CHARTERED SECRETARIES

SOUTHERN AFRICA
OCTOBER 2014
CORPORATE FINANCIAL MANAGEMENT
Date:

23 October 2014

Time:

08h45 12h00

Duration:

15 minutes reading time +

3 hours

Marks:

100
General Instructions

1.
2.

3.
4.
5.
6.

Check that you have the correct examination paper - and that it has all its
pages and sections.
Write clearly and only use BLACK BALL-POINT INK. Do NOT use felt-tip
pens. Cross out errors in ink - do NOT use correcting fluid. Please do NOT
use highlighter pens.
Do not use your own name or that of your company in any of your answers.
Start each answer on a fresh page, clearly numbering it at the top.
Check that all answers are correctly numbered.
Submit your working papers wherever applicable - making sure that you
clearly identify them as WORKING PAPERS.

Specific Instructions for this Paper:

7.
8.
9.
10.
11.

Answer any FOUR of the SIX questions.

Use ONLY the examination booklets NO LOOSE PAGES WILL BE
MARKED.
This is a closed book examination no notes, papers or texts may be used
or brought into the venue, except those provided by the invigilator.
You may use a calculator but all workings and calculations must be clearly
shown
Useful formulae and tables are appended at the end of the paper.

Answer any FOUR questions.

QUESTION 1
The CEO of a company has reached the age of 65 and wishes to purchase an annuity
specially designed to make future annual cash flow payments to her. Her cash flow
requirements for the next twelve years are as follows:
Annuity at the end of:

Annual annuity cash flow

Years 1 - 4

R120 000

Years 5 - 8

R150 000

Years 9 - 12

R180 000

Required
1.1

1.2

1.3

You are the corporate financial manager of Best Life Insurance Company, the
life insurance company underwriting this transaction. Assuming a discount
rate of 8%, calculate the net present value (NPV) of the cash flows over the
12 year period.

(15)

Write a note to the Investment Committee of Best Life Insurance addressing

the risks involved in underwriting the annuity described in question 1.1

(5)

Given that all investments are subject to risks, discuss methods for
incorporating risk into any capital investment appraisal.

(5)

[25 marks]

Corporate Financial Management

October 2014

Page 2 of 15

QUESTION 2
A removal company is considering purchasing a covered van for R2 000 000. It is
expected that the van will be used for eight years after which time it will be worthless
and have no scrap value. The net cash flow (after depreciation and taxation) over the
working life of the van is estimated as follows:
Year

Projected Income

R250 000

R500 000

R600 000

R300 000

R1 000 000

R500 000

R1 000 000

R250 000

Required
2.1

2.2

2.3

By using the discount rates 15% as the low rate and 20% as the high rate,
calculate the net present values (NPV) for this investment.

(10)

Given your answers in 2.1, determine the estimated Internal Rate of Return
(IRR) for this capital investment.

(5)

Discuss the merits and criticisms of using the IRR as a means of evaluating
a capital investment project.

(10)

[25 marks]

Corporate Financial Management

October 2014

Page 3 of 15

QUESTION 3
A portfolios total value comprises a 50% investment in bonds and a 50% investment
in shares.
The financial manager has postulated that over the next year there are three
scenarios with the following probabilities and the likelihood of the return on the
investments.
Probability
Repo rate decrease
Repo rate remain the same
Repo rate increase

10%
30%
60%

Return on
bonds
5%
6%
8%

Return on
shares
18%
10%
7%

Required
3.1

3.2

3.3

3.4

3.5

Calculate the expected return and standard deviation of the return on the
bonds.

(4)

Calculate the expected return and the standard deviation of the return on the
shares.

(4)

Calculate the expected return and the standard deviation of the return on the
combined portfolio.

(6)

Comment on the standard deviation of the combined portfolio in comparison

with those of the bonds and the shares.

(4)

Comment on the correlation between the return on the bonds and the shares
and what the effect would be if the correlation were to be positive or perfect.

(7)

[25 marks]

Corporate Financial Management

October 2014

Page 4 of 15

QUESTION 4
Capture Ltd (Capture) wishes to take over Target Ltd (Target). The following data is
available concerning the two companies.

