 18%? 1 2 3 4 R47,78 R48,90 R56,22 R69,00

QUESTION 3 At the end of 2007, Heaton Industries reported retained earnings of R675 000 and had R172 500 worth of net income during the year. The previous year the company had reported R555 000 in retained earnings. If the company purchased no shares during 2007, how much in dividends did it pay during 2007? 1 2 3 4 R47 381 R49 875 R52 500 R55 125

19 QUESTION 4

MNF2023/101

Find the future value at the end of year three of the following stream of cash flows received at the end of each year, assuming the firm can earn 8% on its investments. Year 1 2 3 1 2 3 4 Amount R10 000 R16 000 R19 000 R45 000 R47 940 R51 776 R56 690

QUESTION 5 Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the cash discount, assuming payment is made on the last day of the credit period, would be ..., while if the firm were able to stretch its accounts payable to 60 days without damaging its credit rating this cost would be...(assume 360 days in a year). 1 2 3 4 72.99%; 18.81% 72.99%; 18.25% 74.22%; 24.74% 75.25%; 25.08%

QUESTION 6 An asset has a beta of 1, 1 and a standard deviation () of 5, 5%. Investors have assigned a 50% probability to an expected return of 18% and a 50% probability to an expected return of 6%. The coefficient of variation (CV) is closest to... 1 2 3 4 0, 46%. 2, 69%. 26, 94%. 45, 83%.

Use the following information to answer questions 7 to 9. Woolnet Industries is preparing a cash budget for the months of October, November and December. Sales in August and September were R50 000 and R60 000 respectively. Sales of R50 000, R30 000 and R70 000 have been forecast for the months of October, November and December respectively. 60% of the firm's sales are for cash, and it is envisaged that 25% will be collected after one month and 10% after two months. Bad debts account for 5% of sales and a dividend income of R5 000 is expected in November. The firm's purchases represent 70% of sales. Out of this amount, 60% is paid in cash immediately, 30% is paid in the following month and 10% is paid two months later. The fixed salary cost is R6 000 per month.

20 Depreciation accounts for R1 500 per month. The beginning cash balance for October is R5 000. A minimum cash balance of R15 000 is required every month. Question 7 The total cash receipts for October, November and December are 1 2 3 4 R52 500, R43 000 and R58 000. R52 500, R38 000 and R58 000. R50 000, R36 500 and R54 500. R50 000, R41 500 and R54 500.

MNF2023/101

QUESTION 8 The total cash disbursements for October, November and December are 1 2 3 4 R43 100, R33 300 and R45 200. R79 400, R48 600 and R97 600. R35 000, R21 000 and R49 000. R44 400, R36 000 and R48 600.

QUESTION 9 The required financing for the month of Oktober is 1 2 3 4 R 1 400. R 3 100. R 8 600. R15 000.

QUESTION 10 Merlot proposes an investment of R650 today and expects it to accumulate to R734 in one year's time. Calculate the most accurate effective annual rate of return on the investment if the interest is compounded semi-annually. 1 2 3 4 9.10% 12.53% 12.78% 14.10%

QUESTION 11 Firms generally choose to finance their seasonal financing requirements with short-term debt because... 1 2 3 4 the sales remain constant over the year, and the financing requirements also remain constant. matching the maturities of assets and liabilities reduces risk. short-term interest rates are traditionally more stable than long-term interest rates. firms that borrow heavily on a long-term basis are more unlikely to repay the debt than those that borrow short-term.

21 QUESTION 12

MNF2023/101

Other things held constant, which one of the following will cause an increase in the net working capital? 1 2 3 4 Cash is used to buy marketable securities. A cash dividend is declared and paid. Merchandise is sold at a profit, but the sale is on credit. Missing inventory is written off against retained earnings.

Use the following information to answer questions 13 to 16. Bob's Surfboards is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 20% from 300 surfboards per year to 360 surfboards per year. The average collection period is expected to increase to 40 days from 30 days, and bad debts are expected to double the current 1% level. The price per surfboard is R900 and the variable cost per surfboard is R700. The firm's required rate of return on investment is 20%. (Assume a 360-day year.) QUESTION 13 What is the firm's additional profit contribution from sales under the proposed relaxation of credit standards? 1 2 3 4 R 9 000 R 9 750 R10 500 R12 000

QUESTION 14 What is the cost of marginal investments in accounts receivable under the proposed plan? 1 2 3 4 - R2 100 +R2 100 - R2 333 +R2 867

QUESTION 15 What is the cost of marginal bad debts under the proposed plan? 1 2 3 4 - R3 600 - R3 780 +R3 780 +R5 100

22 QUESTION 16 What is the net result of implementing the proposed plan? 1 2 3 4 R2 083 +R2 083 R6 120 +R6 120

MNF2023/101

QUESTION 17 A lockbox plan is... 1 2 3 4 used for safe-keeping cash and marketable securities. used to identify inventory safety stocks. used to slow down the collection of checks a firm writes. used to speed up the collection of checks received.

