ACN3084-2010-10-E-1 - 1; UNIVERSITY EXAMINATIONS...

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Unformatted text preview: 1; UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS U N I SA :rmm AC N 3084 October/November 2010 FINANCIAL ANALYSIS, VALUATIONS AND RESTRUCTURING (ACCOUNTING 303) Duratlon 2 Hours 100 Marks EXAMINERS FIRST MRS C NEL MR MT NAMENG SECOND MR WD JONKER PROF M STEYN EXTERNAL PROF G VAN N VILJOEN Use of a non-programmable pocket calculator ls permrssrble Thus paper consrsts of 9 pages, as well as tables A and B (pages 1-") PLEASE NOTE: 1 ThlS paper consusts of FOUR (4) questions, as well as the followmg tables (I) Table A - Present value of R1 after I? years (n) TabIe B — Present value of R1 per annum for 11 years All questions must be answered Basrc workings, where applicable, must be shown Ensure that you are handed the correct examination SCl‘lpt (blue) by the mvrgrlator EACH QUESTION MUST BE COMMENCED ON A SEPARATE PAGE A combined final mark of 50% Is requrred to pass this module The final mark IS caIculated as follows (10% of marks obtalned for the first two assrgnments) + (90% of mark obtained In thlS examination) The year-mark Will only be taken Into account If a submlnlmum of 40% IS obtained for thrs examination O'JU'l-D-WM PROPOSED TIMETABLE Fmancral analysrs m Valuations Amalgamation Multrpie chorce questions [TURN OVER} QUESTION 1 (26 marks; 31 minutes) BHAZOOKA LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 SEPTEMBER 2010 ASSETS Non-cu rrent assets Fixed property at valuatlon Other fixed assets at carrying amount Goodwrll, patents and trademark Other financral assets Trade Investments Long~term loan Listed Investments Unllsted Investments Investment In unconsolldated subsrdlary at cost price Current assets Cash and cash equrvalents Trade and other recelvables Inventory TOTAL ASSETS EQUITY AND LIABILITIES Capital and reserves Equrty Issued share capltal (500 000 ordlnary shares of R0,80 each) Share premium Non-distributable reserves Distributable reserves — accumulated profit 9% Preference share caprtal (500 000 shares of R030) Minority Interest Non-current liabilities Interest bearing debt Debentures Long-term loans Deferred taxatlon Current liabilities DIVIdends payable Trade and other payables Bank overdraft Short-term borrowmgs Current portion of long—term loans TOTAL EQUITY AND LIABILITIES ACN308—4 Octhov 201 O 870 625 574 375 187 500 108 750 45 000 191 250 1 106 875 = 700 750 546 250 400 000 5 625 25 875 1 14 750 150 000 4 500 70 875 335 250 49 163 84 712 101 250 95 625 4 500 1 106 875 [TURN OVER] 3 ACN308-4 Octhov 2010 QUESTION 1 (continued) BHAZOOKA LIMITED CONDOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2010 R Turnover . 609 345 Gross profit 243 738 Operatan cost . 46 305 Operating profit 136 499 Investment Income Interest received on trade Investments and long-term loans 1 827 Listed Investments 176 Unlisted Investments 1 035 Unconsolldated SUbSldlarleS 1 013 Profit from operatlons 140 549 Finance cost 47 981 Profit before taxation 92 568 Taxation . . . 34 115 Profit after taxatlon 58 453 Mll‘lOl’lty share In profit 900 Net profit from ordlnary actuvrtles . 57 553 Unusual Item . 5 625 Net profit for the year . 51 928 Additional information: The followrng dlvrdends were declared on 28 July 2010 1 Preference dlvrdends 9% 2 Ordinary dIVIdends R25 000 The above drvrdends have already been accounted form the books of Bhazooka Ltd 3 At the end of the year all the Intanglble assets were consrdered to have a nil value due to the recessronary envrronment ThIS adjustment StlII needs to be processed 4 Ignore deferred taxation REQUIRED: ANSWER EACH SECTION INDEPENDENTLY OF EACH OTHER Section A Based on the finanCIal performance of Bhazooka Ltd, calculate the follownng Profitability ratios 1 Return on other assets (2) 2 Return on equrty (2) 3 Gross profit percentage (based on sales) (2) Section B Calculate the followmg, Capital Structure ratios and also explain their Significance 1 Total assets to total debts (4) 2 Total shareholders’ Interests to total assets (4) Section C Calculate the followmg Security of Income ratios and also explain their srgnrficance 1 Interest cover (3) 2 Preference dwrdend cover (3) 3 