Faculty FBA

Assessment Name

(Eg: End/Sup) ICAs 4,5,6 Paper Code B7-CFI-

13/A22/I4,5,6

Module Name Corporate

Finance Module Code B7-CFI-13

Semester

( E.g Jul-Dec-2021) Jan - July

2022 Submission Mode

(E.g Turnitin, blackboard, hardcopy) Blackboard

Total Marks Reflected per

Assessment Duration 10-20 April 2022

Assessment Type

(Eg:

Written/Practical/Submission) Written Exam/Submission

Date 20 April 2022

Instructions

1. The assignment is due on the 20th of April 2022.

2. Any work submitted after the due date will not be accepted or marked.

3. This is a Group Assignment of 4 and Names of members of the group must be indicated on the answer booklet. Failure to do so will mean that your work cannot be marked.

4. Answer ALL questions.

5. Answers should be clear and readable.

ICA 4 [20 marks]

Answer all questions and show your workings to receive full credit.

Bambino (Pty) Ltd manufactures umbrellas from its factory in Gabane industrial area selling each for $100. The material cost for each standard umbrella is $30. The fixed costs incurred each year for factory upkeep and administration expenses are $200 000. The machinery costs $1 million and is depreciated straight line over 10 years to a salvage value of zero. The tax rate is 35%, the project has a 10-year life, and the discount rate is 12 %.

a. If the sales are 7000 umbrellas each year, lay out the annual cash flow for Bambino (Pty) Ltd. (15 marks)

b. What is the Net Present Value for the project? (5 marks)

ICA 5 [30 marks]

Answer all questions and show your workings to receive full credit.

QUESTION 1

The Botswana government bond: BW 001 is a level coupon bond as of January 1, 2002. This is a 6.375% coupon rate bond with coupons paid semi-annually and maturity period ending 31st December 2009. The yield to maturity is 5%, while the par value of the bond is $1000.

Calculate the present value of the bond. (10 marks)

QUESTION 2

Molapo Industries is expected to generate net cash flows of $5, 000,000 in the first year and $2, 000,000 for each of the next five years. The company can be sold for $10, 000,000 seven years from now. Comparable investments in the market earn 10 percent interest compounded annually.

a. Calculate the present value of Molapo Industries. (15 marks)

b. Calculate the NPV of the company if it cost $12 000 000 to acquire the company from current owners. (5 marks)

ICA 6 [20 marks]

Answer all questions and show your workings to receive full credit.

Below is the state of the economy that offer potential to invest in assets X and asset Y. NB: The returns are already converted from the percentages.

State of the Economy Return on X Return on Y

Depression -0.20 0.05

Recession 0.10 0.20

Normal 0.30 -0.12

Boom 0.50 0.09

Calculate:

i. Expected return for X and Y (4 marks) ii. Variance for X and Y (8 marks) iii. Standard deviation for X and Y. (4 marks) iv. Briefly, differentiate between systematic risk and firm specific risk giving examples for each. (4 marks)

Assessment Name

(Eg: End/Sup) ICAs 4,5,6 Paper Code B7-CFI-

13/A22/I4,5,6

Module Name Corporate

Finance Module Code B7-CFI-13

Semester

( E.g Jul-Dec-2021) Jan - July

2022 Submission Mode

(E.g Turnitin, blackboard, hardcopy) Blackboard

Total Marks Reflected per

Assessment Duration 10-20 April 2022

Assessment Type

(Eg:

Written/Practical/Submission) Written Exam/Submission

Date 20 April 2022

Instructions

1. The assignment is due on the 20th of April 2022.

2. Any work submitted after the due date will not be accepted or marked.

3. This is a Group Assignment of 4 and Names of members of the group must be indicated on the answer booklet. Failure to do so will mean that your work cannot be marked.

4. Answer ALL questions.

5. Answers should be clear and readable.

ICA 4 [20 marks]

Answer all questions and show your workings to receive full credit.

Bambino (Pty) Ltd manufactures umbrellas from its factory in Gabane industrial area selling each for $100. The material cost for each standard umbrella is $30. The fixed costs incurred each year for factory upkeep and administration expenses are $200 000. The machinery costs $1 million and is depreciated straight line over 10 years to a salvage value of zero. The tax rate is 35%, the project has a 10-year life, and the discount rate is 12 %.

a. If the sales are 7000 umbrellas each year, lay out the annual cash flow for Bambino (Pty) Ltd. (15 marks)

b. What is the Net Present Value for the project? (5 marks)

ICA 5 [30 marks]

Answer all questions and show your workings to receive full credit.

QUESTION 1

The Botswana government bond: BW 001 is a level coupon bond as of January 1, 2002. This is a 6.375% coupon rate bond with coupons paid semi-annually and maturity period ending 31st December 2009. The yield to maturity is 5%, while the par value of the bond is $1000.

Calculate the present value of the bond. (10 marks)

QUESTION 2

Molapo Industries is expected to generate net cash flows of $5, 000,000 in the first year and $2, 000,000 for each of the next five years. The company can be sold for $10, 000,000 seven years from now. Comparable investments in the market earn 10 percent interest compounded annually.

a. Calculate the present value of Molapo Industries. (15 marks)

b. Calculate the NPV of the company if it cost $12 000 000 to acquire the company from current owners. (5 marks)

ICA 6 [20 marks]

Answer all questions and show your workings to receive full credit.

Below is the state of the economy that offer potential to invest in assets X and asset Y. NB: The returns are already converted from the percentages.

State of the Economy Return on X Return on Y

Depression -0.20 0.05

Recession 0.10 0.20

Normal 0.30 -0.12

Boom 0.50 0.09

Calculate:

i. Expected return for X and Y (4 marks) ii. Variance for X and Y (8 marks) iii. Standard deviation for X and Y. (4 marks) iv. Briefly, differentiate between systematic risk and firm specific risk giving examples for each. (4 marks)

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