QUESTION 18 Tangshan Mining borrowed R100 000 for one year under a line of credit with a stated interest rate 7, 5% and a 15% compensating balance. Based on this information, the effective annual interest on the loan is... 1 2 3 4 7,2%. 7,5%. 8,0%. 8,8%.

QUESTION 19 The aggressive financing strategy is a ... method while the conservative financing strategy is a ... method. 1 2 3 4 high-profit, high-risk; low-profit, low-risk high-profit, low-risk, low-profit, high-risk low-profit, high-risk; high-profit, low-risk low-profit, low-risk; high-profit, high-risk

23 QUESTION 20

MNF2023/101

What is the market risk premium if the risk-free rate is 5% and the expected market return is determined from the information provided below? State of the economy Boom Average Recession 1 2 3 4 10,5%. 11.0%. 16.0%. 16,5%. Probability 20% 70% 10% Return 30% 15% -5%

24

MNF2023/101

NOTE: THE FOLLOWING ASSIGNMENTS (UNIQUE NUMBERS 669830 AND 732800) ARE TO BE COMPLETED BY STUDENTS REGISTERED DURING THE SECOND SEMESTER ONLY. Assignment 01 COMPULSORY (Second semester only) When submitting this assignment via myUnisa or completing the mark-reading sheet, be sure to use the correct unique number as detailed below: Second registration Due date 22-08-2011 Unique number 669830

This assignment consists of 20 multiple-choice questions. You will need to study chapters 1 to 7 in your prescribed textbook to successfully complete this assignment. Use the following information to answer questions 1 to 4. Kusasa Holdings had earnings before interest and taxes (EBIT) of R6 000 000 last year. The firm has a marginal tax rate of 40% and currently has the following capital structure: Source of capital Long-term debt at 12% Preference shares at 14% Ordinary shares (2 000 000 shares outstanding) Total QUESTION 1 Kusasa's return on equity (ROE) is 1 2 3 4 2,93%. 9, 25%. 9, 41%. 14, 00%. Amount R10 000 000 R10 000 000 R16 000 000 R36 000 000 Percentage of total capital 25% 25% 50% 100%

QUESTION 2 The earnings per share (EPS) for Kusasa Holdings is 1 2 3 4 R0,14. R0,61. R0,74. R1,44.

25 QUESTION 3

MNF2023/101

If Kusasa Holdings retires R4 000 000 of preference shares using the proceeds from an equal increase in long-term debt, what would its return on equity (ROE) and earnings per share (EPS) be? 1 2 3 4 6,10% and R0,490 7,70% and R0,490 10,95% and R0,876 10,96% and R0,880

QUESTION 4 Kusasa Holdings reported the same earnings per share (EPS) as other firms in its industry. However, its share price is currently trading at a higher value than these firms. Which of the following statements would be correct about Kusasa Holdings? 1 2 3 4 The company trades at a higher price/earnings (P/E) ratio. The company is probably judged by investors to be riskier. The company probably has fewer growth opportunities. The company must have a higher market-to-book ratio.

QUESTION 5 What is the difference between R2 000 invested at 12% per annum compounded interest for one year if: (a) interest is calculated semi-annually and (b) interest is calculated monthly? 1 2 3 4 R0, 00 R3, 35 R6, 45 R7, 20

QUESTION 6 Combining positively correlated assets having the same expected return, results in a portfolio with ... level of expected return and ... level of risk. 1 2 3 4 the same; a lower a higher; a lower a lower; a higher the same; a higher

26 QUESTION 7

MNF2023/101

Calculate the future value of the following stream of cash flows, assuming an interest rate of 25%. Year 1 2 3 1 2 3 4 Amount R 5 000 R25 000 R14 000 R44 000 R50 250 R53 065 R66 340

QUESTION 8 Calculate the present value of the following stream of cash flows, assuming an interest rate of 14%. Year(s) 15 610 1 2 3 4 Amount R20 000 per year R35 000 per year

R 14 850 R 19 830 R120 820 R131 065

QUESTION 9 Analysts expect that Sportif Ltd will pay a dividend of R4,55 next year. They expect the firm's dividends to grow at 7% forever. What should the price of Sportif Ltd's ordinary share be if investors require an annual return of 16% 1 2 3 4 R41, 67. R48, 55. R50, 56. R54, 09.

QUESTION 10 Brown has R15 000 invested in Cyanamid Company, R15 000 in Gannet Company and R10 000 in Texas International. If Cyanamid, Gannet and Texas have betas of 1, 05, 0, 85 and 0, 30 respectively, what is Brown's portfolio beta? 1 2 3 4 0, 787 0, 795 0, 875 0, 975

27 QUESTION 11

MNF2023/101

The purpose of adding an asset with a negative or low positive beta to a portfolio is usually to ... 1 2 3 4 reduce profit. reduce risk. increase profit. increase risk.

