I5

Question 1

1.1 By giving relevant examples from Moyondizvo Ltd, clearly discuss the basic types of financial management decisions. (No Calculations are required) (8 marks)

INFORMATION

Moyondizvo Ltd is a listed company and its ordinary shares are trading at R25 per share (500 000 shares in issue). The company also has 20 000 bonds (par value of R1 000) in issue, which is currently trading at R750. The bonds mature in 20 years and pay a 10% coupon. Moyondizvo has a substantial amount invested in short term securities expected to mature in three months' time. Moyondizvo normally utilises returned earnings before other sources of financing. Additionally. the company has fixed assets worth R1 million and expected to depreciate at 20% per annum. Moyondizvo directors have recently had the opportunity to discuss a new project plan that needs an initial investment of R250 000 for new equipment and is expected to produce positive cash flows over a five-year term

1.2 Why are the concepts of risk and time value of money important in making financial management decisions identified on question 1.1

1.3 Explain Four (4) reasons why profit maximisation is not always the key motivator in project finance