FMA101 Financial Management Assignment Solutions Online

 

Assignment Detail:-

• Number of Words: 2500

 

Are you stuck at FMA101 Financial Management Assignment Question and Answer? Assignmenttask.com provides Financial Management Assignment Help at a nominal price. Hire our assignment experts who deliver 100% plagiarism free assistance to students. In order to find best written help solutions, students should place an order with us rather typing can someone write my homework online.

 

 

Question 1

Asambe (Pty) Ltd is a newly registered company that wants to invest in a new machine. The chief executive officer (CEO) recently heard about the term “weighted average cost of capital” (WACC) and the important role it plays in capital investment decisions.

The CEO wants to know more about what the WACC means as well as what Asambe’s WACC is.

The following financial information is available to you:

	2023 market values
Equity
– Share capital	R100 000
– Preference share capital	R50 000
Non-current liabilities
– Good Bank loan account	R70 000

Additional information:

• The shareholders of ordinary shares expect a return of 12%.
• The shareholders of preference shares expect a return of 15%.
• Similar loans have a yield to maturity of 5% per annum.
• Income tax rate is 30%.

Required:

Note: Round off all answers to the nearest two decimals.

• Explain to the CEO what the WACC of a company means. (6)
• Calculate Asambe’s WACC using the above (13)

Question 2

You are the financial manager of Uthando (Pty) Ltd. Uthando recently concluded a contract with Bona (Pty) Ltd to market and sell generators manufactured by Bona (Pty) Ltd. Uthando will buy the generators, pack it and resell it to the public.

Uthando needs funding of R100 000 from its bank to fund the first month’s operational expenses and, therefore, has to present a three-month cash flow forecast on how the funding will be utilised beginning January 2023.

The following information is available:

• Uthando’s projected sales are R50 000 for January, R120 000 for February, R180 000 for March and R210 000 for April.
• Cash sales are expected to be 40% of the total sales. Debtors buying on credit must repay their debt 40% in the month following the purchase, 35% in the month after that and 25% in the last month.
• Purchases are 65% of sales.
• Uthando buys all stock on credit and needs to repay Bona 60% in the month following the purchase and 40% in the second month following the purchase.
• Monthly rent is R30 000.
• Salaries are R15 000 per month and are expected to increase by 10% from March.

Required:

Note: Round off all calculations to the nearest rand.

Prepare a cash flow forecast from January to April and calculate the closing cash balance at the end of each month.

Question 3

You are working for Amandla (Pty) Ltd. Amandla rents out office space to different small businesses at a monthly rate in an office building that it owns. Amandla’s directors are considering investing in a solar system to address the electricity supply problems that its tenants currently have to deal with. The purchase of the solar system will result in an increase in the monthly rent of all the occupants of the building. The directors asked you to assist them to decide whether they should purchase the solar system.

You have the following information at your disposal:

• The cost price for the solar system is R380 000.
• The total monthly rental invoices will increase to R8 000 per month for the first year and thereafter the rent will be increased by 10% per year.
• The company’s weighted average cost of capital is 14%.
• The directors will consider reinvestment after 5 years.

Required:

Note: Round off all calculations to the nearest rand.

Calculate the net present value of the solar system and advise the directors whether they should invest in this system or not.

Question 4

Share More (Pty) Ltd is considering expanding its current share portfolio investments to mitigate its risk profile. The company’s management consider themselves conservative investors with an expected return of 15%.

The financial manager knows that you have passed your Financial Management exam and asked you to assist him with the calculations.

The manager collected the following information for the purposes of evaluating the different risks and returns:

Company	Expected return	Standard deviation
Impahla	14%	4.2%
Khula	17%	3.5%
Umvuzo	18%	2.1%

The covariance between Impahla and Khula is 0.01 and the covariance between Impahla and Umvuzo is 0.0.

Required:

Note: Show all calculations and round off your answers to two decimals.

• Calculate the portfolio return and standard deviation for the portfolio consisting of 50% of Impahla and 50% of Khula shares.
• Calculate the portfolio return and standard deviation for the portfolio consisting of 40% of Impahla and 60% of Umvuzo shares.
• Considering your calculations above, in which one of the two-share portfolios identified above should Share More (Pty) Ltd invest?