QUESTION 12 Inputs to the statement of cash flows from the income statement include all the following EXCEPT ... 1 2 3 4 net profits after tax. operating profit. cash dividends. non-cash charges and depreciation.

QUESTION 13 George would like to buy a share of Rocket Launcher Ltd for R45,00. He expects dividends of R3,00 in year one and R5,00 in year two. He expects to sell the stock for R58,00 in two years. His current required return is 18%. According to this information, George should buy the share, since 1 2 3 4 it is currently overvalued. it is currently undervalued. it is currently priced at R48,78. it will be priced at R48,78 in two years' time.

QUESTION 14 The Zum Company is expected to pay a dividend of R2,75 per share at the end of the year. Its dividend is expected to grow at a constant rate of 5% per year. If the company's beta is 1,15, the market risk premium is 6% and the risk-free rate is 4%, what is the company's current stock price? 1 2 3 4 R42,25 R43,31 R46,61 R46,64

Use the following information to answer questions 15 to 17. Outrageous Adventures Ltd is developing a cash budget for October, November and December. Outrageous's sales in September were R200 000. Sales of R300 000, R200 000 and R150 000 have been forecast for October, November and December respectively. 60% of all sales are paid in cash. The balance is paid in the following month. Bad debts are estimated to be at 2% of accounts receivable. Purchases represent 60% of sales. All purchases are on a cash basis. Rent and salaries are expected to be R16 000 per month. The opening balance in October is R4 000. A minimum balance of R20 000 is required for every month.

28 QUESTION 15 The total cash receipts for the months of October, November and December are 1 2 3 4 R180 000, R120 000 and R 90 000. R260 000, R240 000 and R170 000. R256 000, R234 000 and R166 000. R262 400, R237 600 and R168 400.

MNF2023/101

QUESTION 16 The total cash disbursements for the months of October, November and December are 1 2 3 4 R180 000, R120 000 and R 90 000. R196 000, R136 000 and R106 000. R216 000, R156 000 and R126 000. R200 000, R136 000 and R106 000.

QUESTION 17 The excess cash balance for the month of December is 1 2 3 4 R 44 000. R 48 000. R142 000. R202 000.

QUESTION 18 Calculate the approximate yield to maturity for a R1 000 par value bond selling for R1 120 that matures in 6 years and pays 12% interest annually? 1 2 3 4 8, 50% 9, 30% 12, 00% 13, 20%

QUESTION 19 John borrows R29 500 from the bank at an annual interest rate of 8%, to be repaid in ten equal annual instalments. The interest paid in the third year is 1 2 3 4 R1 336,00. R1 560,14. R1 947,10. R2 021,15.

29 QUESTION 20

MNF2023/101

During 2007, Kuscon Pharmaceuticals paid out R22 250 in ordinary share dividends. It ended the year with R187 500 of retained earnings. In 2006, the company had R129 750 in retained earnings. How much net income did the company earn during 2007? 1 2 3 4 R80 000 R80 850 R89 137 R93 594

30 Assignment 02 COMPULSORY (Second semester only)

MNF2023/101

When submitting this assignment via myUnisa or completing the mark-reading sheet, be sure to use the correct unique number as detailed below: Second registration Due date 19-09-2011 Unique number 732800

This assignment consists of 20 multiple-choice questions. You will need to study chapters 1 to 7, 14 and 15 in your prescribed textbook to successfully complete this assignment. QUESTION 1 Which one of the following statements is correct? 1 2 3 4 An investment banker analyses securities and constructs investment portfolios. Most of the transactions involving preference shares are made in the money market. Treasury bills and negotiable certificates of deposit are traded in the capital market. An investment banker acts as a middleman between the issuer and buyer of a security.

QUESTION 2 Which one of the following statements is incorrect? 1 2 3 4 The statement of retained earnings includes a report on ordinary shareholder's dividends. The net value of fixed assets is called the market value. Net income after taxes is an important input to the statement of cash flows. The balance sheet represents a summary of the firm's financial position at a given point.

QUESTION 3 Candy Corporation had pre-tax profits of R1,2 million, an average tax rate of 34%, and an interest expense of R10 000. The company paid R50 000 in preference shares and there were 100 000 shares outstanding. It's earnings per share is... 1 2 3 4 R3, 91. R4, 52. R7, 42. R7, 59.

31 QUESTION 4

MNF2023/101

A firm with a total asset turnover that is lower than the industry standard, but with a current ratio which meets the industry standard must have excessive ... 1 2 3 4 accounts receivable. inventory. fixed assets. debt.