Capture
Target

No. of
shares
(million)
25
8

Market price of shares

9.00
12.50

EPS
0.85
0.65

P/E ratio
10.6
19.2

Capture is offering its own shares for the shares in Target.

Required
4.1

Assuming that there is no synergistic benefits determine the total number of

Capture shares that will be needed for this take-over deal. How many Capture
shares will need to be offered for every 100 Target shares?

(5)

4.2

It is anticipated that there will be a synergistic benefit to the deal worth of R15
million.

4,2.1

If these benefits are going to accrue totally to the shareholders of Target,

determine the total number of Capture shares that will be needed for the deal.
How many Capture shares will need to be offered for every 100 Target
shares?

(10)

If these benefits are going to accrue totally to the shareholders of Capture,

determine the total number of Capture shares that will be needed for the deal.
How many Capture shares will need to be offered for every 100 Target
shares?

(10)

4.2.2

[25 marks]

Corporate Financial Management

October 2014

Page 5 of 15

QUESTION 5
The following portfolio of shares is held by your client:
Type of share

Number of Shares

Property shares

1 200 000

1.1

Industrial shares

900 000

1.8

Mining shares

750 000

2.2

Financial shares

150 000

1.4

Total shares

3 000 000

Your view is that over the next year there is a 75% chance that the market return on
the shares will be 12%. However, should there be another series of strikes then the
return will fall to 5%.
Required
5.1

Calculate the expected return on the mining share if the risk free rate is 8%.

(5)

5.2

Your client is prepared to take higher risk and has asked you to sell the
property shares and to invest the R1 200 000 value of property shares in small
cap shares with a = 3. Compare the risk and return of the original portfolio
with the new portfolio.

(15)

What would you advise a client if you were to anticipate a recession in the
near future?

(5)

5.3

[25 marks]

Corporate Financial Management

October 2014

Page 6 of 15

QUESTION 6
6.1

6.2

The Companies Act No. 72 of 2008 (as amended) makes provision for
Business Rescue. You have been told that you will be presented with a
companys annual financial statements and will have to offer advice to the
directors as to whether there is a possibility of the company being in need of
rescue. Altman devised a distress model to allow the forecasting of such an
eventuality. Discuss the Altman model and how it can be used to anticipate
the need for rescue.

(7)

A government bond with face value R1 000 000 was purchased five years
ago for R982 580. A coupon was paid at 7.5% annually. The interest was
invested annually at the prevailing interest rate as shown below for the
remaining period. Thus the interest received at the end of year 1 was invested
at 7% for four years. The bond matures today. What is the compound interest
yield on the investment?
Time Purchase date
0
1
2
3
4
5

Prevailing
interest rate
8%
7%
7%
8%
5%
6%
(11)

6.3

What is meant by the term working capital cycle? Illustrate how debtors,
creditors and inventory may be managed in order to optimise the working
capital cycle.

(7)

[25 marks]

(Total: 100 marks)

END OF QUESTION PAPER

Corporate Financial Management

October 2014

Page 7 of 15

Present value tables of R1

Prd
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

1%
0.9901
0.9803
0.9706
0.9610
0.9515
0.9420
0.9327
0.9235
0.9143
0.9053
0.8963
0.8874
0.8787
0.8700
0.8613
0.8528

2%
0.9804
0.9612
0.9423
0.9238
0.9057
0.8880
0.8706
0.8535
0.8368
0.8203
0.8043
0.7885
0.7730
0.7579
0.7430
0.7284

3%
0.9709
0.9426
0.9151
0.8885
0.8626
0.8375
0.8131
0.7894
0.7664
0.7441
0.7224
0.7014
0.6810
0.6611
0.6419
0.6232

4%
0.9615
0.9246
0.8890
0.8548
0.8219
0.7903
0.7599
0.7307
0.7026
0.6756
0.6496
0.6246
0.6006
0.5775
0.5553
0.5339

