FMA401V/101/0/2018

Tutorial Letter 101/0/2018

FINANCIAL MANAGEMENT IV

FMA401V

Department: Finance Risk Management and Banking

IMPORTANT INFORMATION:

• Register as a user of myUnisa as soon as possible; it is free of charge. Visit http://my.unisa.ac.za for details. At myUnisa you will be able to get in touch with fellow students, submit your assignments, update your details, find self-assessment questions and participate in discussion forums. • Provide Unisa with your cellular number because important announcements may be sent to you by SMS. • Note that this module carries 24 credits and requires at least 240 hours of study, including the

time required to complete the assignments and the examination. Give at least 240 hours to this module in order to ensure your success.

• Take note of rule 12 in the brochure, my Registration @ Unisa. Students must pass at least 4 modules of 12 credits each or 2 modules of 24 credits each per year. Students who do not comply with this requirement will be excluded from further admission to the university.

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CONTENTS

Page

1 INTRODUCTION ............................................................................................................................ 3

2 PURPOSE AND OUTCOMES ........................................................................................................ 3

2.1 Purpose .......................................................................................................................................... 3

2.2 Outcomes ....................................................................................................................................... 3

3 LECTURERS AND CONTACT DETAILS ...................................................................................... 5

3.1 Lecturers ......................................................................................................................................... 5

3.2 Department ..................................................................................................................................... 6

3.3 University ........................................................................................................................................ 6

4 RESOURCES ................................................................................................................................. 6

4.1 Prescribed book .............................................................................................................................. 6

4.2 Recommended books ..................................................................................................................... 6

4.3 Electronic reserves (e-reserves) ..................................................................................................... 6

4.4 Library services and resources information .................................................................................... 6

5 STUDENT SUPPORT SERVICES ................................................................................................. 7

6 STUDY PLAN ................................................................................................................................. 8

7 PRACTICAL WORK AND WORK-INTEGRATED LEARNING ..................................................... 9

8 ASSESSMENT ............................................................................................................................... 9

8.1 Assessment criteria ........................................................................................................................ 9

8.2 Assessment plan ............................................................................................................................ 9

8.3 General Assignment information .................................................................................................. 10

8.3.1 The assignments .......................................................................................................................... 10

8.3.1.1 General assignment numbers ....................................................................................................... 10

8.3.1.2 Unique assignment numbers ........................................................................................................ 10

8.3.1.3 Due dates for assignments ........................................................................................................... 10

8.3.1.4 Submission of assignments .......................................................................................................... 11

8.4 Other assessment methods: (FI concessions) .............................................................................. 38

8.5 The examination ........................................................................................................................... 38

9 IN CLOSING ................................................................................................................................. 39

10 ADDENDUM ................................................................................................................................. 39

11 ADDENDUM B: INTEREST TABLES .......................................................................................... 42

FMA401V/101

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1 INTRODUCTION

Dear Student

Welcome to the module, Financial Management IV (FMA401V).

You have enrolled for an interesting yet challenging module.

On completion of this module, you should be able to assess, calculate and interpret a range of

financial topics.

2 PURPOSE AND OUTCOMES

2.1 Purpose

Your tutorial matter for Financial Management IV (FMA401V) consists of the following:

● A study guide and question bank for Financial Management IV (FMA401V)

● A tutorial letter that you will receive shortly after the closing date of the second assignment, which will contain the suggested solutions to both assignments’ questions

● Additional resources provided at https://my.unisa.ac.za

2.2 Outcomes

At the end of this module, you should be able to do the following:

(1) Explain the financial environment of a business entity, including:

the role of the financial manager

the task and scope of financial management

goals of financial management

value

certainty, uncertainty and risk

return

the financial environment

inflation

monetary policy and interest rates

the financial markets

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basic forms of business organisation

(2) Explain the concept of time value of money and do calculations, including:

compound interest and the future value of money

calculation of the present value of a single cash flow

rate of return on an investment

present value of an unequal series of cash flow

net present value of an investment

internal rate of return

(3) Advise management on investment decisions, including investment in long-term assets and capital projects, including:

the capital budgeting process o planning phase o financial planning in project evaluations o payback method o accounting rate of return o NPV o IRR o equivalent annual cost o implementation of the project

the post-implementation phase

the types of capital decision

(4) Advise management on the investment in working capital, especially the management of cash, including:

the importance of working capital management

the need for working capital

cash management

the objectives of cash-flow information

the presentation of cash-flow information

the cash budget (5) Advise management on investment in working capital, especially the management of

accounts receivable, including:

credit policy

credit terms

collection policy

(6) Advise management on investment in working capital, especially the management of inventory, including:

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advantages and disadvantages of stock-keeping

inventory planning and control

economic order quantity (EOQ)

inventory cost rate

order point

safety stock

inventory control

(7) Explain financial statements analysis, including:

recording changes in the financial position

flow of information

income statement

balance sheet

users of financial statements (8) Explain cost, break-even analysis and leverage in financial management and do

calculations, including:

costs

break-even point and break-even value

operating leverage

financial leverage

combined leverage or the total leverage

3 LECTURERS AND CONTACT DETAILS

3.1 Lecturers

Direct any enquiries of an academic nature concerning this module, such as an enquiry about a specific calculation in the prescribed book, during office hours to:

Mr MN Bhomoyi (Lecturer) Mr MAV Maseko (Lecturer)

Tel: 012 429 6555 Tel: 012 429 4680

Ms L Ngcobo (Lecturer) Mr LE Mosimanyane (Postgraduate fellow)

Tel: 012 429 4083 Tel: 012 429 6426

Alternatively, you can send us an e-mail at the following address:

FMA401V-18-Y1@unisa.ac.za

This inbox is the easiest way for you to get feedback from the lecturers of the module, as it is monitored by all of us. You can also post any content-related queries on the discussion forums on myUnisa; we monitor the discussion forums on a daily basis. There is also a “questions and

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answers” tool on myUnisa that you are welcome to use, and there you can also check whether another student has already asked a similar question.

3.2 Department

This module is offered by the Department of Finance, Risk Management and Banking (DFRB).