Use the following information to answer questions 5 and 6. Year 2005 2006 2007 2008 2009 Alpha Plc 12% 15% 13% 10% 9% Beta Plc 6% 15% 11% 14% 10%

QUESTION 5 Assuming a 50:50 investment, the expected value of the Alpha- Beta portfolio returns and standard deviation of the Alpha-Beta portfolio returns will be 1 2 3 4 11, 50% and 2, 40%. 14, 38% and 2,14%. 23, 00% and 4, 80%. 57, 59% and 3, 00%.

QUESTION 6 Suppose the standard deviation of another comparable portfolio XY is 4%. The risk of the Alpha-Beta portfolio is 1 2 3 4 higher than the risk of portfolio XY. comparable to the risk of portfolio XY. lower than the risk of portfolio XY. twice as risky as that of portfolio XY.

QUESTION 7 The Iceberg Company has just paid a dividend of R0,80 per share, and this dividend is expected to grow at a constant rate of 6% per annum in future. The company's beta is 1, 23 while the market risk premium is 5%. If the risk-free rate is 4%, what is the company's current share price? 1 2 3 4 R19,95 R20,43 R20,96 R21,49

32 QUESTION 8

MNF2023/101

Enigma Fashions shares for 2009 are currently selling for R180 per share. The firm has just paid a dividend of R3 and the company analyst estimates that its future dividends will continue to increase at an annual compound rate consistent with the schedule below. Year 2004 2005 2006 2007 2008 2009 Dividend R1,24 R1,33 R1,53 R1,63 R1,85 R2,00

The required return for Enigma Fashions is 1 2 3 4 9, 00%. 10,00%. 11,38%. 11,83%.

QUESTION 9 The key inputs for preparing pro forma income statements using the simplified approaches, are the ... 1 2 3 4 sales forecast for the preceding year and financial statements for the coming year. sales forecasts for the coming year and the cash budget for the preceding year. sales forecast for the coming year and financial statements for the preceding year. cash budget for the coming year and sales forecast for the preceding year.

QUESTION 10 A firm has actual sales in November of R1 000 and projected sales in December and January of R3 000 and R4 000 respectively. The firm makes 10% of its sales for cash, collects 40% of its sales one month following the sale and collects the balance two months following the sale. The firm's total expected cash receipts in January are ... 1 2 3 4 R 500. R 700. R1 900. R2 100.

33 QUESTION 11

MNF2023/101

A firm is considering relaxing credit standards, which will result in annual sales increasing from R1, 5 million to R1, 75 million. The cost of annual sales will increase from R1 000 000 to R1 125 000 and the average collection period will increase from 40 to 55 days. Bad debts are expected to increase from 1% to 1, 5% of sales. If the firm's required return on equal investments is 20%, the cost of marginal investment in accounts receivable will be 1 2 3 4 R 5 556. R 9 943. R 12 153. R152 778.

QUESTION 12 A firm has a cash conversion cycle of 60 days. Annual outlays are R12 million and the cost of negotiated financing is 12%. If the firm reduces its average age of inventory by 10 days, the annual saving will be ... 1 2 3 4 R 28 800. R 40 000. R104 000. R144 000.

QUESTION 13 A portion of a firm's current assets financed by long-term funds may be called ... 1 2 3 4 inventory. working capital. accounts receivable. net working capital.

QUESTION 14 The purpose of managing current assets and current liabilities is to ... 1 2 3 4 achieve as low a level of current assets as possible. achieve as low a level of current liabilities as possible. achieve a balance between profitability and risk that contributes to the firm's value. achieve as high a level of current liabilities as possible.

QUESTION 15 A firm has an average age of inventory of 101 days, an average collection period of 49 days, and an average payment period of 60 days. The firm's inventory turnover is days. 1 2 3 4 3, 2 4, 0 2, 5 3, 6

34 QUESTION 16

MNF2023/101

A firm with a very low current ratio in comparison to the industry standard could lower the risk of unavailable short-term funds by moving toward ... financing strategy. 1 2 3 4 the aggressive the conservative a permanent a seasonal

QUESTION 17 The Steel Works Inc is required to carry a minimum of 40 days' raw steel, which is 250 tons. It takes 15 days between order and delivery. At what level of steel would Steel Works reorder? 1 2 3 4 344 tons 600 tons 667 tons 3 750 tons

QUESTION 18 A 2/15 net 45 cash discount translates as ... 1 2 3 4 15% cash discount if paid in two days, 45-day credit period. 2% cash discount if paid prior to 15 days, if customer does not take a cash discount, the balance is due in 45 days. 45% of the account due in 15 days, payment prior to day 15 receives a 2% discount. 2% of the balance is due in 15 days, the remaining balance is due in 45 days.

QUESTION 19 When a firm decreases or cancels a cash discount, sales are expected to ... the investment in accounts receivable is expected to ... the bad debts expense is expected to ... and the profit per unit is expected to ... 1 2 3 4 decrease; increase; increase; increase. decrease; decrease; increase; increase. increase; increase; decrease; decrease. increase; decrease; decrease; decrease.

