ANSWER SHEET COVER

MATRIC NO MC200912013
PROGRAMME Master of Business Administration (Online)
COURSE CODE GSFM7514
COURSE TITLE Accounting & Finance for Decision Making
SEMESTER 2
SECTION MC-O22
DATE 20/12/2020

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Accounting & Finance for Decision Making (GSFM7514) CONFIDENTIAL
September 2020 Final Examination

Matric No: MC200912013

ANSWER SHEET
Type or insert your scanned answer on this answer booklet.
-------------------------------------------------------------------------------------------------------------------------------
QUESTION 1 (A)

1. ROCE

= 3400 / 34600

= 0.10 %

2. Net Assets

= 56000/1000+ 10200

= 5 times

3. Gross profit margin

= 56000- 42000/ 56000 * 100%

= 0.25 *100%

= 25%

4. Operating profit margin

= 3400/56000

= 6.07%

5. Current ratio

= 11200/7200

= 1.56

6. Average inventory turnover

= 42000/83000+10200 /2

= 42000/9280

= 4.54

7. Trade payable payment period

= 5400/15900 * 365

= 124

8. Debt to equity

= 15200/26600

= 0.57

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Accounting & Finance for Decision Making (GSFM7514) CONFIDENTIAL
September 2020 Final Examination

Matric No: MC200912013

QUESTION 1 (B)

ROCE

Earnings before interest and Taxes (EBIT) / Capital employed

Price before tax 3400

Financial cost 800

So EBIT 4200

Hence capital employed = total assets – current liability which is 34,600

Return on capital employed is 0.1213872383 and Rose jewel return on capital employed in % is 12.14%
while industry margin of jewellery retails store of ROCE is 16.80%. SO conclusion ROSE JEWEL way
slightly below industry standard for ROCE by 4.66%

A company increases its financial leverage when it raises the proportion of debt relative to equity used
to finance the business. Unlike the profit margin and the asset turnover ratio, where more is generally
preferred to less, financial leverage is not something management necessarily wants to maximize, even
when doing so increases ROE. Instead, the challenge of financial leverage is to strike a prudent balance
between the benefits and costs of debt financing

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Accounting & Finance for Decision Making (GSFM7514) CONFIDENTIAL
September 2020 Final Examination

Matric No: MC200912013

QUESTION 2 (A)

Training costs and shipping costs are included because it is part of the fixed cost and haven’t of payment
has been made.

QUESTION 2 (B)

Cost of equity = 4% +(8%-4%)1.5 = 10%

WACC =0.5(8%) + 0.5(10%) = 9%

QUESTION 2 (C)

Terminal Value of old

asset
CF
Book value 140000
Disposal value 90000 90000
Loss on
disposal -50000
(+) tax savings
(28%) 14000
Terminal Value of old
asset 104000

Initial outlay of new

asset

Asset cost 150000

(+) Installation and shipping cost 15000
Total Cost 165000
(+) NOWC 0
(-) Terminal value of old
asset 104000
Initial outlay of new
asset 61000

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Accounting & Finance for Decision Making (GSFM7514) CONFIDENTIAL
September 2020 Final Examination

Matric No: MC200912013

QUESTION 2 (C)

Depreciation Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr10
Old
Asset 20000 20000 20000 20000 20000
New Asset 33000 33000 33000 33000 33000
  13000 13000 13000 13000 13000

Discounted Cash Inflow

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Total
Increase sales 40000 40000 40000 40000 40000
(-) Increase acc payable 10000 110000 10000 10000 10000
(-) Increase inventory 20000 20000 20000 20000 20000
(-) Depreciation 13000 13000 13000 13000 13000
Net Profit Before Tax (3000) (3000) (3000) (3000) (3000)
(-)Tax Payable (28%) (840) (840) (840) (840) (840)
(2160) (2160) (2160) (2160) (2160)
(+) Depreciation 13000 13000 13000 13000 13000
10840 10840 10840 10840 10840
PVIF (9%) 0.9174 0.8417 0.7722 0.7084 0.6499
42163.26
9944.616 9124.028 8370.648 7679.056 7044.916 4

Terminal value of new asset

CI
16500
Total Cost 0
65000
(-)Acc. Depreciation 0
14000
Book Value 0
Disposal Value 90000 90000
Gain on disposal value 0 0
(+) NOWC 0
90000
PVIF (9%,5) 0.6499
58491

NPV = Discounted cash inflow + terminal value (new asset) - Initial outlay new asset
42163.264+ 58491 - 61000
= 39654.264

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Accounting & Finance for Decision Making (GSFM7514) CONFIDENTIAL
September 2020 Final Examination

Matric No: MC200912013

QUESTION 2 (D)

Yes should procced buy new machine because the NPV is positive and they are running under profitable.

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