Please note that you may get in touch with fellow students, download study material, submit assignments, change your address and/or examination venue, view your assignment marks, download previous examination papers, find self-assessment questions (only if applicable), and get in touch with your lecturer at https://my.unisa.ac.za

For academic enquiries, contact the department at 012 429 3603. E-mail queries may be sent to finman@unisa.ac.za.

3.3 University

You may direct administrative queries to the appropriate department as indicated in the brochure, my Registration @ Unisa. Examples of administrative queries are registration matters, study material matters, account queries and graduation issues. You must direct registration matters to econ@unisa.ac.za.

4 RESOURCES

4.1 Prescribed book

You must acquire the following prescribed book from one of the official Unisa bookstores (a list of bookstores is available on myUnisa):

Marx, J. & De Swardt, C. 2013. Financial management in Southern Africa. 5th edition. South Africa: Pearson Education.

4.2 Recommended books

Els, G. et al. 2014. Corporate Finance: A South African Perspective. 2nd edition. South Africa: Oxford University Press.

Gitman, L.J. et al. 2014. Principles of Managerial Finance: Southern African Perspectives. 2nd edition. Pearson, Cape Town, South Africa

4.3 Electronic reserves (e-reserves)

None

4.4 Library services and resources information

For brief information, go to www.unisa.ac.za/brochures/studies

For detailed information, go to http://www.unisa.ac.za/library.

For research support and services of personal librarians, click on "Research support".

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The library has compiled a number of library guides, which include:

finding recommended reading in the print collection and e-reserves –

http://libguides.unisa.ac.za/request/undergrad

requesting material – http://libguides.unisa.ac.za/request/request

postgraduate information services – http://libguides.unisa.ac.za/request/postgrad

finding, obtaining and using library resources and tools to assist in doing research –

http://libguides.unisa.ac.za/Research_Skills:

how to contact the Library/finding us on social media/frequently asked questions –

http://libguides.unisa.ac.za/ask

4.5 Study guide errata

Please ensure you take note of the errata for some mistakes in the study guide. You can find it in the addendum of this tutorial letter. It is very important that you take note of these mistakes.

5 STUDENT SUPPORT SERVICES

Important information appears in the brochure, Study @ Unisa. Additional resources are uploaded on myUnisa on a regular basis. These resources include study notes as well as practice questions. Visit the myUnisa page for the module regularly to stay up to date with resources uploaded. There are discussion forums, and question and answer tools that you can use to ask your lecturers and fellow students questions regarding the content of the module. There are also further frequently asked questions on the content of the module. This document will also be available on myUnisa and may be updated from time to time. The study notes that are available on myUnisa are an excellent place to start with your studies of this module as they were compiled to be accessible to students who have not encountered an accounting or finance module before.

5.1 Tutors (face to face and e-tutors)

For face-to-face tutors, the regional centres of Unisa offer tutorial services. You can find the contact details of your nearest regional centre on the Unisa website and enquire regarding the availability of classes. For e-tutors, you may contact your lecturer for more information.

5.2 Predatory providers of classes and examination support (PRIVATE TUTORS)

Please be aware of the existence of multiple fraudulent and predatory providers of classes and examination guidance to Unisa students. Please note that Unisa do not have agreements with any of these agencies/schools/colleges to provide tuition or support to our students. Unisa also do not provide these predators with study material, guidelines or your contact information. These providers may not have the necessary expertise to assist you and often charge exorbitant fees. If you receive an invitation from any agency or College, it is best to confirm with your lecturer if the provider is a legitimate Unisa partner.

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6 STUDY PLAN

Use Study @ Unisa for suggestions on how to manage and plan your time.

Introduction to finance and the financial environment:

Study chapter 1 in the study guide.

Read chapter 1 in the prescribed textbook.

Time value of money:

Study chapter 2 in the study guide.

Read chapter 7 in the prescribed textbook.

The investment decision:

The investment in long-term assets and capital projects

Study chapter 3 in the study guide.

Read chapter 13 in the prescribed textbook.

Investment in working capital:

The management of cash

Study chapter 4 in the study guide.

Read chapter 9 in the prescribed textbook.

Investment in working capital:

The management of accounts receivable

Study chapter 5 in the study guide.

Read chapter 10 in the prescribed textbook.

Investment in working capital:

The management of inventory

Study chapter 6 in the study guide.

Read chapter 11 in the prescribed textbook.

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Financial statements analysis and financial ratio analysis:

Study chapter 7 in the study guide.

Read chapters 3 and 4 in the prescribed textbook.

Leverages in financial management:

Study chapter 8 in the study guide.

Read chapter 16 in the prescribed textbook.

7 PRACTICAL WORK AND WORK-INTEGRATED LEARNING

We are advising students to go to myUnisa and to look under the additional resources for additional practical exercises.

8 ASSESSMENT

8.1 Assessment criteria

Assignments are seen as part of the learning material for this module. When you do the assignments, study the reading texts, consult other resources, discuss the work with fellow students or tutors, or do research, you are actively engaged in learning. Paying attention to the assessment criteria for each assignment will help you to understand more clearly what is required of you.

You may submit written assignments and assignments completed on mark-reading sheets either by post or electronically via myUnisa. You may not submit assignments by fax or e-mail. For detailed information and requirements concerning assignments, see the brochure, Study @ Unisa, that you received with your study material.

Compulsory assignments

For this module, you must complete two compulsory assignments in the form of one multiple-choice question assignment and one written assignment. Submission deadlines for each of the assignments for this module are non-negotiable and you must submit these assignments if you wish to gain entry to the examination. The assignments contribute to your year mark.

8.2 Assessment plan

Your year mark, based on the mark obtained for the two compulsory assignments, contributes 20% towards your final mark, while your examination mark contributes 80%.

The combined weighted average of your year mark and examination mark must be 50% or higher for you to pass the module. However, you must also obtain a minimum of 40% in the examination. If you obtain less than 40% in the examination, we will not consider your year mark and you will fail.

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For example: Assignment 01 mark = 50% and Assignment 02 mark = 90%. These marks each contribute 50% towards the final 20% year mark.

Assignment no Mark Weight Total

Assignment 01 50% 50% 25

Assignment 02 90% 50% 45

70 x 20% of final = 14%

For example:

Assume an examination mark of 55%

80% of the examination mark = 44%

Final mark = (20% assignment mark) + (80% examination mark)

= 14% + 44%

= 58%

You will need a final mark of at least 40% in order to qualify for a supplementary examination.