QUESTION 20 XYZ Corporation borrowed R100 000 for six months from the bank. The prime rate is prime plus 2%. The prime rate was 8, 5% at the beginning of the loan contract and changed to 9% after two months. Since this was the only change, how much interest must XYZ Corporation pay? (Hint: chapter 15 in the prescribed book.) 1 2 3 4 R 2 476 R 5 417 R18 212 R21 500

35 Assignment 03: SELF-EVALUATION NOT TO BE SUBMITTED QUESTION 1

MNF2023/101

McDougal Printing Inc had sales totalling R40 000 000 in fiscal year 2003. Some ratios for the company are listed below. Use this information to determine the rand values of various income statement and balance sheet accounts. McDougal Printing Inc Year ended 31 December 2003 Sales Gross profit margin Operating profit margin Net profit margin Return on total assets Return on common equity Total asset turnover Average collection period Calculate values for the following: a) b) c) d) e) Gross profit Cost of goods sold Operating profit Operating expenses Earnings available for ordinary shareholders R40 000 000 80% 35% 8% 16% 20% 2 62,2 days

SUGGESTED SOLUTION a) b) c) Gross profit = sales x gross profit margin Gross profit = R40 000 000 x 0,8 = R32 000 000 Cost of goods sold = sales - gross profit Cost of goods sold = R40 000 000 - R32 000 000 = R8 000 000 Operating profit = sales x operating profit margin Operating profit = R40 000 000 x 0,35 = R14 000 000 Operating expenses = gross profit - operating profit Operating expenses = R32 000 000 - R14 000 000 = R18 000 000

d)

36 e) Net profit = sales x net profit margin = R40 000 000 x 0,08 = R3 2000 000

MNF2023/101

QUESTION 2 Mr Joubert has just won a R10-million lottery that will pay him R500 000 at the end of each year for the next 20 years. An investor has offered him R5 million to purchase the rights of this annuity. Mr Joubert has approached an investment advisor, who has estimated that he could earn at least 10% interest, compounded annually, on any amount he invests. Mr Joubert has approached you for further advice on whether to accept or reject the offer. What would you tell him? (Ignore taxes.) SUGGESTED SOLUTION
PVA = PMT x PVIF10%,20 = R500 000 x 8,514 = R4 257 000

The R5-million offer is greater than the present value of the lottery annuity, so Mr Joubert should accept this offer. QUESTION 3 Kidz Incorporated's shares are currently trading at R130 per share and the firm's dividends are expected to grow at 5% indefinitely. In addition, Kidz Incorporated's most recent dividend was R12,50 per share. The expected return on treasury bills is 7%. The expected return on the JSE All Share Index is 14%, and Kidz Incorporated has a beta of 1,2. a) b) c) What is the expected return based on the dividend valuation model? What is the required return based on the CAPM? Would Kidz Incorporated be a worthwhile investment at this time?

SUGGESTED SOLUTION

a)

Ks =

12.50 (1,05 ) 130

+ 0,05

b) c)

= 15,1% Ks = 0,07 + 1,2(0,14-0.07) = 15,4% The required return is higher than the expected return; therefore Kidz Incorporated is not a worthwhile investment.

37
QUESTION 4

MNF2023/101

You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive R20 000 at the end of each year for the 30 years between retirement and death (a psychic told you that you would die after 30 years). You know that you will be able to earn 11% per year during the 30-year retirement period. a) b) c) How large a fund will you need when you retire in 20 years' time to provide the 30-year, R20 000 retirement annuity? How much will you need today as a single amount to provide the fund calculated in part (a) if you earn only 9% per year during the 20 years preceding retirement? What effect would an increase in the rate you can earn both during and prior to retirement have on the values found in parts (a) and (b)? Explain.

SUGGESTED SOLUTION

a)

PVA = PMT x (PVIFA 11%,30) PVA = R20 000 x (8,694) PVA = R173 880,00 Calculator solution: 20 000 PMT 30 N 11 I Compute PV = 173 875,85

b)

PV = FV x (PVIF9%,20) PV = R173 880 x (0,178) PV = R30 950,64 Calculator solution: 173 875, 85 FV 9I 20 N Compute PV = R31 024,82

c)

Both values would be lower. In other words, a smaller sum would be needed in 20 years' time for the annuity and a smaller amount would have to be put away today to accumulate the needed future sum.

