FIN3701/101/3/2022

Tutorial Letter 101/3/2022

Financial Management
FIN3701

Semester 2

Department of Finance, Risk Management and

Banking
IMPORTANT INFORMATION
Please register as a user of myUnisa platform as soon as possible. It is free of charge. Visit
https://my.unisa.ac.za for details. On myUnisa, you will be able to get in touch with fellow students, submit
your assignments, update your details, find self-assessment questions (where applicable) and participate
in discussion forums. You should therefore activate your myUnisa and myLife e-mail addresses and
ensure that you have regular access to the myUnisa module website for FIN3701-2022 (S2).

Please note that this module is presented online only. All the study material will be made available
on myUnisa under the “Official Study Material” option and/or under “Learning Units”.

Please note that this module carries 12 credits. Take note of Rule 12 in the Study @ Unisa brochure,
which you received with your study material. You must pass at least four modules of 12 credits each or
two modules of 24 credits each per year. Students who do not comply with this requirement will be
excluded from further admission to the university.

Open Rubric
 CONTENTS
Page

1 INTRODUCTION ............................................................................................................................ 3
2 PURPOSE AND OUTCOMES ........................................................................................................ 3
2.1 Purpose .......................................................................................................................................... 3
2.2 Outcomes ....................................................................................................................................... 3
3 CURRICULUM TRANSFORMATION……………………………………………………………………4

4 CONTACT DETAILS ...................................................................................................................... 4

4.1 Lecturer(s) ...................................................................................................................................... 4
4.2 Department ..................................................................................................................................... 4
4.3 University ........................................................................................................................................ 4
5 RESOURCES ................................................................................................................................. 5
5.1 Prescribed books ............................................................................................................................ 5
5.2 Recommended book ....................................................................................................................... 5
5.3 Electronic reserves (e-reserves) ..................................................................................................... 5
5.4 Library services and resources information .................................................................................... 5
6 STUDENT SUPPORT SERVICES ................................................................................................. 6
7 STUDY PLAN ................................................................................................................................. 6
8 PRACTICAL WORK ....................................................................................................................... 6
9 ASSESSMENT ............................................................................................................................... 6
9.1 Assessment criteria ........................................................................................................................ 6
9.2 Assessment plan ............................................................................................................................ 7
9.3 Assignment numbers ...................................................................................................................... 8
9.3.1 General assignment numbers ......................................................................................................... 8
9.3.2 Unique assignment numbers .......................................................................................................... 8
9.4 Assignment due dates .................................................................................................................... 8
9.5 Submission of assignments ............................................................................................................ 8
9.6 Assignments ................................................................................................................................. 10
10 CONCLUDING REMARKS .......................................................................................................... 13

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1 INTRODUCTION
Welcome to the module Financial Management (FIN3701). You have enrolled for an interesting,
but challenging module. To be successful in this module, you will have to devote at least 120
hours to reading and summarising information and doing the assignments.

Do not hesitate to contact us on myUnisa, by e-mail or by telephone if you have problems with
the content of this tutorial letter or any aspect of the module. We sincerely hope that you will find
this module as well as your online learning experience interesting and rewarding, and trust that
you will complete the module successfully.

Please provide Unisa with your cellphone number because important announcements may be
sent to you by SMS. Check your myLife e-mail address regularly for announcements.

2 PURPOSE AND OUTCOMES

2.1 Purpose

The purpose of this module is to equip you with the knowledge and skills you need to make
long-term investment and financing decisions in line with the goal of shareholder wealth
maximisation.

2.2 Outcomes

On completion of this module, you should be able to do the following:

• Undertake long-term investment appraisal by applying recognised capital budgeting

techniques.
• Identify sources of financing and advise management on the most appropriate sources and
cost of financing for the business.
• Determine the target capital structure and the value of the business.
• Advise management on dividend policy decisions in line with the goal of shareholder wealth
maximisation.
• Make a lease versus a buy decision.
• Outline important considerations during the merger and acquisition process.

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3 CURRICULUM TRANSFORMATION
Unisa has implemented a transformation charter based on five pillars and eight dimensions. In response
to this charter, we have placed curriculum transformation high on the teaching and learning agenda.
Curriculum transformation includes the following pillars: student-centred scholarship, the pedagogical
renewal of teaching and assessment practices, the scholarship of teaching and learning, and the infusion
of African epistemologies and philosophies. These pillars and their principles will be integrated at both
programme and module levels as a phased-in approach. You will notice a marked change in the teaching
and learning strategy implemented by Unisa, together with how the content is conceptualised in your
modules. We encourage you to embrace these changes during your studies at Unisa in a responsive way
within the framework of transformation.

