12:29 Fin4050B Fin4050 Past Pa... TUTAKO FALL 2018 TIME: 2 HRS. DATE: Saturday, 13 October 2018. , () 01:30PM - 4:50PM CLASS) Using a spreadsheet answer the questions below. Marks will be awarded for presentation a Steps: 1. Read all the questions slowly and carefully 2. Open a blank Excel worksheet 3. Save your worksheet under your name and student number 4. Write your name on all worksheets 5. Save your file under Save as Excel 97-2003 OR 97-2004 Workbook (.xls) 6. Only one file should be used 7. Save your work every five (5) minutes due to power fluctuations. 8. NOTE: DO NOT WRITE ANYTHING ON THE QUESTION PAPER. SECTION A: COMPULSORY QUESTION 1: Capital Budgeting........ ...... 10 marks You are the Production Manager of Porcupine Lid. The company has developed a new line of production to manufacture biscuits that can be sold at Kes 5.00 per box Due to its nutritional contents and tough economic times being experienced due to introduction of VAT. on oil products, the biscuits will remain popular for many years. The Finance Director has proposed that this be treated as a four year project though sales will continue beyond the fourth year. It is his argument that cash flows beyond four years are uncertain and should not be included in the evaluation The variable and fixed costs (in current price terms) will depend on sales volume as follows: Sales volume (boxes) Les han Variable cost (Kes per box) 28 Total fixed costs (es) 1 Million 1.1. 30 1,8 Million 3-29 million 3-3.3 Millon 30 3.05 28 Milion 3.8 Million Forecast sales volume Demand (Boxes) Year 1 0.7 million Year 2 1.6 milion Year 3 2.1 million Year 30 milion LECTURER: BWIRE ALBERT CAMUS 2 The equipment for this new production line to manufacture Biscuits will cost Kes 2 million. The additional investment in working capital is kes 750,000.00 Capital allowances at 25% on reducing balance basis could be claimed on the cost of the equipment. A balancing allowance would be claimed in the fourth year of operation. Tax is payable one year in arrears. The tax rate is 30% per year The average inflation is expected to be 3% per year and selling price, variable costs, fixed costs and working capital would all experience inflation of this level. Porcupine Leduses cost of capital of 12% to appraise such new projects (m) Using a suitable appraisal technique evaluate the project (5 marks) (b) Graphically, what is the internal rate of return of the project? ........ (3 marks) , (c) What assumptions did you make? (2 marks) SECTION B: ANSWER ANY ONE QUESTION. B: . QUESTION 2 (10 Marks) MAR 12:29 Fin4050B Fin4050 Past Pa... TUTAKO FALL 2018 TIME: 2 HRS. DATE: Saturday, 13 October 2018. , () 01:30PM - 4:50PM CLASS) Using a spreadsheet answer the questions below. Marks will be awarded for presentation a Steps: 1. Read all the questions slowly and carefully 2. Open a blank Excel worksheet 3. Save your worksheet under your name and student number 4. Write your name on all worksheets 5. Save your file under Save as Excel 97-2003 OR 97-2004 Workbook (.xls) 6. Only one file should be used 7. Save your work every five (5) minutes due to power fluctuations. 8. NOTE: DO NOT WRITE ANYTHING ON THE QUESTION PAPER. SECTION A: COMPULSORY QUESTION 1: Capital Budgeting........ ...... 10 marks You are the Production Manager of Porcupine Lid. The company has developed a new line of production to manufacture biscuits that can be sold at Kes 5.00 per box Due to its nutritional contents and tough economic times being experienced due to introduction of VAT. on oil products, the biscuits will remain popular for many years. The Finance Director has proposed that this be treated as a four year project though sales will continue beyond the fourth year. It is his argument that cash flows beyond four years are uncertain and should not be included in the evaluation The variable and fixed costs (in current price terms) will depend on sales volume as follows: Sales volume (boxes) Les han Variable cost (Kes per box) 28 Total fixed costs (es) 1 Million 1.1. 30 1,8 Million 3-29 million 3-3.3 Millon 30 3.05 28 Milion 3.8 Million Forecast sales volume Demand (Boxes) Year 1 0.7 million Year 2 1.6 milion Year 3 2.1 million Year 30 milion LECTURER: BWIRE ALBERT CAMUS 2 The equipment for this new production line to manufacture Biscuits will cost Kes 2 million. The additional investment in working capital is kes 750,000.00 Capital allowances at 25% on reducing balance basis could be claimed on the cost of the equipment. A balancing allowance would be claimed in the fourth year of operation. Tax is payable one year in arrears. The tax rate is 30% per year The average inflation is expected to be 3% per year and selling price, variable costs, fixed costs and working capital would all experience inflation of this level. Porcupine Leduses cost of capital of 12% to appraise such new projects (m) Using a suitable appraisal technique evaluate the project (5 marks) (b) Graphically, what is the internal rate of return of the project? ........ (3 marks) , (c) What assumptions did you make? (2 marks) SECTION B: ANSWER ANY ONE QUESTION. B: . QUESTION 2 (10 Marks) MAR