38
QUESTION 5

MNF2023/101

Ace business solutions Ltd has compiled several factors relative to its financing mix. The firm pays 8% on short-term funds and 10% on long-term funds. The firm's monthly current, fixed and total assets requirements for the previous year are summarised in table 1 below. Table 1 Month January February March April May June July August September October November December Current Assets R125 000 Fixed Assets R250,000 Total Assets R375,000

R130,000 R135,000 R150,000 R150,000 R125,000 R115,000 R120,000 R115,000 R100,000 R110,000 R115,000

R250,000 R250,000 R250,000 R250,000 R250,000 R250,000 R250,000 R250,000 R250,000 R250,000 R250,000

R380,000 R385,000 R400,000 R400,000 R375,000 R365,000 R370,000 R370,000 R350,000 R360,000 R365,000

Determine: (a) (b) (c) (d) The monthly average permanent funds requirement The monthly average seasonal funds requirement The annual financing costs (aggressive strategy) The annual financing costs (conservative strategy)

SUGGESTED SOLUTION

(a) (b)

R350 000 (the permanent funds requirement is the lowest amount of total assets in a given period. However, in certain instances, this value is arbitrarily given).

The permanent funds requirement is deducted from the total funds requirement or total assets to obtain the seasonal funds requirement. An average for this seasonal funding over the relevant period is then obtained. (See table below.)

39
Month January February March April May June July August September October November December Monthly Average Total Assets R375,000 Permanent Requirement R350 000 Seasonal Requirement R25 000

MNF2023/101

R380,000 R385,000 R400,000 R400,000 R375,000 R365,000 R370,000 R370,000 R350,000 R360,000 R365,000

R350 000 R350 000 R350 000 R350 000 R350 000 R350 000 R350 000 R350 000 R350 000 R350 000 R350 000

R30 000 R35 000 R50 000 R50 000 R25 000 R15 000 R20 000 R15 000 R0 R10 000 R15 000
R24 167

(c)

Under the aggressive strategy, the firm funds its seasonal requirements with short-term debt and its permanent funds requirement with long-term debt, hence; = = = R35 000 R 1 933 R36 933

R350 000 x 10% R24 167 x 8% (d)

Under the conservative financing strategy, the firm funds both its seasonal and permanent funds requirement with long-term debt. This amount is obtained as the sum of the highest seasonal funds over the period and the permanent funds requirement or the highest total assets for the period, hence; = = R400 000 R 40 000

R50 000 + R350 000 R400 000 x 10%

40
QUESTION 6

MNF2023/101

Prairie Manufacturing has four possible suppliers, all of whom offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following table.
Supplier Credit terms

J K L M

1/10 net 30 EOM 2/20 net 80 EOM 1/20 net 60 EOM 3/10 net 55 EOM

a) b)

Calculate the cost of giving up the cash discount from each supplier. If the firm needs short-term funds, which are currently available from its commercial bank at 16%, and if each of the suppliers is viewed separately, which, if any, of the suppliers' cash discounts should the firm give up? Explain. What impact, if any, would the fact that the firm could stretch its accounts payable (net period only) by 30 days from supplier M have on your answer in part (b) relative to this supplier?

c)

SUGGESTED SOLUTION

a)

Using the formula on page 683 of the prescribed textbook:

Cost of foregoing discount

Supplier J K L M

(0,01 0,99) x (360 20) = 18,18% (0,02 0,98) x (360 60) = 12,24% (0,01 0,99) x (360 40) = 9,09% (0,03 0,97) x (360 45) = 24,74% b) Prairie would have lower costs by giving up supplier K's and supplier L's discount, since the cost of forgoing the discount is lower than the 16% cost of borrowing. c) Cost of giving up discount from supplier M = (0,03 97) x (360 75) = 14,85%. In this case the firm should give up the discount and pay at the end of the extended period.

41
QUESTION 7

MNF2023/101

Eseru Textiles Ltd currently has credit sales of R360 million per year and an average collection period of 60 days. The price of Eseru's products is R60 per unit and that the variable costs are R55 per unit. The firm is considering an accounts receivable change that will result in a 20% increase in sales and a 20% increase in the average collection period. No change in bad debts is expected. The firm's equalrisk opportunity cost on its investment in accounts receivable is 14%. a) b) c) d) Calculate the additional profit contribution from new sales that the firm will realise if it makes the proposed change. What marginal investment in accounts receivable will result? Calculate the cost of the marginal investments in accounts receivable. Should the firm implement the proposed change? What other information would be helpful in your analysis?

SUGGESTED SOLUTION

a)

Current units Increase

= = = = = =

R360 000 000 R60 6 000 000 units 6 000 000 20% 1 200 000 new units (R60 R55) 1 200 000
R6 000 000

Additional profit contribution

b)

Average investment in accounts receivable =

total variable cost of annual sales turnover of accounts receivable (A/R)

