BCOM FIN - Financial Management 2A Jan 2017 SUP_Q3&Q5.xlsx...

POSTGRADUATE DIPLOMA IN
BUSINESS MANAGEMENT
SOLUTION BOOK
FINAL EXAMINATION MAY 2016

Question 5
Esta Enterprises
5.1.1 Project B
Investment R -450,000
Year 1 Cash flow 159,000
-291,000
Year 2 Cash flow 159,000
-132,000
Year 3 Cash flow 159,000
27,000
Year 4 Cash flow 159,000
Payback period is 2 years 10 months
Note:
R 159,000
9.9962 Months
5.1.2 Accounting rate of return: ProjectA
= Average annual profit X 100 Y1
36000
Average investment Y2
75000
= R 84,600 X 100 Y3
102000
(450000+60000)/2 Y4
129000
= 33.18% Y5
81000
423000 Average 84600
5.1.3 Project A
Year Cash inflow
Discount Present
Factor value
1 114,000 0.8929 101,791
2 153,000 0.7972 121,972
3 180,000 0.7118 128,124
4 207,000 0.6455 133,619
5 159,000 0.5674 90,217
5 (Scrap) 60,000 0.5674 34,044
Total PV 609,765
Investment -450,000
NPV (positive) 159,765
Project B
R159 000 X 3.6048 = 573,163
Investment -450,000
NPV (positive) 123,163
5.1.4 Project A
5.2
Rate 15 16 17
Cash Flow 129,000.00 129,000.00 129,000.00
Discount Factor 3.3522 3.2743 3.1993
PV Cash Flow 432,433.80 422,384.70 412,709.70
Investment -420,000.00 -420,000.00 -420,000.00
12,433.80 2,384.70 -7,290.30
IRR = 16% + R 2,385
2384.70+7290.3
= 16% + R 2,385
9675
= 16.25%
R132000 X 12 mths
It has a higher net present value.

Question 3 Solution
Armsco Limited
Traditional absorption System
Total Overheads 2,340,000.00
Total direct labour hours 180,000.00
Overheads per direct labour hour 13.00
Manufacturing Time
Product X Product Y Product Z Total
Labour Hours 162,000.00 16,200.00 1,800.00 180,000.00
Number of Units 108,000.00 3,600.00 180.00 111,780.00
Time per unit 1.50 4.50 10.00
Overhead cost per unit
Time per unit 1.50 4.50 10.00
Overheads per direct labour hour 13.00 13.00 13.00
19.50 58.50 130.00
Activity Based System
Activity Activity Cost Cost Driver volumes Activity rates