UNIVERSITY OF MAURITIUS

FACULTY OF INFORMATION, COMMUNICATION AND DIGITAL TECHNOLOGIES

SECOND SEMESTER EXAMINATIONS

MAY 2018

PROGRAMME MSc Software Project and Management – Level 1

MODULE NAME Accounting and Finance for Project Managers

DATE Saturday MODULE CODE DFA 6233

19 May 2018

TIME 09.30- 12.30 hrs DURATION 3 Hours

NO. OF 4 NO. OF QUESTIONS 4

QUESTIONS SET TO BE ATTEMPTED

INSTRUCTIONS TO CANDIDATES

Answer ALL questions.

All questions carry equal marks.

 DFA 6233- ACCOUNTING AND FINANCE FOR PROJECT MANAGERS

Question 1

A research project which to date has cost the company $150,000 is currently under
review. If the project were allowed to proceed, it will be completed in approximately
one year, subsequent to which the results would be sold to a government agency for
$300,000.

Shown below are the additional expenses which the managing director estimates will
be necessary to complete the work.
Materials:

The materials required have just been purchased at a cost of $60,000. They are toxic and,
if not used in this project must be disposed of at a cost of $5,000.
Labour:
Skilled labour is hard to recruit. The workers concerned have been transferred to this
project from a production department, and the production manager claims that if the
men were returned to him they could generate sales of $150,000 in the next year. The
prime cost of these sales would be $100,000 including $40,000 for the labour cost itself.
The overhead absorbed into this production would amount to $20,000.
Research staff:
It has already been decided that when work on this project ceases, the research
department will be closed. Research wages for the year are $60,000, and redundancy
and severance pay has been estimated at $15,000 now, or $35,000 in one years time.
Equipment:

The project utilises a special microscope which cost $18,000 three years ago. It has a
residual value of $3,000 in another two years, and a current disposal value of $8,000. If
used in the project it is estimated that the disposal value in a years time will be $6,000.

Share of general building services:

The project is charged with $35,000 p.a. to cover its share of general building expenses.
Immediately the project is discontinued, the space occupied by the project could be sub-
let for an annual rental of $7,000.

Required: Advise the managing director as to whether or not the project should be
allowed to proceed, explaining your reasons for the treatment of each item. (Ignore
the time value of money)
(Total: 25 Marks)
(continued next page)

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 DFA 6233- ACCOUNTING AND FINANCE FOR PROJECT MANAGERS

QUESTION 2

(i) Daiga plc is considering launching a new product. This will require additional
capital investment of $200,000.

The selling price of the product will be $10 p.u.Daiga has ascertained that the
probability of a demand of 50,000 units p.a. is 0.5, with a probability of 0.4 that it will be
20% higher, and a 0.1 probability that it will be 20% lower.

The company expects to earn a contribution of 50% and expects fixed overheads to
increase by $140,000 per year.

The time horizon for appraisal is 4 years. The machine will be sold at the end of 4 years
for $50,000. The cost of capital is 20% p.a.
Required:

(a) Calculate the expected NPV of the project

[8 marks]
(b) Assuming that the demand is certain at 50,000 units p.a. what is the NPV of the
project if fixed overheads are uncertain as follows:

Fixed overheads Probability

100,000 0.20

140,000 0.35

180,000 0.25

220,000 0.20
[9 marks]
(ii) X plc is an oil company with a gearing ratio (debt to equity) of 0.4. Shares in X plc
have a β of 1.48

They are considering investing in a new operation to build ships, and have found a
quoted shipbuilding company – Y plc. Y plc has a gearing ratio (debt to equity) of 0.2,
and shares in Y plc have a β of 1.8.

The market return is 18% and the risk free rate is 8%.

Corporation tax is 25%

Required: Calculate the project specific cost of equity

[8 marks]
(Total: 25 Marks)
(continued next page)

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 DFA 6233- ACCOUNTING AND FINANCE FOR PROJECT MANAGERS

QUESTION 3
Statement of Financial Position at 31 December
2017 2016
Non-current assets 300,000 320,000

Current assets 80,000 70,000

380,000 390,000

Ordinary Share capital (10c shares) 60,000 60,000

7% Preference shares ($1 shares) 40,000 40,000

Reserves 160,000 140,000

260,000 240,000

6% Debentures 100,000 100,000

Current liabilities 20,000 50,000

380,000 390,000

Statement of Profit or Loss for the year ended 31 December

2017 2016
Sales 510,000 480,000

Profit before interest and tax 52,000 49,000

Interest 6,000 6,000

Profit before tax 46,000 43,000

Tax 12,000 10,000

Net profit after tax 34,000 33,000

Dividends: -

Ordinary shares 20,000 15,000

Preference shares 2,800 2,800

Retained profit 11,200 15,200

(continued next page)

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 DFA 6233- ACCOUNTING AND FINANCE FOR PROJECT MANAGERS

The market values at 31 December:

2017 2016
ordinary shares $0.83 $0.72
preference shares $0.90 $1.01
6% debentures $110 $118

Required: Calculate (for each of the two years) the following ratios:
(i) Debt holder ratios: -
• Interest cover

• Interest yield
[8 marks]
(ii) Shareholder ratios:
• Dividend per share

• Dividend cover

• Dividend yield

• Earnings per share (EPS)

• Price earnings ratio (P/E ratio)

[17 marks]
(Total: 25 Marks)

QUESTION 4

4(a) The balanced scorecard process allows an organisation to align and focus all its
resources on its strategy. Describe the 7 ingredients of a highly successful balanced
scorecard program.
[7 marks]
4(b) (i) Describe the ‘six sigma’ business process and its objectives.
[6 marks]
(ii) Describe the ‘six sigma’ points out.
[5 marks]
(iii) Explain the difference between ‘Total Quality Management’ and ‘Six Sigma’
[7 marks]
(Total: 25 Marks)

END OF QUESTION PAPER

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