5%
0.9524
0.9070
0.8638
0.8227
0.7835
0.7462
0.7107
0.6768
0.6446
0.6139
0.5847
0.5568
0.5303
0.5051
0.4810
0.4581

6%
0.9434
0.8900
0.8396
0.7921
0.7473
0.7050
0.6651
0.6274
0.5919
0.5584
0.5268
0.4970
0.4688
0.4423
0.4173
0.3937

7%
0.9346
0.8734
0.8163
0.7629
0.7130
0.6663
0.6227
0.5820
0.5439
0.5083
0.4751
0.4440
0.4150
0.3878
0.3624
0.3878

8%
0.9259
0.8573
0.7938
0.7350
0.6806
0.6302
0.5835
0.5403
0.5002
0.4632
0.4289
0.3971
0.3677
0.3405
0.3152
0.3404

9%
0.9174
0.8417
0.7722
0.7084
0.6499
0.5963
0.5470
0.5019
0.4604
0.4224
0.3875
0.3555
0.3262
0.2992
0.2745
0.2518

10%
0.9091
0.8264
0.7513
0.6830
0.6209
0.5645
0.5132
0.4665
0.4241
0.3855
0.3505
0.3186
0.2897
0.2633
0.2394
0.2176

12%
0.8929
0.7972
0.7118
0.6355
0.5674
0.5066
0.4523
0.4039
0.3606
0.3220
0.2875
0.2567
0.2292
0.2046
0.1827
0.1631

15%
0.8696
0.7561
0.6575
0.5718
0.4972
0.4323
0.3759
0.3269
0.2843
002472
0.2149
0.1869
0.1625
0.1413
0.1229
0.1069

16%
0.8620
0.7431
0.6407
0.5523
0.4761
0.4104
0.3538
0.3050
0.2630
0.2267
0.1954
0.1685
0.1452
0.1252
0.1079
0.0930

17%
0.8547
0.7305
0.6244
0.5337
0.4561
0.3898
0.3332
0.2848
0.2434
0.2080
0.1778
0.1520
0.1299
0.1110
0.0949
0.0811

18%
0.8475
0.7182
0.6086
0.5158
0.4371
0.3704
0.3199
0.2660
0.2255
0.1911
0.1619
0.1372
0.1163
0.0985
0.0835
0.0708

17%
0.8547
1.5852
2.2096
2.7432
3.1993
3.5892
3.9224
4.2072
4.4506
4.6586
4.8364
4.9884
5.1183
5.2293
5.3242
5.4053

18%
0.8475
1.5656
2.1743
2.6901
3.1272
3.4976
3.8115
4.0776
4.3030
4.4941
4.6560
4.7932
4.9095
5.0081
5.0916
5.1624

20%
0.8333
0.6944
0.5787
0.4823
0.4019
0.3349
0.2791
0.2326
0.1938
0.1615
0.1346
0.1122
0.0935
0.0779
0.0649
0.0541

Present value annuity tables of R1

Prd
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

1%
0.9901
1.9704
2.9410
3.9020
4.8534
5.7955
6.7282
7.6517
8.5660
9.4713
10.3676
11.2551
12.1337
13.0037
13.8651
14.7179

2%
0.9804
1.9416
2.8839
3.8077
4.7135
5.6014
6.4720
7.3255
8.1622
8.9826
9.7868
10.5753
11.3484
12.1062
12.8493
13.5777

3%
0.9709
1.9135
2.8286
3.7171
4.5797
5.4172
6.2303
7.0197
7.7861
8.5302
9.2526
9.9540
10.6350
11.2961
11.9380
12.5612

Corporate Financial Management

4%
0.9615
1.8864
2.7751
3.6299
4.4518
5.2421
6.0020
6.7327
7.4353
8.1109
8.7605
9.3851
9.9857
10.5632
11.1185
11.6524

5%
0.9524
1.8594
2.7232
3.5460
4.3295
5.0757
5.7864
6.4632
7.1078
7.7217
8.3064
8.8633
9.3936
9.8986
10.3797
10.8378

6%
0.9434
1.8334
2.6730
3.4651
4.2124
4.9173
5.5824
6.2098
6.8017
7.3601
7.8869
8.3838
8.8527
9.2950
9.7122
10.1059

