QUESTION 1 (13 marks) This section consists of short case studies, multiple-choice and matching questions. Each question must be considered independently, except where specific reference is made to information in another question. The marks per question are indicated in brackets after each question. Note: Negative marking does not apply to these multiple-choice and matching questions. For multiple-choice and matching questions, you are only required to write the question numbers with your corresponding answer next to it, for example: 1.1 C 1.2 A 1.3.1 B 1.3.2 D ...

The questions are as follows: 1.1 Qoads Ltd is a South African based company and expects to receive USD 2 000 000 from a United States customer. The value in South African Rands (ZAR) will depend on the exchange rate between the ZAR and USD resulting in gains and losses as the exchange rate changes. The mean exchange rate is ZAR 19.50 / USD 1 and the daily volatility of the ZAR/USD exchange rate is 1.5%. Calculate the range of values that Qoads Ltd will be 95% confident of receiving in 1 day. Qoads Ltd is 95% confident that the amount received will be between ... (3) A R 37 853 400 and R 40 146 600. B R 37 050 000 and R 39 450 000. C R 38 037 675 and R 39 962 325. D R 37 635 195 and R 40 364 805.

6 1.2 Odos is a private investment company. At year end, Odos has an asset portfolio of R800 million, with a standard deviation of R25 million. Calculate the value at risk of the portfolio at a 97.5% confidence level (answers are rounded to the nearest Rmillion). There is a 2.5% chance that the value of the portfolio will be ... or below. (2) A R 738 million B R 742 million C R 751 million D R 780 million

1.3 Pops Ltd is a software developing company with significant intangible assets. The directors want to calculate the CIV (Calculated Intangible Value) of the company. Pops Ltd reported a profit before interest and tax of R47 million in the most recent accounting period. The company has a WACC of 12%. Its debt finance comprises a long term bond with a coupon rate of 9% and a nominal value of R17 million. The industry average pretax return on assets for the software development industry is 14%, and the corporate tax rate is 27%. Its tangible assets are worth R31 million. What is the CIV of Pops Ltd (to the nearest R0.1 million)? (3) A R 259.5 million B R 250.2 million C R 231.0 million D R 239.6 million

1.4 Macs Ltd is based in country M (functional currency M$). Macs Ltd suppliers are based in the UK, and they invoice Macs Ltd in British Pounds (GBP). The current spot rate of exchange is M$/GBP 7.52 (that is M$ 1 = GBP 7.52), and the expected interest rates in the UK and country M are 4% and 9% respectively over the next year. What is the forecast spot rate in one years time using the interest rate parity theory and assuming that the current forward rate is the best forecast of the future spot rate? (2) A M$/GBP 7.88 B M$/GBP 16.92 C M$/GBP 7.18 D M$/GBP 3.34

MAC4865/Assignment_03

7 1.5 Nods Ltd wishes to ascertain the value of its equity. The following schedule of forecast posttax cash flows after financing charges of Nods Ltd was obtained: Posttax cash flows after financing charges (forecast):

R (million) Year 1 32 Year 2 34 Year 3 37

The forecast cash flows are expected to grow at a rate of 7% per annum after year 3 into perpetuity. The company has a cost of equity of 16% and a WACC of 12%. Rounding used to obtain answers below: 3 decimal places for the discount factor (per the relevant tables); 0 decimal places for other workings and answers; If a financial calculator is used, answers will differ slightly but will still be close to identify the correct answer. What is the value of the companys equity? (3) A R 101 million B R 109 million C R 330 million D R 359 million