QUESTION1)
1.1) Suppose you own 100 ‘Randfirst’ shares (a company listed on the Johannesburg Stock Exchange) which you intend to sell today. Since you will sell those shares in the secondary market, Randfirst will receive no direct cash flows as a consequence of your sale. Why should Randfirst’s management care about the price you get for your shares?
1.2) Explain why the income statement is not a good representation of cash flow.
The following information should be used for questions 1.3, 1.4 and 1.5.
Market Marketers LTD 2011 (R) 2012 (R)
Sales 740 785
Cost of goods sold 430 460
Interest expense 33 35
Dividends 16 17
Depreciation 250 210
Cash 70 75
Accounts receivables 563 502
Current liabilities 390 405
Inventory 662 640
Long-term debt 340 410
Net non-current assets 1 680 1 413
Ordinary share capital 700 235
Additional Information: Tax rate 28%
REQUIRED:
1.3) What is the change in net working capital from 2011 to 2012?
1.4 )What is the operating cash flow for 2012?
1.5) Why is interest expense excluded from the operating cash flow calculation?
QUESTION2) To answer the following questions (2.1-2.7) it would be in your best interest to have mastered and to make use of a financial calculator. Where applicable, indicate in your answer book the key strokes (shown below) used in arriving at your answer:
N (number of periods); I(interest rate); PV(Present value); PMT (Payment); FV (Future value) Show all workings and round off your answers to the nearest whole cent(two decimal places) where necessary.
2.1) Susan invests R2 500 in a money market account every quarter and will withdraw the lump sum in 5 years’ time. If the account earns interest at 6% compounding quarterly, how much will her lump sum be in 5 years if she makes her first payment 3 months from now.
2.2) Briefly explain why present values decrease as the discount rate increases
2.3) Beatrice invests R1 000 in an account that pays 4% simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?
2.4) Your grandmother invested one lump sum 17 years ago at 4, 25% interest compounding per annum . Today, she gave you the proceeds from that investment which totalled R5539, 92.
How much did your grandmother originally invest?
2.5) Forty years ago, your father invested R2 500. Today that investment is worth R107 921. What is the average rate of return your father earned on his investment?
2.6) An investment is made of R 3000 per quarter for 6 years at an annual interest rate of 8%, compounded quarterly.
Assuming each investment is made at the end of each quarter, what will be the accumulated value of these investments by the end of year 6?
2.7) You market antique matchboxes. One particular box increases in value at a rate of 5% compounding per year. Today, the matchbox is worth R29,50. How much additional money can you make if you wait ten years to sell it rather than selling it five years from now?
2.8) You are told that the effective interest rate is 10% p.a. and compounding occurs quarterly. What is the nominal interest rate?