For general information and requirements concerning assignments, see the brochure, Study @ Unisa.

8.3 General Assignment information

8.3.1 The assignments

This section contains further information regarding assignments. This includes:

8.3.1.1 General assignment numbers

Assignments are numbered consecutively per module, starting from 01.

8.3.1.2 Unique assignment numbers

Each assignment has been allocated a unique number in order to identify it in the Unisa assessment plans. Always ensure that you indicate the correct unique number when submitting assignments.

8.3.1.3 Due dates for assignments

As indicated earlier, you should preferably submit your assignments to https://my.unisa.ac.za

prior to the due date of each assignment. Do not wait until the day before the due date.

Technical problems with the computer servers of myUnisa may prevent you from submitting

your assignment at the last minute.

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If you are unable to submit your assignments via myUnisa and need to mail them to us in hard copy form, ensure that your assignments reach the Unisa main campus by the due dates. Requests for extension of due dates for assignments will not be granted. These due dates have been set to allow you sufficient time to complete other assignments and prepare for the examination.

You can obtain information about whether Unisa has received your assignment and the mark achieved for an assignment from https://my.unisa.ac.za.

8.3.1.4 Submission of assignments

To submit an assignment via myUnisa:

Go to myUnisa at https://my.unisa.ac.za.

Login with your student number and password.

Select the module.

Click on assignments in the left-hand menu.

Click on the assignment number you want to submit.

Follow the instructions on the screen.

To submit a multiple-choice question (MCQ) assignment by means of an SMS from your cell phone:

Download and install the Unisa Mobile application from https://my.unisa.ac.za/portal/pda.

Install and start the application on your phone.

Select the “MCQ Assignment” option.

Login with your myUnisa credentials.

Select your module.

Select the appropriate unique assignment number.

Select appropriate answers to the assignment questions.

Send your answers.

Receive immediate on-screen confirmation.

You should submit your assignment only by means of a mark-reading sheet (for MCQs) or a hard copy (for essay-type questions) and mail it to Unisa if you do not have access to the internet. If you are using a mark-reading sheet, remember to:

Use an HB pencil.

Indicate your student number and the above-mentioned unique number on the mark-reading sheet.

follow the instructions for completing mark-reading sheets. Incomplete mark-reading sheets will be returned to you unmarked.

submit the assignment in good time. It must reach the Unisa main campus by the dates indicated below; otherwise, it might not be in time to be marked by the assignment section.

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8.3.1.5 The assignments

There are two compulsory assignments – one consisting of multiple-choice questions and one essay-type question that you have to hand in. There is also one self-assessment assignment consisting of essay-type questions that you will not hand in.

Please note: For all calculative questions, you should choose the nearest correct option, as there may be slight rounding differences between your answer and ours. The use of financial calculators and the financial tables will influence the rounding on your answers. For Assignment 02, it is important to show your calculations where applicable. If you are not using a financial calculator, you can find the necessary interest tables in Appendix B at the end of this tutorial letter.

ASSIGNMENT 01 Due date: 11 May 2018

Unique number: 727269 Aim: To evaluate your knowledge of some of the fundamental aspects of:

finance and the financial environment (learning unit 1)

time value of money principles and applications (learning unit 2)

investment decision making (learning unit 3)

investment in working capital: cash management (learning unit 4) Answer the following questions and submit your assignment to https://my.unisa.ac.za.

Question 1

The short-term financial goal should be to ensure the profitability, liquidity and solvency of the firm. The main objective of financial management is to …

1. maximise the remuneration paid to executive management

2. maximise shareholders’ value

3. ensure maximised profits

4. ensure maximised sales

Question 2

The risks a firm faces can originate from either outside or inside the firm. Which one of the following options best describes risk?

1. The probability of an upside deviation occurring

2. The probability of a deviation from the historical value

3. The probability of a downside deviation occurring

4. The probability of a deviation from the expected value

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Question 3

In which one of the following scenarios is wealth maximisation taking precedence over profit maximisation? Choose the correct option.

1. The financial manager has to choose between two projects with similar risks and returns. He chooses the one that has more income in the initial years of the project than the other one.

2. The management of a business has come up with a plan to address falling profits. The managers decided to retrench some workers and sell off assets in order to restore profitability over the next year, as they will be handing over to a new management team after that.

3. At a general meeting, some of the shareholders of a business expressed their wishes to earn more dividends. The financial manager of the business then proceeds to pay out all earnings as dividends as he also expects this to increase the share price in the short term.

4. The financial manager of a business is making a decision regarding two possible new projects with equal expected returns. The project that the manager has chosen is more high risk than the other one. However, the financial manager will get a larger bonus on the success of the high-risk project.

Question 4

Which one of the following types of business entities offers the best access to large amounts of financing from financial institutions?

1. Sole Proprietorship

2. Public Company

3. Partnership

4. Private Company

Question 5

The decision-makers in financial management should understand the fundamental principles of financial management. Which of the following is the fundamental principle of financial management?

1. Financing-investment decision

2. Time value of money

3. The governance of risk

4. Business rescue

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Question 6

Choose the main feature of a sole proprietorship:

1. This is a form of business that is owned by two or more people who have a private agreement between themselves as to how the business should be run.

2. There is a lack of continuity on the death or insolvency of any one of the partners.

3. This is the form of business where the owner and manager of the business enterprise is not necessarily the same person.

4. Juristic person separate from shareholder, and brought into being by complying with enabling legislation, that is, the Companies Act (act 71 of 2008)

Question 7

Business strategy contributes largely to the success of the firm. Choose a business strategy from the following:

1. Highly capitalise

2. Medium to long-term goal

3. Profitability

4. Focus

Question 8

… analysis is a technique used to assess the returns associated with various cost structures and levels of sales. Choose the missing word from below.

1. Financial risk

2. Break-even

3. Ratio analysis

4. Debt ratio

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Question 9

David is considering a saving plan of eight years. An investment company offers 10% interest per annum on an investment product that David has chosen. David will receive R200 000 when this investment matures. Calculate how much David should invest today towards his investment plan.

1. R25 000.40

2. R53 589.30

3. R93 301.48

4. R200 211.50

Question 10

Tebogo deposits R50 000 into a savings account for a period six years. This amount earns 12% interest compounded semi-annually. Calculate how much Tebogo will receive at the end of the savings period.