October 2014

7%
0.9346
1.8080
2.6243
3.3872
4.1002
4.7665
5.3893
5.9713
6.5152
7.0236
7.4987
7.9427
8.3577
8.7455
9.1079
9.4957

8%
0.9259
1.7833
2.5771
3.3121
3.9927
4.6229
5.2064
5.7466
6.2469
6.7101
7.1390
7.5361
7.9038
8.2442
8.5595
8.8999

9%
0.9174
1.7591
2.5313
3.2397
3.8897
4.4859
5.0330
5.5348
5.9952
6.4177
6.8052
7.1607
7.4869
7.7862
8.0607
8.3125

10%
0.9091
1.7355
2.4869
3.1699
3.7908
4.3553
4.8684
5.3349
5.7590
6.1446
6.4951
6.8137
7.1034
7.3667
7.6061
7.7692

Page 8 of 15

12%
0.8929
1.6901
2.4018
3.0373
3.6048
4.1114
4.5638
4.9676
5.3282
5.6502
5.9377
6.1944
6.4235
6.6282
6.8109
7.7130

15%
0.8696
1.6257
2.2832
2.8550
3.3522
3.7845
4.1604
4.4873
4.7716
5.0188
5.2377
5.4206
5.5831
5.7245
5.8474
5.9543

16%
0.8620
1.6051
2.2458
2.7981
3.2742
3.6846
4.0384
4.3434
4.6064
4.8331
5.0285
5.1970
5.3422
5.4676
5.5753
5.6683

20%
0.8333
1.5278
2.1065
2.5887
2.9906
3.3255
3.6046
3.8372
4.0310
4.1925
4.3271
4.4392
4.5327
4.6106
4.6755
4.7296

Future value tables of R1

Prd
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

1%
1.0100
1.0201
1.0303
1.0406
1.0510
1.0615
1.0721
1.0829
1.0937
1.1046
1.1157
1.1268
1.1381
1.1495
1.1610

2%
1.0200
1.0404
1.0612
1.0824
1.1041
1.1262
1.1487
1.1717
1.1951
1.2190
1.2434
1.2682
1.2936
1.3195
1.3459

5%
1.0500
1.1025
1.1576
1.2155
1.2763
1.3401
1.4071
1.4775
1.5513
1.6289
1.71030
1.7959
1.8856
1.9799
2.0789

6%
1.0600
1.1236
1.1910
1.2625
1.3382
1.4185
1.5036
1.5938
1.6895
1.7908
1.8983
2.0122
2.1329
2.2609
2.3966

7%
1.0700
1.1449
1.2250
1.3108
1.4026
1.5007
1.6058
1.7182
1.8385
1.9672
2.1049
2.2522
2.4098
2.5785
2.7590

Future value of an annuity of R1 per period

Prd
1%
2%
5%
6%
1
1.0000
1.0000
1.0000
1.0000
2
2.0100
2.0200
2.0500
2.0600
3
3.0301
3.0604
3.1525
3.1836
4
4.0604
4.1216
4.3101
4.3746
5
5.1010
5.2040
5.5256
5.6371
6
6.1520
6.3081
6.8019
6.9753
7
7.2135
7.4343
8.1420
8.3938
8
8.2857
8.5830
9.5491
9.8975
9
9.3685
9.7546 11.0266 11.4913
10 10.4622 10.9497 12.5779 13.1808
11 11.5668 12.1687 14.2068 14.9716
12 12.6825 13.4121 15.9171 16.8699
13 13.8093 14.6803 17.7130 18.8821
14 14.9474 15.9739 19.5986 21.0151
15 16.0969 17.2934 21.5786 23.2760
16 17.2579 18.6393 23.6575 25.6725

Corporate Financial Management

8%
1.0800
1.1664
1.2597
1.3605
1.4693
1.5869
1.7138
1.8509
1.9990
2.1589
2.3316
2.5182
2.7196
2.9372
3.1722