Turnover (A/R) present plan =

360 60 360 72*

Turnover (A/R) of proposed plan =

Marginal investment in A/R: Average investment proposed plan

7 200 000* units R55 5

= R79 200 000

Marginal investment in A/R: Average investment present plan

6 000 000 units R55 6

= R55 000 000

42 Marginal investment in A/R = R24 200 000*

MNF2023/101

72* = 60 1,2 (20% increase in average collection period) 72 000 000* = 6 000 000 existing + 1 200 000 proposed units (R24 200 000) = (79 200 000) 55 000 000 (increased costs) c) Cost of marginal investment in accounts receivable: Marginal investment in A/R (24 200 000) Required return 0,14 Cost of marginal investment in A/R = (R 3 388 000) The additional profitability of R6 000 000 exceeds the additional costs of R3 388 000. However, one would need estimates of bad debt expenses, clerical costs and/or the certainty of the sales forecast before adopting this policy.

d)

43
Appendix D List of official booksellers VAN SCHAIK BOOKSTORE 270 Church St, J 724, Pretoria 0001 Tel: 012 321 2441 Fax: 012 324 2018 E-mail: vskerk@vanschaik.com JUTA & CO http://www.juta.co.za Share call no: 0860 787878

MNF2023/101

Nedbank Forum, Cnr Burnett & Festival St, J 13835, Hatfield 0083 Tel: 012 362 5669 African Life Centre, Cnr Fax: 012 362 5673 Commissioner & Eloff St, E-mail: vshat@vanschaik.com J 1010, Johannesburg 2000 Tel: 011 333 5521 Braamfontein Centre, J Fax: 011 333 4810 31361, Braamfontein 2017 E-mail: jhbbooks@juta.co.za Tel: 011 339 1711 Balfour Shopping Centre, 2 Fax: 011 339 7267 Balfour Close, E-mail: Highlands North Ext 9, vsbraam@vanschaik.com Johannesburg 2001 Tel: 011 786 8873 78 Maitland St, J 1047, Bloemfontein 9300 Fax: 011 786 8874 E-mail: balbooks@juta.co.za Tel: 051 447 6685 Fax: 051 447 7837 Renaissance Place, 444 Jan E-mail: Smuts Ave, Randburg 2194 vsbloem@vanschaik.com Tel: 011 886 8595 18 Main Road, J 279, Fax: 011 781 0139 Rondebosch 7700 E-mail: rbgbooks@juta.co.za Tel: 021 689 4112 North K90 Shopping Centre, Fax: 021 686 3404 Cnr K90 & E-mail: North Rand Road, Boksburg vsrbosch@vanschaik.com 1459 148 Sanlam Centre, Tel: 011 823 1539/1530 Voortrekker Road, E-mail: bokbooks@juta.co.za J 6277, Parow East 7500 Shop 52 Promenade Centre, Tel: 021 930 2480 Cnr Louis Trichardt & Henshall Fax: 021 939 3767 St, Nelspruit 1201 E-mail: vsparow@vanschaik.com Tel: 013 752 2231 Fax: 013 752 7817 L J ARMSTRONG E-mail: nelbooks@juta.co.za BOOKSELLERS Middestad Centre, Cnr Rissik & New & second-hand books Marshall St, 1st Floor, York House, Cnr

1st floor, Hatfield Plaza, 1122 Burnett St, Hatfield 0083 Tel: 012 362 5799 Fax: 012 362 5744 E-mail: ptabooks@juta.co.za

44

MNF2023/101

Rissik & Kerk St,

Johannesburg Tel: 011 836 0124 Fax: 011 834 2684

Polokwane 0699

Tel: 015 297 0240 Fax: 015 297 3247 E-mail: pietbooks@juta.co.za 216 Stanger St, Durban J 50197, Musgrave Road 4062 Tel: 031 337 3970 Fax: 031 337 1819 E-mail: dbnbooks@juta.co.za 47 Bree St (Cnr Waterkant), J 30, Cape Town 8000 Tel: 021 418 3260 Fax: 021 418 1282 E-mail: ctbooks@juta.co.za Shop 19/20, Shoprite Park, 262 Voortrekker Road, Parow 7500 Tel & Fax: 021 930 7962 E-mail: pabooks@juta.co.za
BRAIN BOOKS Call Centre: 0861 002 002 (Postnet deliveries) Unit 5, Old Mutual Industrial Park, Cnr Moot & D F Malan Street, Hermanstad, Pretoria J 11116 Hatfield 0028 Fax: 012 377 2030 E-mail: brainbooks.co.za

1st Floor, Pine Park Place, Cnr 1st Ave & Standard Drive, Linden Tel: 011 888 6129 Fax: 011 888 4429 Cnr 11th St & Louis Botha Ave, Orange Grove J 28935, Sandringham 2131 Tel: 011 485 1337 Fax: 011 485 1338
ADAMS & CO 341 West St, J 466, Durban 4000 Tel: 031 304 8571 Fax: 031 304 7308 E-mail: adams.west@saol.com

Musgrave Centre, Berea Road, Durban Tel: 031 201 5123 Fax: 031 201 3735 E-mail: adamsmus@netactive.co.za 230 Church Street, Pietermaritzburg 3201 Tel: 033 394 6830 Fax: 033 394 3096 E-mail: schoolbooks@shuter.co.za
MAST BOOKSHOP Golf Road, University of Natal, Scottsville J 100242, Scottsville 3209 Tel: 033 386 9308 Fax: 033 386 9633 E-mail: mastpmb@mweb.co.za