1. R98 691.13

2. R100 609.82

3. R405 759.45

4. R843 497.07

Question 11

Suppose you bought a top of the range car and you make an annual payment of R72 000 for the next five years. Your motor financing plan charges you 14% interest per annum, compounded annually. Determine the current value on the car.

1. R37 394.54

2. R138 629.85

3. R247 181.83

4. R475 927.50

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Question 12

The insurance expert advised you to save at least 8% of your income before tax. Accordingly, this will allow you to maintain a similar lifestyle at your retirement age. Your gross income (income before tax) is R500 000 per annum. Likewise, you save the recommended amount into an annuity by way of yearly payments. The saved amount earns 10% interest, compounded annually. Calculate how much you will receive in your retirement annuity when you retire in 30 years’ time.

1. R697 976.09

2. R6 579 760.91

3. R8 724 701.13

4. R82 247 011.34

Question 13

Use the following information to answer questions 12 to 15

The City of Cape Town has issued water restriction regulations due to the drought. The cost of acquiring a new meter reader is 6% of purchase price. After a five-year period the water meter system is expected to have a scrap value of R4 000 000. The city council will lose billions of rand if the water restriction plan fails. Cape Town’s mayor provided the following stream of cash flows for this water project at a public meeting:

Year Cash flows and expenditure Water (R)

0 Purchase price ─18 000 000

0 Installation costs ─7 000 000

1 Cash flow 1 500 000

2 Cash flow 6 400 000

3 Cash flow 7 000 000

4 Cash flow 9 300 000

5 Cash flow 8 000 000

Calculate the NPV of water and choose the correct option below.

1. R2 332 200

2. R8 332 942

3. R19 332 942

4. R4 321 975

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Question 14

Calculate the IRR of water and choose the correct option below.

1. 7.63%

2. 8.65%

3. 9.01%

4. 10.89%

Question 15

Calculate the payback period of new water meter system and decide whether the Cape Town City Council should accept or reject the project. The city council accepts a payback period of less than three years.

1. 1 year, 9 months, accept

2. 3 years, 3 months, accept

3. 4 years, 8 months, reject

4. 5 years, 8 months, reject

Question 16

In light of a double downgrade for South Africa by rating agencies, Treasury issued

R300 000 000 in RSA bonds today to the public. This investment could perform well as the country’s economy recovers. Imagine that ten years later, it will yield R600 000 000. Calculate the growth rate of this investment.

1. 2.0%

2. 6.7%

3. 7.0%

4. 10.0%

Question 17

How long it took for Lesego’s investment of R10 000 to grow to R11 500, if it earned 9% interest per annum?

1. 11 months

2. 1.62 years

3. 2.12 years

4. 3 years

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Question 18

As part of inclusive economic growth, Tshwane metro has decided to extend Gautrain services to black townships. The proposed extension to black areas offers a return of 15% per annum. The feasibility study provided the following data:

The project is deemed risky and has a beta coefficient of 2

The estimated risk free rate is 5%

The estimated market return is 9%

Calculate the expected return for the Gautrain extension services, you may use the capital asset pricing model (CAPM).

1. 8%

2. 11%

3. 13%

4. 18%

Question 19

Airports Company South Africa (ACSA) is facing unprecedented parking space problems. ACSA’s CEO has proposed a project that will ease the problem. The project has the following probabilities associated with its profitability:

Possible profits (R) Probability

3 000 000 0,1

4 000 000 0,2

5 000 000 0,4

7 000 000 0,2

6 000 000 0,1

Calculate the expected return for the proposed project.

1. R300 000

2. R1 400 000

3. R2 000 000

4. R5 100 000

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Question 20

Suppose you did a comparison of several investment schemes with various options to invest. One option on offer is that an investment made today worth R80 000 in a savings account that earns 12% interest per annum, will be worth R140 000 at maturity. Calculate how long it will take this investment to yield R140 000. (Choose the nearest answer)

1. 1.75 years

2. 5 years

3. 4 years

4. 6.94 years

Question 21

Peter received a bonus of R100 000 today from his employer. He deposits it into a savings account that earns 9% interest per annum, compounded annually. He plans to buy a property stand in five years’ time. The property stand he wants to buy currently costs R400 000 and this price is forecast to grow by 6% per annum. Peter plans to use his savings to partially finance his property stand; however, he wants to finance the balance using a bond that will cost 8% interest per annum, compounded annually, over a period of ten years. Calculate the annual payment Peter will have to make on his bond when he buys the property stand.

1. R56 844

2. R153 862

3. R381 428

4. R535 290

Use the following information to answer questions 22 – 29

The South African Revenue Service (SARS) had a R30 billion shortfall in its 2016/2017 financial year. As a result, national treasury was experiencing budget constraints. You are required to compile a cash budget for national treasury. To carry out your mandate you have to use the following sales forecasts data:

Sales forecasts:

January R4 000 000

February R5 000 000

March R3 000 000

April R2 000 000

May R3 500 000

June R4 500 000

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Credit sales are collected as follows:

30% of sales are done in cash and the remainder on credit

10% during the month of sale

40% during the first month after the month of sale

The remainder is collected during the second month after the month of sale

Purchases amount to 60% of the sales value per month. All purchases are on credit and are paid as follows:

30% one month after the purchase took place

The remainder, the second month after the purchase took place

The mid-term national treasury budget reflected R200 000 000 expenditure for the month of June. The balance brought down to R5 000 000 for March. A recommended minimum cash balance of R4 000 000 was maintained. You are required to compile a cash budget as required by the questions below.

Question 22

Calculate the total credit sales collected for April.

1. R840 000

2. R1 400 000

3. R1 750 000

4. R2 730 000

Question 23

Calculate the opening balance for April.

1. R4 000 000

2. R5 000 000

3. R7 730 000

4. R200 000 000

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Question 24

Calculate the total credit purchases collected for May.

1. R360 000

2. R1 260 000

3. R1 620 000

4. R2 100 000

Question 25

Calculate the closing balance for June.

1. R5 000 000

2. R5 090 000

3. R5 325 000

4. R194 150 000

Question 26

Calculate the financing required for June.