Ordinary drvrdend cover (3) 4 Break even turnover (3) [26] [TURN OVER] 4 ACN308-4 OctI'Nov 2010 QUESTION 2 (25 marks; 30 minutes) John Bradley appomted you to aSSISt mm to conclude a deal WIth Sammy RetaIl Stores (Pty) Ltd The deal comprIses Mr Bradley achIrIng the company's ordInary retaIl busmess Mr Bradley Is not Interested In buyIng the company as such, that Is, Its shares You have already conducted an InvestIgatIon and confirmed the followmg 2008 2009 2010 R R R Profit resultIng from retaII actIVItIes 681 100 752 712 853 970 Other losses suffered 100 104 712 84 560 DIVIdends recered on an Investment In lIsted shares 12 000 9 800 11 580 Rates and taxes mm In respect of an Investment In vacant land 8 000 10 000 12 000 Profit before tax . . . 685 000 647 800 768 990 Tax 111 930 222 814 252 591 Profit after tax 573 070 424 986 516 399 Notes made durlng the course of the InvestIgatIon The followmg Items were Included In the profit from retaIl actIVItIes Interest paId (fInancmg of property) . 32 000 28 000 36 000 OperatIonal lease expense In respect of premlses 18 000 19 800 21 780 Damage due to water leakage not recovered from Insurance company - 15 800 - In addItIon to the above. you have determIned that a far rent for swtable premlses to conduct the retaII actIVItIes would amount to R21 000 Other InformatIon A fan rate of return for busmesses conductIng SImIlar retaIl actIVItIes amounts to 14% per annum after tax Assume a tax rate of 30% M: (a) Calculate a fan earnlngs before tax for the company's retaIl actIVItIes for each finanCIal year and determIne a growth rate (12) (b) ExplaIn how the fan rate of return after tax should be applred In the valuatIon (2) (c) Place a value on the retaII busmess of the company by usmg the earnIngs erld method, also known as the capItaIIsatIon of future earnlngs method (5) (d) BrIefly dIscuss the Impact that a 2% hIke In the faIr rate of return before tax wouid have on the value of the retaIl busmess (4) (9) Name and brIefly dIscuss two dIsadvantages of usmg the fan earnIngs erld I capItalIsatIon of earnIngs method, based on an assumptIon that a 100% dIVIdend pay-out who would be maIntaIned Indefinltely (2) [25] [TURN OVER] 5 ACN308-4 Oct/Nov 2010 QUESTION 3 (25 marks; 30 minutes) The followmg are the abridged statements of financaal pOSItIOI'I of Wekeyo Plant Hire Ltd and Boston Properties Ltd at 28 February 2010 Wekeyo Boston Plant Hire Properties Ltd Ltd R R ASSETS Non-current assets 46 000 436 000 Investments at cost: Shares to Boston Properties Ltd 25 000 - Shares In Wekeyo Plant Hrre Ltd - 20 000 Current assets 9 000 184 000 TOTAL ASSETS 80 000 640 000 EQUITY AND LIABILITIES Capital and reserves Share capital 10 000 500 000 Share premium - 50 000 Retained Income 70 000 90 000 TOTAL EQUITY AND LIABILITIES 80 000 640 000 Additional information: 1 Share capital Wekeyo Plant Hire Ltd Authorised and Issued 10 000 Ordinary shares of R1 ,00 each Boston Properties Ltd Authorised 500 000 Ordinary shares of R2,00 each Issued 250 000 Ordinary shares of R2,00 each Conco Ltd Authorised 700 000 Ordinary shares of R1 ,00 each 2 Investments Wekeyo Plant HIre Ltd holds 25% of the Issued share capital of Boston Properties Ltd, and Boston Properties Ltd Holds 20% of the Issued share capital of Wekeyo Plant Hire Ltd 3 Since the operations of the two companies are complementary It was deCIded that the two companies Will be amalgamated Into a new company Conco Ltd 4 The future net operatlng Income after tax (excluding Investment Income) of Wekeyo Plant Hire Ltd IS estimated to be R24 500 per annum Conco Ltd Will take over all Wekeyo Ltd’s assets at a value based on a Pnce Earnings of 5(PIE) of Wekeyo's operating Income The excess of the calculated value of Wekeyo Plant Hire Ltd over and above Its net asset value IS consrdered to be goodwull Balance sheet values of Wekeyo Plant Hire Ltd are consndered to be fair [TURN OVER] 6 ACN308-4 Oct/Nov 2010 QUESTION 3 (continued) 5 The price of Boston Properties Ltd. excludlng the value of the Investment In Wekeyo Plant Hire Ltd Is set at R650 000 The excess of the calculated value ofrBoston Properties Ltd over and above Its net asset value IS consudered to be goodWIll Balance sheet values of Boston Properties