4 CONTACT DETAILS
4.1 Lecturers

Please direct any enquiries of an academic nature about this module (such as an enquiry about
a specific part of the content of your prescribed book, study guide and/or assignments) to the
following lecturers:

Lecturer Contact details Office number

Ms MD Phango Tel: 012 429 3938 5-81 Simon Nkoana Radipere
(Primary Lecturer) E-mail: phangmd@unisa.ac.za Building
Mr MN Bhomoyi
Tel: 012 429 6555 5-84 Simon Nkoana Radipere
(Secondary
E-mail: bhommn@unisa.ac.za Building
Lecturer)

4.2 Department

This module is offered by academic staff members of the Department of Finance, Risk
Management and Banking.

Please note that you may get in touch with fellow students, download study material, submit
assignments, change your address and/or examination venue, view your assignment marks,
download previous examination papers and get in touch with your lecturers at
https://my.unisa.ac.za.

You may also call 012 429 3603 for academic enquiries and send e-mail queries to
finman@unisa.ac.za.

4.3 University

Please direct administrative queries to the appropriate department as indicated in the

Study @ Unisa brochure. Examples of administrative queries are matters relating to registration
and study material as well as account queries and graduation issues. Registration matters must
be directed to econ@unisa.ac.za.

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5 RESOURCES
5.1 Prescribed books

You must acquire one of the following prescribed books. A list of booksellers is available on
myUnisa.

Gitman, LJ, Smith, BM, Hall, J, Marx, J, Strydom, B, Mestry, R, Malan, M, Ngwenya, S & Makina,
D. 2014. Principles of managerial finance: Global and Southern African perspectives. 2nd edition.
Cape Town: Pearson. ISBN number: 978-1-775-78887-4.
OR
Gitman, LJ, Smith, BM, Hall, J, Marx, J, Strydom, B, Mestry, R, Malan, M, Ngwenya, S & Makina,
D. 2014. Principles of managerial finance: Global and Southern African perspectives. 3rd edition.
Cape Town: Pearson. ISBN number: 978-1-485-70919-0.

5.2 Recommended book

Els, G, Erasmus, P & Viviers, S. 2014. Corporate finance: A South African perspective. 2nd edition.
Cape Town: Oxford University Press.

Recommended books can be requested online via the Library Catalogue.

5.3 Electronic reserves (e-reserves)

There are currently no electronic reserves for this module.

5.4 Library services and resources information

The Unisa Library offers a range of information services and resources:

• For brief information, go to: https://www.unisa.ac.za/library/libatglance

• For more detailed library information, go to:
http://www.unisa.ac.za/sites/corporate/default/Library
• For research support and services (for example, personal librarians and literature search
services), go to: http://www.unisa.ac.za/sites/corporate/default/Library/Library-
services/Research-support

The library has created numerous library guides: http://libguides.unisa.ac.za

Recommended guides

• Request and find library material/download recommended material:

http://libguides.unisa.ac.za/request/request
• Postgraduate information services: http://libguides.unisa.ac.za/request/postgrad
• Find and use library resources and tools: http://libguides.unisa.ac.za/Research_skills
• Frequently asked questions about the library: http://libguides.unisa.ac.za/ask
• Services to students living with disabilities: http://libguides.unisa.ac.za/disability

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Important contact information

• https://libguides.unisa.ac.za/ask – Ask a Librarian

• Lib-help@unisa.ac.za – technical problems accessing library online services
• Library-enquiries@unisa.ac.za – general library-related queries
• Library-fines@unisa.ac.za – queries about library fines and payments

6 STUDENT SUPPORT SERVICES

Study @ Unisa is available on myUnisa: www.unisa.ac.za/brochures/studies

The website has all the tips and information you need to succeed at distance learning and
specifically at Unisa.

7 STUDY PLAN
Use Study @ Unisa for general time management and planning skills. We are aware that many
students have to study under very difficult circumstances. We urge you to begin studying early
and plan your studies to fit in with your own work and domestic circumstances. At this level,
students are expected to study independently. Therefore, you should draw up your own study
plan that suits your needs. However, please ensure that you devote at least two hours per day to
reading and revising the contents of this module.

8 PRACTICAL WORK
This module has no specific practical work or work integrated learning. However, in order for us
to improve your “graduateness” and enhance your career development in the workplace, we
encourage you to do all the activities that are recommended in your study guide. These activities
require that you apply the financial knowledge you acquire to the practical setting in which you
are, such as your workplace or place where you are doing an internship. This will enable you to
fully appreciate the fundamental values of financial management in your business or setting.

9 ASSESSMENT
9.1 Assessment criteria

Assignments are viewed as part of the learning material for this module. When you attempt the
assignments, study the reading texts, consult other resources, discuss the work with fellow
students or tutors, or do research, you are actively engaged in learning. Paying attention to the
assessment criteria for each assignment will help you to understand more clearly what is required
of you.