1. R1 090 000

2. R1 325 000

3. R4 000 000

4. R198 150 000

Question 27

Calculate the financing required for April.

1. R1 090 000

2. R1 325 000

3. R4 000 000

4. R5 325 000

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Question 28

Calculate the cash sales for February.

1. R900 000

2. R1 200 000

3. R1 350 000

4. R1 500 000

Question 29

Calculate the credit purchases for March that were collected in May.

1. R360 000

2. R540 000

3. R1 260 000

4. R1 620 000

Question 30

One of the following statements best describes the process of capital budgeting. Choose the correct statement.

1. Planning for long-term expenditure on fixed assets.

2. Planning for short-term expenditure on operational activities.

3. The spending of borrowed funds on current assets.

4. The spending of excess funds on purchases for operational activities.

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ASSIGNMENT 02 Due date: 10 August 2018

Unique number: 688925 Aim: To evaluate your knowledge of some of the fundamental aspects of:

investments in working capital: accounts receivable management (learning unit 5)

investments in working capital: inventory management (learning unit 6)

financial ratio analysis (learning unit 7)

leverage in financial management (learning unit 8) Answer the following questions and submit your assignment to https://my.unisa.ac.za or in hard copy and post it through Unisa assignment boxes. Question 1 [6] The financial team at Vodafone has conducted a feasibility study on the affordability of its products. The company’s sales forecasts for the next six months are as follows (all amounts in rand):

June: 900 000 July: 500 000 August: 800 000

Sept: 2 000 000 Oct: 450 000 Nov: 200 000

Purchases amount to 10% of the sales’ value per month. All purchases are on credit and are paid as follows:

40% in the month of purchase

40% in the first month after purchase

20% in the second month after purchase Required: Calculate the credit purchases for September, October and November. Question 2 [2] Assume you make equal payments of R250 yearly at an 8% interest rate, compounded half yearly over a period of six years. Calculate your investment at maturity. Question 3 [12] In light of the recent downgrade of South Africa to junk status, the National Consumer

Commission (NCC) of South Africa expects the Reserve Bank to increase interest rates. If the

Reserve Bank does indeed increase interest rates, this will directly affect consumers.

Consumers play a vital role in the growth of the economy and thus contribute to the national

fiscus and the development of the country. However, a recent report from the World Bank

indicated that South Africans are the biggest borrowers in the world. This paints a bleak

economic outlook for the country, thus NCC has proposed tight credit control for South African

businesses.

24

As part of the tight credit control as advised by NCC, fashion retail stores have offered the

following data:

Current terms of credit policy

Sales R1 500 000

Variable costs 45 % of sales

Average collection period (ACP) 180 days

Bad debts 10% of sales

Discounts 15% discount given on 30% of total sales

Below are the new terms of credit policy:

New terms of credit policy

Sales R1 200 000

Variable costs 45% of sales

Average collection period (ACP) 120 days

Bad debts 5% of sales

Discounts 20% discount given on 40% of sales

The company’s (fashion retail store) cost of capital is 11%. Required: Calculate the effect that the proposed policy will have on earnings before interest and tax (EBIT) and advise which plan would be better to take. (Assume a 365-day year.) Question 4 [16] Question 4.1 (3) Assume that Bakery Factory has a cash conversion cycle (CCC) of 30 days and an operating cycle of 85 days. Calculate the company’s average payment period. Question 4.2 (3) KK Builder Limited has an inventory turnover of 25, an average collection period of 55 days, and an average payment period of 30 days. (Assume a 365-day year.) Calculate the KK Builder’s operating cycle. Question 4.3 (3)

Massbuild (Pty) Ltd offers its clients the following credit terms on their loans: 3.5 / 15 net 30. The clients decided not to take advantage of the credit terms offered. Calculate the cost of giving up the discount.

Question 4.4 (4)

A group of university students started a mobile kiosk where they sell snacks at R100, and the variable costs associated with each sale are expected to be R200. The kiosk quickly enjoyed a high volume of sales, thus generating R2 000 000 gross profits per annum. The total cost of placing an order with suppliers is estimated to be R550 per order. The inventory level kept in stock amounted to 1 000 units. The carrying costs amounted to R600 per order. The fixed costs for the business amounted to R80 000 per annum. Calculate the economic order quantity for the kiosk.

FMA401V/101/0/2018

25

Question 4.5 (3)

It is confirmed that suppliers will take 20 days to deliver new stock. Calculate the reorder point for the kiosk, using information from 4.4 above.

Question 5 [12]

Below are extracts of the financial statements from MNT Ltd. Assume that all purchases are on credit. MNT wants financial analysis with selected ratios, in order to determine the capital efficiency of its business.

Extracts from the statement of comprehensive income for the year ended 31 December 2017:

Sales

( R ) 1 800 000

Cost of sales 750 000

Gross profit 1 050 000

Administrative expenses 150 000

Operating expenses 45 000

Profit from operations 855 000

Interest 28 000

Profit before tax 827 000

Tax 23 000

Net profit for the period 804 000

Extract from the statement of financial position as at 31 December 2017:

ASSETS ( R )

Property, plant and equipment 700 000

Current assets 390 000

Inventories 210 000

Trade receivables 85 000

Prepayments 55 000

Cash and equivalents 40 000

Total assets 1 090 000

EQUITY AND LIABILITIES

Capital and reserves 285 000

Issued capital 35 000

Accumulated profits 250 000

Non-current liabilities

Interest bearing borrowings 100 000

Current liabilities 705 000

Trade payables 125 000

Short-term borrowings 400 000

Current portion of non-current liabilities 180 000

Total equity and liabilities 1 090 000

26

Question 5.1 (3)

Calculate MNT’s gross profit margin for 2017 (assume 365 days).

Question 5.2 (3)

Calculate MNT’s current ratio and comment on this from the perspective of a supplier that sells on credit.

Question 5.3 (3)

Calculate MNT’s times interest earned ratio for 2017.

Question 5.4 (3)

Calculate MNT’s debt ratio for 2017.

Question 6 [8]

Kabelo started a new business that sells sports symbols and regalia. He targets the national teams. He has compiled the breakdown of his expenses and selling price as follows:

Selling price per sports symbols R30

Variable costs per sports symbols R20

Rent R50 000 p/m

Utilities R3000 p/m

Insurance R450 p/m

maintenance R2 500 p/m

Question 6.1 (4)

Calculate the number of units Kabelo will have to sell each year in order to break even.