Ltd are consrdered to be fair 6 The purchase price Will be paid by Issuing shares of Conco Ltd to the shareholders of Wekeyo Plant Hire Ltd and Boston Properties Ltd at 110 cents per share REQUIRED: (a) (b) (0) Calculate the goodwrll to be dlSClOSBd In the books of Conco Ltd after the amalgamation has taken place (6) Calculate the amount of shares to be Issued to the shareholders of Wekeyo Plant Hire Ltd and Boston Properties Ltd (14) (5) [25] Prepare the statement of fmancral posrtlon of Conco Ltd after completion of the above scheme [TURN OVER] 7 ACN308-4 OCUNOV 2010 QUESTION 4 (24 marks; 29 minutes) The question conststs of eight multiple chorce questions, each of which must be consudered Independently unless specrfically Indicated otherwuse Each question has only one correct answer and must be answered In the followmg manner Example 4 1 4 2 43 44 45 46 47 48 (DEG—000.00) USE THE FOLLOWING INFORMATION WITH REGARD TO A GROUP OF MANUFACTURING COMPANIES FOR PURPOSES OF ANSWERING QUESTIONS 4.1, 4.2 AND 4.3 Return on eqUIty before taxatlon 40% Return on equlty after taxation . . 30% Return on capital employed 15% Return on assets 20% Return on group shareholders’ Interest 5% Return on total shareholders' Interest 10% 4 1 Determine the COI'Itl'lbUtIOl'l of short-term fmancuers to the total leverage effect (a) 5% (b) 1 0% (c) -5% (d) -10% (e) None of the above (3) 4 2 Determine the COI‘ItI’IbUtIOl‘l of lTllI'lOl’lty shareholders to the total leverage effect (a) 5% (b) 10% (c) -5% (d) 40% (e) None of the above (3) 4 3 Determine the total leverage effect (a) 30% (b) 20% (c) 1 5% (d) 10% (e) None of the above (3) 4 4 Determine the sustainable growth rate of a company If the return on equity amounts to 25% and the pay—out ratio to 30% (a) 25% (b) 22.5% (:2) 18,75% (d) 17.5% (e) None of the above (3) [TURN OVER] 8 AC N308—4 Octhov 2010 QUESTION 4 (continued) 45 46 Determine the value of a 10% non-redeemable debenture wrth a face value of R1 200 if a fair rate of return l5 consrdered to be 12% R1 000 R1 200 R1 440 RBI-$3.33 None of the above (a) (b) (c) (d) (e) (3) Calculate the earnings of a company If Its shares trade at R300, With a price earnings ratio of 5, and 50 000 shares In issue (3) R15 000 000 (b) R 7 500 000 (c) R 2 500 000 (d) R 3 000 000 (e) None of the above (3) THE FOLLOWING INFORMATION MUST BE USED FOR PURPOSES OF ANSWERING QUESTIONS 4.? AND 4.8: The followmg Information Is made available In respect of the partners Xatr, Yzelle and Zama who decrded to convert their partnership Into a company Partnership information before conversion has taken place: Xati Yzelle Zama R R R Capital accounts 200 000 200 000 200 000 Interest at 10% 20 000 20 000 20 000 Salaries per annum 40 000 50 000 60 000 Profit sharing ratio 5 2 1 Company information after conversion has taken place Ordinanlzy shares 200 000 80 000 40 000 10% 2 Priority long-term loan - 120 000 60 000 10% 1st Prlorlty long-term loan - - 100 000 47 Indicate whlch one of the followmg amounts represents the Interest payable to Zama when calculating the order of precedence and extent of claims against Income (a) R 6 000 (b) R12 000 (0) R16 000 (d) R18 000 (e) None of the above (3) [TURN OVER] 9 ACN308-4 Oct/Nov 2010 QUESTION 4 (continued) 4 8 Indicate which one of the followmg combinations of amounts represents the directors' remuneration payable to the directors when calculating the order of precedence and extent of claims against Income Xatl Yzelle Zama (a) R20 000 R 8 000 R 4 000 (b) R20 000 R20 000 R20 000 (0) R40 000 R50 000 R60 000 (d) R0 R12 000 R16 000 (e) None of the above (3) [24] © UNISA 2010 [TURN OVER] ACN3084 Octhov 2010 (I) Z hmmf flame oxuom flaw KEN $0M fluvm o\aNN n\oom exam F axaw .. exam r oxae e {ow r exec? exam $0 $1 axon flu « Emma. m<<fi 2 <2 5. 245 mam—<55 m0_nm_00>>wzm_m._. ‘ mm<m> z Kuhn: rm "—0 m:._<> hzwwmxn. < 4mm<._. ‘ < MJm<._. 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This note was uploaded on 09/19/2011 for the course ACN ACN3084 taught by Professor None during the Summer '11 term at University of South Africa.

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ACN3084-2010-10-E-1 - 1; UNIVERSITY EXAMINATIONS...

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