You must submit written assignments electronically via myUnisa. Please note that no post box or
manual submission of assignments is allowed. Also, you may not submit assignments by fax or

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e-mail. For detailed information on and the requirements for assignments, refer to Study @ Unisa.
All the assignments must be submitted electronically.

Compulsory assignments

For this module, you must complete two compulsory assignments in the form of a written
assignment. The due date of each of the assignments for this module are non-negotiable and
you must submit these assignments if you wish to gain entry to the examination. The
assignments will contribute to your year mark.

9.2 Assessment plan

You must submit written assignments electronically. Assignments may not be submitted by fax or
e-mail. Please ensure that you keep a copy of your submitted assignment at all times.

Compulsory assignments

There are two assignments for this module. Both are compulsory and should preferably be
submitted online via myUnisa. There is a non-negotiable due date for each of these assignments
and you must submit the first assignment if you wish to gain entry into the examination. Please
note that the average of your assignment marks will make up your year mark and you are
therefore encouraged to submit both assignments.

Year mark

Your year mark, which will be based on the marks you obtain for the two compulsory assignments,
will contribute 20% to your final mark and your examination mark will contribute 80% to your final
mark. The combined weighted average of your year mark and examination mark must be 50% or
higher for you to pass this module. However, for this year mark to apply, you must obtain a
minimum of 40% in the examination. If you obtain less than 40% in the examination, your year
mark will not be taken into account and you will fail.

For example:

Assignment 01 mark = 50% and Assignment 02 mark = 90%. Each of these assignments
contributes 50% to the year mark.

Assignment no Mark Weight Total

Assignment 01 50% 50% 25
Assignment 02 90% 50% 45
70 × 20% = 14

Assume an examination mark of 45%.

80% of the examination mark is 36.

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Final mark = (20% of the average assignment marks) + (80% of examination mark)
= 14 + 36
= 50%

The example shows that the year mark that you achieve can help you to pass the module. To
pass the module, you will need a final mark of at least 50%. Students need a final mark of above
40% to qualify for a supplementary examination.

9.3 Assignment numbers

9.3.1 General assignment numbers

Assignments are numbered consecutively per module, starting from 01.

9.3.2 Unique assignment numbers

Each assignment has a unique number to identify it in the Unisa assessment plans. Please ensure
that you always indicate the correct unique number when submitting an assignment.

9.4 Assignment due dates

As indicated earlier, you should preferably submit your assignments at https://my.unisa.ac.za

prior to the due date of each assignment. Do not wait until the day before the due date. Technical
problems with the computer servers of myUnisa may prevent you from submitting your
assignment at the last minute.

If you are unable to submit your assignments online via myUnisa and need to mail them in hard
copy format to us, please ensure that mailed assignments reach the Unisa Main Campus by their
due date. Requests for extension of due dates of assignments will not be granted. These due
dates have been set to allow you sufficient time for the completion of the assignments and to
prepare for the examination.

Information on whether Unisa has received your assignment and the mark you attained for an
assignment can be obtained from https://my.unisa.ac.za.

9.5 Submission of assignments

Multiple-choice assignments may be submitted in one of three ways: either via the internet by
using myUnisa, via cellphone or by means of a mark-reading sheet that you submit via the postal
service.

To submit an assignment via myUnisa:

• Go to myUnisa at https://my.unisa.ac.za.
• Log in with your student number and password.
• Select the module.
• Click on Assignments in the left-hand menu.
• Click on the number of the assignment that you want to submit.
• Follow the instructions on the screen.

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To submit an assignment by means of an SMS from your cellphone:

• Download the Unisa mobile application from https://my.unisa.ac.za/portal/pda.

• Install and activate the application on your phone.
• Select the MCQ assignment option.
• Log in with your myUnisa credentials.
• Select your module.
• Select the appropriate unique assignment number.
• Select appropriate answers to the assignment questions.
• Send your answers.
• Receive immediate on-screen confirmation.

We strongly encourage you to use the myUnisa online platform for assignment submission to
avoid unexpected situations such as loss.

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9.6 Assignments

KINDLY NOTE THAT THERE ARE TWO COMPULSORY ASSIGNMENTS FOR THE FIRST
SEMESTER.

Assignment number Semester 2

01 Due date: 19 August 2022

Unique number: 607058

02 Due date: 06 October 2022

Unique number: 607217

Assignment 02 – Semester 2
Due date: 06 October 2022
Unique number: 607217

The purpose of this assignment is to evaluate your knowledge of some of the fundamental
issues in the long-term financing decisions of a company. To complete this assignment,
you must study Chapters 13, 14 and 15 of the prescribed book and the relevant learning
units.

Answer the following questions and submit your assignment at https://my.unisa.ac.za.