7%
1.0000
2.0700
3.2149
4.4399
5.7507
7.1533
8.6540
10.2598
11.9780
13.8164
15.7836
17.8885
20.1406
22.5505
25.1290
27.8881

9%
1.0900
1.1881
1.2950
1.4116
1.5386
1.6771
1.8280
1.9926
2.1719
2.3674
2.5804
2.8127
3.0658
3.3417
3.6425

8%
1.0000
2.0800
3.2464
4.5061
5.8666
7.3359
8.9228
10.6366
12.4876
14.4866
16.6455
18.9771
21.4953
24.2149
27.1521
30.3243

October 2014

10%
1.1000
1.2100
1.3310
1.4641
1.6105
1.7716
1.9487
2.1436
2.3579
2.5937
2.8531
3.1384
3.4523
3.7975
4.1722

9%
1.0000
2.0900
3.2781
4.5731
5.9847
7.5233
9.2004
11.0285
13.0210
15.1929
17.5603
20.1407
22.9534
26.0192
29.3609
33.0034

12%
1.1200
1.2544
1.4049
1.5735
1.7623
1.9738
2.2107
2.4760
2.7731
3.1058
3.4785
3.8960
4.3635
4.8871
5.4736

10%
1.0000
2.1000
3.3100
4.6410
6.1051
7.7156
9.4872
11.4359
13.5795
15.9378
18.5312
21.3843
24.5227
27.9750
31.7725
35.9497

15%
1.1500
1.3225
1.5209
1.7490
2.0114
2.3131
2.6600
3.0590
3.5179
4.0456
4.6524
5.3503
6.1528
7.0757
8.1371

17%
1.1700
1.3689
1.6016
1.8739
2.1924
2.5652
3.0012
3.5115
4.1084
4.8068
5.6240
6.5801
7.6987
9.0075
10.5387

18%
1.1800
1.3924
1.6430
1.9388
2.2878
2.6996
3.1855
3.7589
4.4355
5.2338
6.1759
7.2876
8.5994
10.1472
11.9737

20%
1.2000
1.4400
1.7280
2.0736
2.4883
2.9860
3.5832
4.2998
5.1598
6.1917
7.4301
8.9161
10.6993
12.8392
15.4070

12%
1.0000
2.1200
3.3744
4.7793
6.3528
8.1152
10.0890
12.2997
14.7757
17.5487
20.6546
24.1331
28.0291
32.3926
37.2797
42.7533

15%
1.0000
2.1500
3.4725
4.9934
6.7424
8.7537
11.0668
13.7268
16.7858
20.3037
24.3493
29.0017
34.3519
40.5047
47.5804
55.7175

17%
1.0000
2.1700
3.5389
5.1405
7.0144
9.2068
11.7720
14.7733
18.2847
22.3931
27.1999
32.8239
39.4040
47.1027
56.1101
66.6488

18%
1.0000
2.1800
3.5724
5.2154
7.1542
9.4420
12.1415
15.3270
19.0859
23.5213
28.7551
34.9311
42.2187
50.8180
60.9653
72.9390

Page 9 of 15

20%
1.0000
2.2000
3.6400
5.3680
7.4416
9.9299
12.9159
16.4991
20.7989
25.9587
32.1504
39.5805
48.4966
59.1959
72.0351
87.4421

17%
1.0000
2.1700
3.5389
5.1405
7.0144
9.2068
11.7720
14.7733
18.2847
22.3931
27.1999
32.8239
39.4040
47.1027
56.1101
66.6488

18%
1.0000
2.1800
3.5724
5.2154
7.1542
9.4420
12.1415
15.3270
19.0859
23.5213
28.7551
34.9311
42.2187
50.8180
60.9653
72.9390

19%
1.0000
2.1900
3.6061
5.2913
7.2966
9.6830
12.5227
15.9020
19.9234
24.7089
30.4035
37.1802
45.2445
54.8409
66.2607
79.8502

20%
1.0000
2.2000
3.6400
5.3680
7.4416
9.9299
12.9159
16.4991
20.7989
25.9587
32.1504
39.5805
48.4966
59.1959
72.0351
87.4421