45
Appendix E Study skills

MNF2023/101

A revised and updated study skills guide entitled Effective study has been published by the Bureau for Student Counselling and Career Development (BSCCD). It is available in English and can be obtained from Unisa Press (see details below). The publication deals with a variety of topics, which are applicable to specific periods during the semester or year. It also contains a screening questionnaire, which will indicate to students where they may expect problems and on which areas they should focus. The following topics are covered:
INTRODUCTION

The EFT study process

THE EXPLORATION PHASE

2 3 4 5 6 7

Assessing the study process Creating a quality environment for effective study Effective time management and planning The organisation and running of study groups Writing assignments and reports Reading and note taking

FIXATION

8 9

Making the most of your memory: thinking and learning successfully Dealing with multiple-choice questions

TESTING

10 Effective examination techniques 11 Academic anxiety 12 Assessing the effectiveness of the study process To gain maximum advantage from the guidelines given in the publication, we suggest that you work through it at the beginning of your studies. After this initial overview, you can consult the sections selectively as your needs emerge. The publication can be used repeatedly by both first-year and experienced students, as it was not written for students with study problems only: successful students can use the guidelines to improve their academic performance even further.
How to obtain Effective study Title:

Van Schoor, WA, Mill, EM & Potgieter, D. 2001. Effective study. Pretoria: Unisa Press.

To order: You can order this publication from Unisa Press. Only prepaid orders will be accepted. If you want to buy a copy over the counter you can pay a visit to the sales section of Unisa Press, Department of Despatch, 2nd floor, Cas van Vuuren Building, on the main campus. Price: R30. For telephone enquiries: 012 429 3448 Fax: 012 429 3221

46

MNF2023/101

The Bureau for Student Counselling and Career Development is available for consultations regarding study problems. We have found in the past that the consultations are more effective if a student is able to identify his or her specific study problems beforehand. We therefore suggest that you consult the publication and make notes of your specific problems. You can contact the Bureau for Student Counselling and Career Development as follows:
In writing: The Director Bureau for Student Counselling and Career Development PO Box 392 Unisa 0003 In person You do not need to make an appointment, as the bureau offers a walk-in service. Cas van Vuuren Building 3-10 or 3-11 Main campus Office hours: MondayFriday: 08:0015:30

(See also the reference to the regional centres below)

Tel: 012 429 3513 Fax: 012 429 3698 E-mail: counselling@unisa.ac.za Services offered by the Bureau for Student Counselling and Career Development

For a comprehensive description of the services offered on the main campus and at the regional centres, you can visit the web page of the Bureau for Student Counselling and Career Development at: https://my.unisa.ac.za/counselling/

47
Regional centres Centre Person Contact numbers and e-mail addresses

MNF2023/101

Western Cape Parow KwaZulu-Natal Durban Limpopo Polokwane Johannesburg Learning Centre
PEER HELP PROGRAMME

Ms Sonja Barnard Ms Amy Reddy Ms Mmemeru Lephondo Ms Pam Nielson

021 936 4130 barnase@unisa.ac.za 031 335 1745 reddya1@unisa.ac.za 015 290 3441 lephomj@unisa.ac.za 011 403 7111 nielspg@unisa.ac.za

We would like to inform you about the Unisa Peer Help Volunteer Programme, offered under the auspices of the Bureau for Student Counselling and Career Development. Peer helping is based on the well-documented fact that students often seek out other students for help when they are experiencing frustrations, concerns, worries or problems. Peer helpers are trained to help other students think through and reflect on problems they might experience. These peer helpers listen and support their fellow students with regard to studies and personal problems. They explain the Unisa system and render support regarding academic skills development. Peer helpers are trained to refer more complex cases to the professional counsellors on campus.

48 You can contact a peer helper at:

Main campus (Pretoria) Cas van Vuuren Building Hall A Room 3-11 Tel: 012 429 8694/5 Times MondayFriday 08:0015:30

MNF2023/101

Western Cape campus Unisa A Room G1-35 15 Jean Simonis Street Parow Tel: 021 936 4130 KwaZulu-Natal campus Room 1B-7 Masifunde Study Centre Durban Tel: 031 335 1745

Times MondayThursday 09:0015:00

Times MondayFriday 08:0013:00 Certain Saturdays 08:0012:00

Limpopo campus 23 Landdros Mare Street Polokwane Tel: 015 290 3441 Johannesburg Learning Centre Room 206 Cnr De Korte & Eendracht Streets Braamfontein Tel: 011 403 7111

Times MondayFriday 10:0015:00

Times MondayFriday 09:0015:00 Saturday by appointment 09:0013:00