Question 6.2 (4)

Assume Kabelo sells 300 000 sports symbols in one year and his business has interest costs of R20 000 per annum. Calculate the business’s degree of financial leverage.

FMA401V/101/0/2018

27

ASSIGNMENT 03 – SELF-ASSESSMENT

DO NOT HAND IN THIS ASSIGNMENT.

This assignment is for exam preparation only.

Question 1 (13)

1.1 Sit Tight Limited, a company that manufactures chairs, is considering the purchase of a machine for R65 000.

The expected cash inflows generated by the machine are as follows:

Year Cash flow (R)

1 13 000

2 18 000

3 19 000

4 14 000

5 9 000

After the 5-year period the machine is expected to have a scrap value of R5 000.

The company’s required rate of return is 7%.

Required:

Advise Sit Tight Limited on whether or not it should purchase the machine.

Base your recommendation on the net present value (NPV) of the investment. (5)

1.2 R14 000 is invested in retail bonds at 15% per annum compound interest for 5 years.

Calculate the value of the investment at the end of year 5. (2)

1.3 Calculate the present value of R450 000 over 3 years, assuming a discount rate of 12%. (2)

1.4 If you save R5 000 each year for the next 13 years in a savings account that pays 11% interest per annum, how much would you have saved? (2)

1.5 Calculate the present value of R22 000 received annually at the end of every year for eight successive years using a discount rate of 13%. (2)

28

Question 2 (7)

2.1 Jersey Limited is a manufacturer of milk bottles. The following information is obtained from their records.

Annual sales amount to 500 000 units. The purchasing price per unit is R3.

The carrying cost of inventory is equal to 20% of the purchase price of goods.

The ordering cost is R100 per order. Four days are required for delivery.

The desired safety stock for the firm is 4 000 units.

Required:

Calculate the economic order quantity (EOQ) for Jersey Limited. . (4)

2.2 Determine the re-order point for Jersey Limited. Assume a 360-day year. (3)

Question 3 (5)

Sun Manufacturing Limited produces light bulbs. The firm’s variable costs per light bulb amount to R4 and total fixed costs for the firm are R1 600 000.

Sales of R6 000 000 are expected for the current year. The selling price per bulb is R15.

Required:

3.1 Calculate the expected marginal income for the year. (2)

3.2 What will be the breakeven point (in units) of Sun Manufacturing Limited for the year?(3)

FMA401V/101/0/2018

29

Question 4 (24)

Use the following information to answer questions 4.1 to 4.8.

The statement of financials for Elephant Limited are as follows:

Statement of financial position for the year ended 31 December 2012:

2012

R’000

ASSETS Non-current assets Property, plant and equipment 99 784

Current assets 224 586

Inventories 159 376

Trade receivables 30 358

Prepayments 1 952

Cash and cash equivalents 32 900

Total assets 324 370

EQUITY AND LIABILITIES

Capital and reserves 204 910

Issued capital 13 940

Accumulated profits 190 970

Non-current liabilities

Interest-bearing borrowings 53 004

Current liabilities 66 456

Trade payables 48 310

Short-term (interest-bearing) borrowings 13 586

Current portion of non-current liabilities 4 560

Total equity and liabilities 324 370

30

Statement of comprehensive income for the year ended 31 December 2012

2012

R’000

Revenue (sales) 709 226

Cost of sales 392 920

Gross profit 316 306

Other operating income 2 680

Distribution costs 59 552

Administrative expenses 47 156

Other operating expenses 60 280

Profit from operations 151 998

Finance costs 8 426

Profit before tax 143 572

Income tax expense 43 072

Net profit for the period 100 500

Required:

Using the above information, calculate the following ratios for 2012:

Assume 365 days in a year throughout and round off to the nearest one decimal place.

4.1 Gross profit margin (3)

4.2 Net profit margin (3)

4.3 Return on assets before interest and tax (3)

4.4 Return on equity (3)

4.5 Current ratio (3)

4.6 Quick ratio (acid test) (3)

4.7 Debt ratio (3)

4.8 Times interest earned ratio (3)

FMA401V/101/0/2018

31

Question 5 (21)

Seal Limited had sales of R100 000 in January, R80 000 in February and R90 000 in March.

The company forecasts sales for the coming months as follows:

April R110 000

May R100 000

June R120 000

Additional information:

The company had a cash balance of R20 000 on 1 April.

40% of the company’s sales are in cash.

Trade debtors (credit sales) are collected as follows:

20% during the month of sale

50 % during the first month following the sale

20% during the second month following the month of sale

10% during the third month following the month of sale

The company anticipates other cash income as follows:

April R10 000

May R12 000

June R11 000

Credit purchases for March amounted to R60 000.

The forecast for the next three months is as follows:

April R50 000

May R40 000

June R40 000

50% of credit purchases are paid in the month of purchase and the balance is paid the following month.

Rent paid amounts to R5 000 per month.

Salaries and wages amount to R20 000 per month.

An interest payment of R5 000 is due in May.

Equipment valued at R7 500 will be purchased for cash in April.

A trading fine of R10 000 is payable in June.

32

Required

Prepare the cash budget for Seal Limited for the months of April, May and June. (21)

DO NOT TURN OVER TO THE NEXT PAGE BEFORE YOU HAVE ATTEMPTED THE EXERCISE. PLEASE TRY THE EXERCISE FIRST BEFORE YOU CHECK THE ANSWERS.

FMA401V/101/0/2018

33

SOLUTIONS TO ASSIGNMENT 03

The mark allocation has been included so that you can see how marks may typically be allocated in a written assessment. The mark allocation included is for illustrative purposes and may not have been worked out in exactly the same manner as it would be allocated for an exam. Use this allocation to gauge your preparedness for the exam.

