Page $1$ of $9$UNIVERSITY OF ESWATINIDEPARTMENT OF ACCOUNTING AND FINANCEGROUP ASSIGNMENTACADEMIC YEAR $2024/2025$PROGRAMME OF STUDY : Master of Business AdministrationYEAR OF STUDY : Year $1($Part Time$)$TITLE OF THE PAPER : Corporate Finance and InvestmentCOURSE CODE : ACF $603$DUE : $08$th February $2025$INSTRUCTIONS$1.$ There are FOUR $(4)$ questions; ANSWER ALL THE QUESTIONS$\mathrm{.}2.$ The paper consists of nine $(9)$ numbered pages, including this page and Appendix $1$which contains useful formulae$\mathrm{.}3.$ Begin the solution to each question on a new page$\mathrm{.}4.$ The marks awarded for a question are indicated at the end of each question$\mathrm{.}5.$ Show ALL your necessary workings.NOTE: You are reminded that in assessing your work, account will be taken of accuracy of the languageand the general quality of expression, together with layout and presentation of your answer.SPECIAL REQUIREMENT: SCIENTIFIC $/$ FINANCIAL CALCULATORPage $2$ of $9$SECTION A $-$ COMPULSORY $(50$ Marks$)$ANSWER ALL THE QUESTIONS IN THIS SECTIONQUESTION ONE $(25$ Marks$)1\mathrm{.}1$ Malaika wants to buy a car that costs $$24,000.$ She has arranged to borrow the total purchaseprice of the car from her credit union at a simple interest rate equal to $12$ percent. The loanrequires quarterly payments for a period of six years. If the first payment is due in threemonths $($one quarter$)$ after purchasing the car.What will be the amount of Malaikas quarterlypayments on the loan? $(3$ Marks$)1\mathrm{.}2$ Jason worked various jobs during his teenage years to save money for college. Now it is his$20$th birthday, and he is about to begin his college studies at the University of South Florida$($USF$).$ A few months ago, Jason received a scholarship that will cover all of his collegetuition for a period not to exceed five years. The money he has saved will be used for livingexpenses while he is in college; in fact, Jason expects to use all of his savings while attendingUSF. The jobs he worked as a teenager allowed him to save a total of $$10,000,$ whichcurrently is invested at $12$ percent in a financial asset that pays interest monthly. BecauseJason will be a full$-$time student, he expects to graduate four years from today, on his $24$thbirthday.$($a$)$ How much can Jason withdraw every month while he is in college if the first withdrawaloccurs today? $(3$ Marks$)($b$)$ How much can Jason withdraw every month while he is in college if he waits until theend of this month to make the first withdrawal? $(3$ Marks$)1\mathrm{.}3$ Wandile just graduated from college. Unfortunately, Wandiles education was fairly costly;the student loans that he took out to pay for his education total $$95,000.$ The provisions of thestudent loans require Wandile to pay interest equal to the prime rate, which is $8$ percent, plusa $1$ percent margin that is$,$ the interest rate on the loans is $9$ percent. Payments will be mademonthly, and the loans must be repaid within $20$ years. Wandile wants to determine how he isgoing to repay his student loans.$($a$)$ If Wandile decides to repay the loans over the maximum period that is$,20$ years howmuch must he pay each month? $(3$ Marks$)$Page $3$ of $9($b$)$ If Wandile pays $$985$ per month, how long will it take him to repay the loans? $(3$ Marks$)1\mathrm{.}4$ Smith and Harry International is planning to save R$2$ million per year for five years. The firstdeposit, which is presently being made and all subsequent deposits, will earn interest at a$12\%$ annual rate.$($a$)$ Calculate the future for this annuity if interest is compounded semi$-$annually. $(2$ Marks$)($b$)$ Calculate the future for this annuity if interest is compounded quarterly. $(2$ Marks$)($c$)$ How would your answer in part $($a$)$ have changed if the initial deposit was not made untilthe end of the first year? $(2$ Marks$)1\mathrm{.}5$ In order to provide for R$10$ million to build a new warehouse in five years time, a companyplans to make equal payments at the end of each six months into a fund which earns $9\%$ peryear interest compounded semi$-$annually. After two years of payments, escalating costs leadthe directors to increase the semi$-$annual deposit so that the fund will contain R$12$ million atthe scheduled time of building. Find the increased semi$-$annual payment required for theremaining $3$ years. $(4$ Marks$)$QUESTION TWO $(25$ Marks$)2\mathrm{.