2. Unique
Assignment No. 2.
Unique No 290670
MBL922N Individual Assignment

Financial Management
MBL922N: Strategic
Strategic Financial
Management

2: Individual Assignment
Assignment No. 2:

Assignment Title:
Assignment
Valuations
Topic 22 Financial Decision Making
Making and Topic
Topic 3 Valuations
Topic

Prepared by: by: Prepared

(78043808)
Mervyn Fraser (78043808)
Mervyn

Due Date:

04 August 2014

Module code:

MBL922N

Assignment type:
Assignment

Individual Assignment
Assignment

0

2. Unique
Assignment No. 2.
Unique No 290670
MBL922N Individual Assignment

Contents
Contents
1.1Ca|cu|atethe payback period period for Project A, B and C...............................................................22
1.1Calculate
the payback
...........................................................

(AAR) for each project ................................................33
1.2 Calculate Accounting Rate of Return (AAR)
............................................

2.1 Estimate the additional working working capital capital required required to support the increased sales ................44
............

2.2 Calculate how much the company needs to invest in fixed and current assets ....................5
5
................

15%
3.1 Growing the previous dividend by 15%................................................................................
..6
6
..............................................................................

applying a dividend cover of 4 ...............................................................................66
3.2 Impact of applying
...........................................................................

impact of issuing script dividend on a 1 for 20 basis.......................................................66
3.3 The impact
...................................................

4. List of References .....................................................................................................................6
6

.................................................................................................................

1

2. Unique
Assignment No. 2.
Unique No 290670
MBL922N Individual Assignment

1.1Calculate the the payback for Project and C
C
paybackperiod
Project A, BB and
1.1Calculate
period for
A payback
Project A paybackperiod: Project period: in first
4 years:
Cash in first 4
Cash

R 110.00
R 120.00
R 114.00
R 122.00
110.00 R
120.00 R
114.00 R
122.00
R

in 5th year:
Cash in
Cash

R 148.00
148.00
R

Paybackperiod
Payback
period =

4yrs
4yrs

=

+
+

34
148
148

=

R 466.00
R
R 34.00
R
R 500.00
R

4.23 years

B payback
Project B paybackperiod: Project period: in first
Cash in first 3 years:
Cash

in year 4
4
Cash in
Cash

R 50.00 R
R 110.00
R 220.00
110.00 R
R

R 380.00
R
R 120.00
120.00
R
R
500.00
R

R 270.00
R

Paybackperiod
Payback
period =
=

3yrS
3yrs

+
+

1 20
120
270

=

3.44 years

C payback
Project C paybackperiod: Project period: in first
Cash in first 3 years:
Cash

R 200.00 R
R 140.00
140.00
R

in year 4
4
Cash in
Cash

R 150.00
150.00
R

Paybackperiod
Payback
period =
=

3yrS
3yrs

+

B has has the the shortest shortest Payback
Project B
Paybackperiod
Project period 2

R 50.00
R

110
110
150
150

R 390.00
R
R 110.00
110.00
R
R
500.00
R

=

3.73 years

2. Unique
Assignment No. 2.
Unique No 290670
MBL922N Individual Assignment

1.2 Calculate
Calculate Accounting Rate of Return for each each project
Rate of
Return (AAR) for
1.2
-AAR:
Project AA -AAR:
Project

Total Cash Flow
Flow:
R110.00
R120.00
R114.00
R122.00
R148.00
R170.00
R180.00
= R
110.00 R
120.00 R
114.00 R
122.00 R
148.00 R
170.00 R
180.00
Less Initial Investment

Project life
Project

77 years

Avg Profit
Avg

AAR Project
Project AA =
AAR
=

Avg Initial Investment
464/7
464/7
500/2

0.2651
0.2651

=

26.51%

R 50.00 R
R 110.00 R
R 220.00 R
R 270.00 R
R 170.00
Cash Flow =
Total Cash
R
Less Initial Investment

=

R 820.00
R
R -500.00
R
R 320.00
R

=

25.60%
25.60%

=
=

=
=

66.2857
250

=
=

=

-AAR:
Project