Question 1.1

CF (R) PVIF PV of CF (R)

0 -65 000 1 -65 000 1 13 000 0.935 12 155 2 18 000 0.873 15 714 3 19 000 0.816 15 504 4 14 000 0.763 10 682 5 14 000 0.713 9 982

Calculator -R 956,57√√√√ Tables -R 963

Do not invest in the machine as it has a negative NPV.√

Question 1.2

Calculator:

Tables: PV = R14 000

R14 000 x 2.011 R28 154

I = 15 N = 5 so FV = R28 159√√

Question 1.3

Calculator:

Tables FV = R450 000

R450 000 x 0.712 R320 400

N = 3 I = 12 so PV = R320 301,11√√

34

Question 1.4

Calculator:

Tables: PMT = R5 000

R5 000 x 26.21 R131 050

N = 13 I = 11 FV = R131 058,19√√

Question 1.5

Calculator:

Tables: PMT = R22 000

R22 000 x 4.799 R105 578

N = 8 I = 13 so

PV = R105 572,95√√

Question 2.1

EOQ =

or

EOQ =

EOQ = = =

= 12 909, 95√ ≈ 12 910

Question 2.2

Re-order level in units

Average usage = 500 000 / 360 = 1 388.889 ≈ 1 389

Re-order point = waiting time x average usage

= 4 days x 1 389√ units = 5 556 units√

Safety stock + re-order point = 4 000 + 5 556 = 9 556 units√

FMA401V/101/0/2018

35

Question 3.1

Marginal income = sales - variable costs

R6 000 000 - (R4 x 400 000) = R4 400 000√√

Question 3.2

Breakeven point = total fixed costs / marginal income per unit

= R1 600 000 / (R4 400 000 / 400 000) √

= 145 454.5 ≈ 145 455 units√√

Question 4.1

Gross profit margin = gross profit ÷ sales

= 316 306√ / 709 226√

= 44.6%√

Question 4.2

Net profit margin = net profit ÷ sales

= 100 500√ / 709 226√

= 14.2%√

Question 4.3

ROABIT = EBIT ÷ Total assets

= 151 998√ ÷ 324 370√

= 46.9%√

36

Question 4.4

ROE = Net profit ÷ equity

= 100 500√÷ 204 910√

= 49.0%√

Question 4.5

Current ratio = current assets ÷ current liabilities

= 224 586√ ÷ 66 456√

= 3.4√

Question 4.6

Quick ratio = (current assets – inventory) ÷ current liabilities

= (224 586 - 159 376) √ ÷ 66 456√

=1.0 √

Question 4.7

Debt ratio = total debt ÷ total assets

= 53 004 + 66 456 ÷ 32 4370

= 119 460√ ÷ 324 370√

= 0.4 √

Question 4.8

TIE ratio = profit from operations ÷ finance costs

= 151 998√ ÷ 8 426√

= 18.0

FMA401V/101/0/2018

37

Question 5

April May June

Opening balance 20 000 √ 42 300√method 79 900√method

Sales – cash 44 000√ 40 000√ 48 000 √

Sales – credit 55 800 60 600 63 000

Other – cash 10 000 12 000 11 000

Total income√ method 109 800 112 600 122 000

Total expenditure 87 500 75 000 75 000

Purchases – credit 55 000 45 000 40 000

Sundry expenses method 7 500 5 000 10 000

Salaries 20 000 20 000 20 000

Rent 5 000 5 000 5 000

Closing balance√ method 42 300√ 79 900√ 126 900√ method

Cash sales January February March April May June

60 000 48 000 54 000 66 000 60 000 72 000

Credit sales April May June January 6 000√half February 9 600√half 4 800√half March 27 000√half 10 800√half 5 400√half April 13 200√half 33 000√half 13 200√half May 12 000√half 30 000√half June 14 400√half Total 55 800 60 600 63 000

Credit purchases April May June March 30 000√half April 25 000√half 25 000√half May 20 000√half 20 000√half June 20 000√half Total 55 000 45 000 40 000

Sales: cash April May June April R110 000 44 000 May R100 000 40 000 June R120 000 48 000

38

8.4 Other assessment methods: (FI concessions)

Do I qualify for an FI concession?

Only if you fail the examination and FMA401V is one of the last two modules that you need to complete your degree, will an alternative assessment method be considered. Your lecturer or the Examination Section will contact you if you qualify for this opportunity.

Your lecturer can give you a portfolio of evidence to complete or another method of assessment as he or she chooses. Contact your lecturer and the Examination Section as soon as you are notified that you qualify for an FI concession.

Will I still be able to get support from my lecturer regarding the content of the module?

Yes, your lecturer will be available to support you regarding the content of the module. Arrangements regarding support from your lecturer will be communicated to you in an e-mail to your myLife e-mail account if you choose the portfolio of evidence.

Will the alternative assessment be easier than writing the exam?

Note that this alternative assessment opportunity will not be an easier option. The portfolio is a large assignment that you need to complete on your own and it entails a large amount of work.

What if I fail my FI concession opportunity?

The policy on FI concessions states that students get a maximum of two exam opportunities; this includes your normal exam sitting. In other words, this means that you will write the main exam for the module, the October / November exam, then as an FI concession student you get one more opportunity for assessment, by means of an alternative assessment. If you fail the alternative assessment, you need to register for the module again. Remember, the FI concessions are not a guaranteed pass; in fact, many students are unsuccessful.

8.5 The examination

Examination admission will be granted to all students who submit the compulsory assignments. Students who do not submit the assignments will NOT be allowed to write the examination.

The provisional examination dates have been published on https://my.unisa.ac.za.

The examination paper for FMA401V will be written questions and not multiple-choice type questions. No equations are provided in the examination paper. However, financial tables for time value of money calculations are provided.

A student must achieve at least 40% in order to qualify for admission to the supplementary examination. Details about the procedure and cost for re-marking examination scripts are available on myUnisa (https://my.unisa.ac.za).

FMA401V/101/0/2018

39

9 IN CLOSING

This tutorial letter provides you with the purpose and outcomes of the module, the contact details of the lecturer(s), module-related resources and student support services.

It is important that you now prepare a study plan and devote 240 hours to this module in order to achieve success in the examination.

This tutorial letter provides details of your assessment, including your assignments for the year.

Make sure you visit myUnisa as there are a lot of resources available on the course site.

