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C3753FP Financial Management 2 (Year Module 2026) [FM] [F]

C3753FP Financial Management 2 (Year Module 2026) [FM] [F]

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Mars Ltd's accountant evaluated the new venture at 10%, the after-tax cost of the loan used to finance it. What is the error?

The project should be evaluated at the cost of equity only

The project should be evaluated at the target WACC (20%), not at the cost of the specific financing used

There is no error

The project should be evaluated at the pre-tax cost of debt of 13.89%

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Lakeside Cafe sent chefs and a manager to Italy and France at a cost of R300 000 to identify suppliers. How should this cost be treated in the NPV analysis?

Include it as a year 0 outflow

Spread it over the life of the project

Include it as a tax-deductible expense in year 1

Exclude it, because it is a sunk cost

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Why should working capital invested in a project normally be included as an outflow at the start and an inflow at the end?

Because the funds are tied up during the project and are normally recovered when the project ends

Because working capital is an allocated cost

Because working capital is a sunk cost

Because working capital is tax deductible

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Correia 9.9: at the end of year 3, the PV of the remaining cash flows is R132.23 and the abandonment value is R150. What is the decision?

Abandon, because the abandonment value exceeds the PV by R17.77

Continue, because the NPV is R17.77

Continue, because the PV is positive

Abandon only if the cost of capital rises

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Lakeside will invest R500 000 in inventory if the pizza oven is purchased, to be recovered at the end of the 4-year project. How is this shown in the NPV calculation?

Outflow of R500 000 in year 0 and inflow of R500 000 in year 4

Outflow of R500 000 in year 0 only

Inflow of R500 000 in year 0 and outflow in year 4

Outflow of R125 000 every year for 4 years

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Correia 9.9: at the end of year 3, the remaining cash flows are R100 (year 4) and R50 (year 5). The cost of capital is 10%. What is the present value of these cash flows (rounded)?

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Mars Ltd invested R200 000 in working capital in year 0 and a further R100 000 in each of years 2 and 3. Assuming working capital reverts to zero at the end of the project, what amount is recovered in year 5?

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Which condition must hold for the constant-growth dividend model to give a meaningful result?

The dividend must be equal to the share price

The cost of equity must be greater than the growth rate

The growth rate must be greater than the cost of equity

The growth rate must be zero

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Dogtail Limited: target weights are 60% equity (Ke = 14.74%), 30% debentures (Kd = 7.94%) and 10% preference shares (Kp = 8.13%). What is the WACC at the target structure (rounded)?

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Which three principles should be applied when calculating the component costs and WACC, according to the study unit?

Use book values, ignore tax and use real rates

Use market values, ignore tax and use real rates

Use market values, remember the effect of tax and use nominal rates

Use book values, remember the effect of tax and use nominal rates

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