Standard Normal Distribution Table

0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.0

0.00
0.0000
0.0398
0.0793
0.1179
0.1554
0.1915
0.2257
0.2580
0.2881
0.3159
0.3413
0.3643
0.3849
0.4032
0.4192
0.4332
0.4452
0.4554
0.4641
0.4713
0.4772
0.4821
0.4861
0.48928
0.49180
0.49379
0.49534
0.49653
0.49744
0.49813
0.49865
0.49903
0.49931
0.49952
0.49966
0.49977
0.49984
0.49989
0.49993
0.49995
0.49997

0.01
0.0040
0.0438
0.0832
0.1217
0.1591
0.1950
0.2291
0.2611
0.2910
0.3186
0.3438
0.3665
0.3869
0.4049
0.4207
0.4345
0.4463
0.4564
0.4649
0.4719
0.4778
0.4826
0.4864
0.48956
0.49202
0.49395
0.49547
0.49664
0.49752
0.49819
0.49869
0.49906
0.49934
0.49953
0.49968
0.49978
0.49985
0.49990
0.49993
0.49995
0.49997

0.02
0.0080
0.0478
0.0871
0.1255
0.1628
0.1985
0.2324
0.2642
0.2939
0.3212
0.3461
0.3686
0.3888
0.4066
0.4222
0.4357
0.4474
0.4573
0.4656
0.4726
0.4783
0.4830
0.4868
0.48983
0.49224
0.49413
0.49560
0.49674
0.49760
0.49825
0.49874
0.49910
0.49936
0.49955
0.49969
0.49978
0.49985
0.49990
0.49993
0.49996
0.49997

0.03
0.0120
0.0517
0.0910
0.1293
0.1664
0.2019
0.2357
0.2673
0.2967
0.3238
0.3485
0.3708
0.3907
0.4082
0.4236
0.4370
0.4484
0.4582
0.4664
0.4732
0.4788
0.4834
0.4871
0.49010
0.49245
0.49430
0.49573
0.49683
0.49767
0.49831
0.49878
0.49913
0.49938
0.49957
0.49970
0.49979
0.49986
0.49990
0.49994
0.49996
0.49997

Corporate Financial Management

0.04
0.0160
0.0557
0.0948
0.1331
0.1700
0.2054
0.2389
0.2704
0.2995
0.3264
0.3508
0.3729
0.3925
0.4099
0.4251
0.4382
0.4495
0.4591
0.4671
0.4738
0.4793
0.4838
0.4875
0.49036
0.49266
0.49446
0.49585
0.49693
0.49774
0.49836
0.49882
0.49916
0.49940
0.49958
0.49971
0.49980
0.49986
0.49991
0.49994
0.49996
0.49997

0.05
0.0199
0.0596
0.0987
0.1368
0.1736
0.2088
0.2422
0.2734
0.3023
0.3289
0.3531
0.3749
0.3944
0.4115
0.4265
0.4394
0.4505
0.4599
0.4678
0.4744
0.4798
0.4842
0.4878
0.49061
0.49286
0.49461
0.49698
0.49702
0.49781
0.49841
0.49886
0.49918
0.49942
0.49960
0.49972
0.49981
0.49987
0.49991
0.49994
0.49996
0.49997

October 2014

0.06
0.0239
0.0636
0.1026
0.1406
0.1772
0.2123
0.2454
0.2764
0.3051
0.3315
0.3554
0.3770
0.3962
0.4131
0.4279
0.4406
0.4515
0.4608
0.4686
0.4750
0.4803
0.4846
0.4881
0.49086
0.49305
0.49477
0.49609
0.49711
0.49788
0.49846
0.49889
0.49921
0.49944
0.49961
0.49973
0.49981
0.49987
0.49991
0.49994
0.49996
0.49998

0.07
0.0279
0.0675
0.1064
0.1443
0.1808
0.2157
0.2486
0.2794
0.3078
0.3340
0.3577
0.3790
0.3980
0.4147
0.4292
0.4418
0.4525
0.4616
0.4693
0.4756
0.4808
0.4850
0.4884
0.49111
0.49324
0.49492
0.49621
0.49720
0.49795
0.49851
0.49893
0.49924
0.49946
0.49962
0.49974
0.49982
0.49988
0.49992
0.49995
0.49996
0.49998