}1$ Veetek Enterprises Limited currently pays a dividend of E$1\mathrm{.}40$ per share on its commonstock. The company expects to increase the dividend at a $15\%$ annual rate for the first fouryears and at a $8\%$ rate for the next four years, and then grow the dividend at a $5\%$ ratethereafter. This phased$-$growth pattern in in keeping with the expected life cycle of earnings.You require $14\%$ return to invest in this stock. What value should you place on a share ofthis stock? $(6$ Marks$)2\mathrm{.}2$ Suppose Nedbank, a bank based in Eswatini, has just issued a dividend of E$2\mathrm{.}10$ per share onits common stock. The company paid dividends of E$1\mathrm{.}25,$ E$1\mathrm{.}36,$ E$1\mathrm{.}44,$ E$1\mathrm{.}52,$ E$1\mathrm{.}61,$ E$1\mathrm{.}80$and E$1\mathrm{.}96$ per share in the last $7$ years. Its stock is currently selling at E$98\mathrm{.}00.$ What is theestimate of the companys cost of equity capital using:$($a$)$ the arithmetic average growth rate? $(3$ Marks$)($b$)$ the geometric average growth rate? $(4$ Marks$)$Page $4$ of $92\mathrm{.}3$ Midnight Magic Companys stock is currently selling for $$19\mathrm{.}50$ per share. At the end of theyear, the company plans to pay a dividend equal to $$2\mathrm{.}34$ per share. For the remainder of thecompanys life, dividends are expected to grow at a constant rate, and investors are expectedto require a $16\%$ return to invest in Midnight Magics stock. What is the value of MidnightMagics stock five years from now? $(6$ Marks$)2\mathrm{.}4$ Sizwe requires a $30$ year, fixed$-$rate mortgage of E$2000000$ to buy his new home inEzulwini low density suburbs in Eswatini. His bank will lend him the money at $6\mathrm{.}8\%$ annualpercentage rate $($APR$)$ for this $360$ months loan. However, Sizwe can only afford to makemonthly payments of E$10000,$ so he offers to pay off any remaining loan balance at the endof the loan in the form of a single balloon payment. How large will this balloon paymenthave to be for Sizwe to keep his monthly payments at E$10000?(6$ Marks$)$SECTION B $(50$ Marks$)$ANSWER ANY TWO $(2)$ QUESTIONS IN THIS SECTIONQUESTION THREE $(25$ Marks$)3\mathrm{.}1$ Mbabane Investments Limited, a manufacturing firm listed on the Eswatini StockExchange, wish to measure their weighted average cost of capital. You are the SeniorCorporate Finance Manager for this firm and been provided with the following data.Equity: The firm has $1500000$ shares outstanding. The next two annual dividendswill be E$3\mathrm{.}65$ and E$3\mathrm{.}95$ per share respectively, whereafter the dividendwill grow at $9\%$ per annum indefinitely. The required return on ordinaryshares is $13\%.$Debt: The firm has thirty thousand $(30000),10\%$ semi$-$annual coupons bondstrading at $102\%$ of par, with $5$ years to maturity. The par value of eachbond is E$1000\mathrm{.}00.$Preference shares: The firm has two hundred and eighty thousand $(280000),8\%$ preferenceshares with a par value E$100\mathrm{.}00$ and a current dividend yield of $6\mathrm{.}25\%.$Page $5$ of $9$The firm is in the $30\%$ tax bracket.Required:$($a$)$ Calculate the current price of Mbabane Investments Limiteds Ordinary Share. $(5$ Marks$)($b$)$ Calculate the current price of Mbabane Investments Limiteds Preference Share. $(3$ Marks$)($c$)$ Calculate the firms after$-$tax cost of debt. $(5$ Marks$)($d$)$ Compute the firms Weighted Average Cost of Capital $($WACC$).(7$ Marks$)3\mathrm{.}2$ Describe what you understand by weighted average cost of capital $($WACC$)$ and highlightthe logic and rationale of using WACC to make informed financial decisions, $(5$ Marks$)$QUESTION FOUR $(25$ Marks$)4\mathrm{.}1$ Delta Corporation Limited is a company listed on the Eswatini Stock Exchange $($ESE$)$ inEswatini. The company is considering an investment in new plant and equipment at acost of E$100$ million. The company will pay a deposit equivalent to $10\%$ of the value ofthe new plant and equipment. The bank has offered the firm a loan of E$90$ million,repayable in equal annual instalments over $10$ years at an interest of $15\%.$ The economiclife of the project is $10$ years and the company expects to achieve a residual value E$30$million on the sale of the equipment at the end of $10$ years. Alternatively, the bank is alsoprepared to offer a loan of E$90$ million, repayable in equal annual instalments except for abullet or ballon payment at the end of $10$ years, equal to E$30$ million, which the companywill pay from the proceeds on a sale of the equipment. The interest rate is also $15\%$ onthis loan.