QUESTION 1 [10 marks]

Bonga currently has a portfolio of ordinary shares representing several different companies.
Bonga considers it to be a well-balanced investment portfolio, but he wants to reduce the overall
risk of the portfolio a bit more by including ordinary shares from Titan Mining Corporation.

The following information on Titan Mining Corporation is available:

For the period 2017 to 2020, the company paid the following dividends per year respectively:
R3,14; R3,55; R3,89; and R3,95. The 2021 dividend is expected to increase by the average
growth rate of the dividends between 2017 and 2020, and the dividend will increase by 10% per
year indefinitely from 2022 onwards.

Bonga requires a return of 15% on his investment portfolio and is not prepared to pay more than
R52,00 per ordinary share of Titan Mining Corporation.

REQUIRED

1.1 Calculate the current price of Titan Mining Corporation’s ordinary share. (8 marks)

1.2 Should Bonga purchase Titan Mining Corporation shares to include in his investment
portfolio? Provide reasons for your answer. (2 marks)
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QUESTION 2 [12 marks]

The power systems company Raging Volts is currently 70% equity financed and aims to raise R2
million to fund a set of attractive investment opportunities. Debt financing may be obtained at an
after-tax cost of 16%. The company’s management wants to introduce 40% debt in the capital
structure while keeping the cost of each financing source together with its market value the same.

Ordinary shares are currently selling for R30 per share. The company paid a dividend (Do) of
R1,50 per share in the previous financial year and had a growth rate of 7% over the past few
years. It is expected that this growth rate will be maintained in future. The company’s tax rate is
29%.

REQUIRED

2.1 Calculate the component costs associated with capital investments financing. (2 marks)

2.2 Calculate the weighted average cost of capital (WACC), the break-point of equity and the
break-point of debt under the current structure. (4 marks)

2.3 Calculate the WACC, the break-point of equity and the

break-point of debt under the proposed structure. (4 marks)

2.4 Calculate the number of shares under the current structure. (1 marks)

2.5 Calculate the number of shares under the proposed structure. (1 marks)

QUESTION 3 [25 marks]

Hammerson Ltd is an all-equity financed company with 10 000 outstanding ordinary shares, each
valued at the market price of R25. The company has decided to modify its capital structure to
capture the tax benefits of debt. The plan is to have a target debt ratio of 30%. The company pays
all its earnings as dividends and is subject to a 28% tax rate. The expected sales are R530 000,
fixed costs are estimated at R250 000 and variable cost are estimated at 30% of sales.

Details of the pursued capital structures are as follow:

• Capital structure A at 30% debt ratio

Hammerson Ltd will acquire debt at a before-tax cost of debt of 11.75%.

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REQUIRED

3.1 Which capital structure would you advise the company to choose if its objective is to
maximise earnings per share (EPS)? (8 marks)

3.2 Calculate the weighted average cost of capital (WACC) for both the current and proposed
debt structures. (13 marks)

3.3 Which capital structure would you advise the company to choose if the aim is to maximise
shareholder wealth? (4 marks)

QUESTION 4 [13 marks]

Consider the following pre-merger information about a bidding company (All Gold Mining) and a
target company (Silver Enterpises) at the end of the year 2020:

All Gold Mining had 600 000 ordinary shares outstanding and had earnings of R1 600 000. All
Gold Mining’s earnings are expected to grow at an annual rate of 5%.

Silver Enterpises had 100 000 ordinary shares outstanding and had earnings of R200 000. Silver
Enterpises’ earnings are expected to grow at an annual rate of 10%.

REQUIRED

4.1 Calculate the next 5 years’ (2020-2024) earnings per share (EPS) for All Gold Mining
before the merger. (3 marks)

4.2 Calculate the next 5 years’ (2020-2024) earnings per share (EPS) for Silver Enterpises
before the merger. (3 marks)

4.3 Calculate the next 5 years’ (2020-2024) earnings per share (EPS) for Silver Enterpises
post- merger at 1.1 exchange rate. (3 marks)

4.4 Should Silver Enterpises continue with the merger? Provide a reason for your answer.
(4 marks)

[TOTAL 60]

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10 CONCLUDING REMARKS
This tutorial letter provided you with the purpose and outcomes of the module. The contact details
of the lecturers have been provided, as well as module-related resources and student support
services. It is important that you prepare a study plan and devote 120 hours to this module in
order to achieve success in the examination. Details of your assessment have been provided,
including your assignments for the semester. Some FAQs have been provided on myUnisa in
order to save you a telephone call or an e-mail. Finally, we encourage you to interact with fellow
students on myUnisa discussion forums and to access the resources we will provide during the
course of the semester. We trust the module Financial Management (FIN3701) will be of value to
you and that you will find it interesting and stimulating. We also hope that the knowledge you gain
from it will be of practical value to your working environment where applicable.
Best wishes!

©
UNISA 2022

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