0.08
0.0319
0.0714
0.1103
0.1480
0.1844
0.2190
0.2517
0.2823
0.3106
0.3365
0.3599
0.3810
0.3997
0.4162
0.4306
0.4429
0.4535
0.4625
0.4699
0.4761
0.4812
0.4854
0.4887
0.49134
0.49343
0.49506
0.49632
0.49728
0.49801
0.49856
0.49997
0.49926
0.49948
0.49964
0.49975
0.49983
0.49988
0.49992
0.49995
0.49997
0.49998

0.09
0.0359
0.0753
0.1141
0.1517
0.1879
0.2224
0.2549
0.2852
0.3133
0.3389
0.3621
0.3830
0.4015
0.4177
0.4319
0.4441
0.4545
0.4633
0.4706
0.4767
0.4817
0.4857
0.4890
0.49158
0.49361
0.49520
0.49643
0.49736
0.49807
0.49861
0.49900
0.49929
0.49950
0.49965
0.49976
0.49983
0.49989
0.49992
0.49995
0.49997
0.49998

Page 10 of 15

FORMULAE SHEET
Ke

do
Po

Po

do
Ke

Kp

dp
Sp

Gordons Growth Model

Po

d o( l + g)
r g

Ke

d o( l + g)
+g
Po

Ke

dl
+g
Po

Ke

d o( l + g)
+g
Po f

Kd

I (l t)

and

Po

K (l t )
(l + r)n

+
Vn CR
n
(l + r)

Re

D1 + (P1 Po)
Po

WACC =

or

or

( E)
+
Keg
( E + D)

pxr

p(r r )

mx + c

Rm Rf

Po

Kd

d o( l + g)
Ke g

Ke

l( l - t)
Sd

d o( l + g)
+g
Po l

( D)
Kd (l t)
( E + D)

Corporate Financial Management

October 2014

Page 11 of 15

Rp

Rp

Rm Rf
p
m

Rf +

or

P
s
sm

Rf + (Rm Rf)

or

Rs

Rs Rf =

(Rm Rf)

F(rj) + 1 F1 + 2F2 + 3F3 + .... e

E(rj)

rf + 1 (r1 rf) + 2 (r2 rf) + 3 (r3 rf)

DOG =

MC
PBIT

Vd + Veg

Spread = 3 3

ug

I +v d( l t)

V eg

0.75 variance transaction cost

interest rate
2cd
h

MI
PBIT

Veng

Inventory costs =
P

or

Rf + (Rm Rf)

d
Q

x h + c x
Q
2

or

2 c d h

G I B D

Effective discount rate annualised

d
365

t
100 d

(l + n) = (l + r) x (l + i)
l+r

n i
l +i

or

l +n
r =
l +i

l+i

l +n
l +r

or

l +n
i =
l
l +r

l+n
l+i

Corporate Financial Management

October 2014

Page 12 of 15

 = +

( )
( + )

Profitability Index

PV
I

Altmans Z score
= 1.21 + 1.42 + 3.33 + 0.64 + 1.05
Where
( )
( )
1 =

2 =

()
( )

( )
( )
( )
4 =
( )
3 =

5 = ( )
St
So

l + if
l + id

l + rf
l + rd

l + if
l + id

l + rf
l + rd

St
So

ERT =
ER =

MV M MV A
NT MPA

MVT N A
NT (MVM MVT )

ER max =

EPS a
SE
+
EPS A EPS A N a

ER min =

EPS a N a
SE + EPS A N A

MP =

MPA ER
1
MPa

D
SGR = ( R i) p + R p
E

Corporate Financial Management

October 2014

Page 13 of 15

 =
=

365

=
=
=

=
=

+ +

=
=

+ +

Corporate Financial Management

October 2014

Page 14 of 15

 =
=

=
=

Corporate Financial Management

October 2014

Page 15 of 15