$($a$)$ Set up an amortization schedules for the loan under the two $(2)$ alternatives. $(9$ Marks$)($b$)$What is the total interest paid under each of the alternatives? $(4$ Marks$)4\mathrm{.}2$ The Board of Directors of Ngwenya Glass Limited is comparing two different capitalstructures: an all$-$equity plan and a levered plan. Under the all$-$equity plan, NgwenyaGlass Limited would have $10000000$ shares in issue. Under the levered plan, therewould be $5000000$ shares and $10\%$ perpetual debt worth R$200$ million. The tax rate is$25\%.$Page $6$ of $9$Required:$($a$)$ Calculate what the profit before interest and tax $($PBIT$)$ would have to be for Ngwenya GlassLtd to have the same earnings per share $($EPS$)$ under each capital structure $($break$-$evenPBIT$),$ and calculate this EPS. $(3$ Marks$)($b$)$ Assuming a PBIT of R$100$ million in perpetuity and an unlevered cost of equity of $20\%$:$($i$)$ Calculate the value of Ngwenya Glass Limited, as both an unlevered and leveredfirm. $(4$ Marks$)($ii$)$ Calculate Ngwenya Glass Limiteds cost of equity and Weighted Average Cost ofCapital under the levered plan. $(5$ Marks$)$Page $7$ of $9$ASSIGNMENT GUIDELINES$1.$ Your Group Assignment should include a Cover Page with all the full details of allthe group members$\mathrm{.}2.$ Each group should have a maximum of five $(5)$ Group Members$\mathrm{.}3.$ Each group member should take an active role in the group assignment$\mathrm{.}4.$ Text: Font: Arial or Times New Roman $(12),$ Spacing: $1\mathrm{.}5$ lines and a Table ofcontents should be provided$\mathrm{.}5.$ All text must be justified at each margin$\mathrm{.}6.$ The length of your answers to each question should be in line with the markallocation. Your answers must include any theories, charts, tables and exhibitsnecessary to support your discussion, analysis and recommendations$\mathrm{.}7.$ Show all your relevant calculations $/$ workings$\mathrm{.}8.$ Additional research should be consulted, when answering theory based questions$\mathrm{.}9.$ Cohesive and logical arguments reflecting original thinking is encouraged. Theassignment should also have headings to highlight key fundamentals issues incorporate finance and investment$\mathrm{.}10.$ References At least $10$ academic sources of reference must be used $($These includetextbooks, journal articles and internet sources that are relevant to the field of study$\mathrm{.}11.$ Do not use Wikipedia and blogs$\mathrm{.}12.$ Reference list must be provided at the end of your assignment$\mathrm{.}13.$ Information quoted $/$ paraphrased from sources listed in your reference list must bereferenced in$-$text$\mathrm{.}14.$ The APA Referencing System must be used$\mathrm{.}15.$ It is imperative that students proof read and edit their assignment prior to submittingthem$\mathrm{.}16.$ Assignment must be free from errors and of professional standard$\mathrm{.}17.$ Assignment must be submitted in hard copy before and $/$ or on the due date.Page $8$ of $9$APPENDIX $1-$ FORMULAE SHEETQuick Ratio $=($Current Assets $-$ Inventory$)/$ Current LiabilitiesROA $=$ NP AT $/$ Total AssetsCurrent Ratio $=$ Current Assets $/$ Current LiabilitiesEquity Multiplier $=$ Total Assets $/$ EquityInventory Turnover $=$ Cost of Goods Sold $/$ InventoryTimes Interest Earned $=$ PBIT $/$ Interest paidNet Profit Margin $=$ NPAT $/$ SalesPIE ratio $=$ Market price per share $/$ EPSTotal Debt ratio $=$ Total debt $/$ Total AssetsROE $=$ NP AT $/$ EquityAccounts receivable Period $=$ Accounts Receivables $/$ Sales x $360$ daysInventory period $=$ Inventory $/$ COGS x $360$ daysDebt: Equity ratio $=$ Total Debt $/$ Total EquityTotal Asset Turnover $=$ Sales $/$ Total AssetsCash ratio $=$ Cash $/$ Current LiabilitiesROE $=$ PMx TATxEMFV of a lump sum $=$ PV x $(1+$ r$)$t PV of a lump sum $=$ FV $/(1+$ r$)$tPVAn $=$ PMT x $[1-1/(1+$ r$)$n$]$rPage $9$ of $9$ gPg$1$DR$00$E RP $=$ DP$0$ FMEFE RRxRR Bond value $=$ C x $[11/(1+$ r$)$t $]+$ F $/(1+$ r$)$tr WACC $=$ cDPE T$1$xRxVDRxVPRxVE $)1(/$ TcEDRRRR DUUE gPDRE $01$ g $=$ ROE x b $)]([$ lhxHLVLlrB P$0=$ D$1/($r g$)$ Pt $=$ Dt$+1/($R g$)$ P$0=$ DRPEND OF PAPERDDCUCL RDRTRTPBITV $)1($UCU RTPBITV $)1($