Best wishes,

Your lecturers

10 ADDENDUM

The following are corrections for mistakes that have been identified in the study guide:

Page 2: “… Many of these, such as machinery, plant and buildings, are intangible…”

Should read: “…Many of these, such as machinery, plant and buildings, are tangible…”

Page 22: “(Make sure that the calculator is set for payments at the beginning of the period)”

Should read: “Your calculator settings will depend on the type of annuity problem being worked out. A normal annuity (this is the common one we discuss in this module) will require your calculator to be set to the normal mode. For example: There should be no BEG at the bottom of its screen. An annuity due will require you to set your calculator to BEG mode.”

Page 24: Under the self-assessment questions: “Calculate the future value of R200…”

Should read: “Calculate the future value of R300…”

Page 38: “Keep the following in mind when doing NPV calculations”

Should read: “Keep the following in mind when doing NPV calculations: the issues are shown as they apply to this specific example; however, you will find them common in NPV problems.

Page 38: “The discount rate is read from the Future Value of an Annuity table at 10%.”

Should read: “The discount rate is read from the present value of a single amount table at 10%.”

40

Page 39: “NOTE:…”

Should read: “This section deals with compounding interest more frequently with annually.

Page 42: The section relating to the calculation of IRR.

Please note that the study notes for learning unit 2 give a detailed description of how to use interpolation to find the IRR as well as the actual steps if you use a financial calculator. Interpolation, trial and error, or the financial calculator can be used.

Page 53: “Standard variance = variable…” AND: “Variable of the probability classification…”

Should read: “Standard deviation = “

AND: “Variance of the probability classification…”

Page 53: Bottom of the page: “… variance coefficient for decision A = standard variance /…”

Should read: “Coefficient of variation for decision A = standard deviation / …”

Page 54: Top of page: “…decision-making rule of variance coefficient…”

Should read: “… decision-making rule of the coefficient of variation…”

Page 63: In the table: “Cash flows from investment activities…”

The numbers in the 20x2 column next to this heading need to be one line lower. For example, (200) should be next to “Replacement of plant and equipment”.

Page 78: In the example below 5.2.2.2: “The variable cost per unit is R6,00 and the average cost per unit, given a sales volume of 60 000 units, is R8,00.”

Should read: “The variable cost per unit is R6,00 in general; however, it will be R8,00 for the first 60 000 units only with each unit after that being at R6,00.”

Page 79: “With implementation of the proposed plan, the annual sales will increase from R480 000 to R498 000.”

Should read: “With implementation of the proposed plan, the annual cost of sales will increase from R480 000 to R498 000.”

Page 81: “…The investment in accounts receivable increases because…”

Should read: “…The investment in accounts receivable decreases because…”

FMA401V/101/0/2018

41

Page 81: “… and bad debt is expected to decline from 1% to 5% of sales…”

Should read: “…and bad debt is expected to decline from 1% to 0,5% of sales…”.

Page 84: “…20% one month in arrears, 33% is three months in arrears, 13%...”

Should read: “…20% one month in arrears, 33% is two months in arrears, 13%...”

Page 92: The EOQ formula given is 2VC/IP.

Should read:

Page 116: The formula at the top for EPS.

Should read: EPS =

42

11 ADDENDUM B: INTEREST TABLES

Table 1: Future-value interest factors for R1 compounded at k% for n periods:

Period

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%

20%

25%

30%

35%

1

1 .010

1 .020

1 .030

1 .040

1 .050

1 .060

1 .070

1 .080

1 .090

1 .100

1 .1 10

1 .120

1 .130

1 .140

1 .150

1 .160

1 .200

1 .250

1 .300

1 .350

2

1 .020

1 .040

1 .061

1 .082

1 .103

1 .124

1 .145

1 .166

1 .188

1 .210

1 .232

1 .254

1 .277

1 .300

1 .323

1 .346

1 .440

1 .563

1 .690

1 .823

3

1 .030

1 .061

1 .093

1 .125

1 .158

1 .191

1 .225

1 .260

1 .295

1 .331

1 .368

1 .405

1 .443

1 .482

1 .521

1 .561

1 .728

1 .953

2.197

2.460

4

1 .041

1 .082

1 .126

1 .170

1 .216

1 .262

1 .31 1

1 .360

1 .412

1 .464

1 .518

1 .574

1 .630

1 .689

1 .749

1 .81 1

2.074

2.441

2.856

3.322

5

1 .051

1 .104

1 .159

1 .217

1 .276

1 .338

1 .403

1 .469

1 .539

1 .61 1

1 .685

1 .762

1 .842

1 .925

2.01 1

2.100

2.488

3.052

3.713

4.484

6

1 .062

1 .126

1 .194

1 .265

1 .340

1 .419

1 .501

1 .587

1 .677

1 .772

1 .870

1 .974

2.082

2.195

2.313

2.436

2.986

3.815

4.827

6.053

7

1 .072

1 .149

1 .230

1 .316

1 .407

1 .504

1 .606

1 .714

1 .828

1 .949

2.076

2.21 1

2.353

2.502

2.660

2.826

3.583

4.768

6.275

8.172

8

1 .083

1 .172

1 .267

1 .369

1 .477

1 .594

1 .718

1 .851

1 .993

2.144

2.305

2.476

2.658

2.853

3.059

3.278

4.300

5.960

8.157

1 1 .03

9

1 .094

1 .195

1 .305

1 .423

1 .551

1 .689

1 .838

1 .999

2.172

2.358

2.558

2.773

3.004

3.252

3.518

3.803

5.160

7.451

10.60

14.89

10

1 .105

1 .219

1 .344

1 .480

1 .629

1 .791

1 .967

2.159

2.367

2.594

2.839

3.106

3.395

3.707

4.046

4.41 1

6.192

9.313

13.79

20.1 1

1 1

1 .1 16

1 .243

1 .384

1 .539

1 .710

1 .898

2.105

2.332

2.580

2.853

3.152

3.479

3.836

4.226

4.652

5.1 17

7.430

1 1 .64

17.92

27.14

12

1 .127

1 .268

1 .426

1 .601

1 .796

2.012

2.252

2.518

2.813

3.138

3.498

3.896

4.335

4.818

5.350

5.936

8.916

14.55

23.30

36.64

13

1 .138

1 .294

1 .469

1 .665

1 .886

2.133

2.410

2.720

3.066

3.452

3.883

4.363

4.898

5.492

6.153

6.886

10.70

18.19

30.29

49.47

14

1 .149

1 .319

1 .513

1 .732

1 .980

2.261

2.579

2.937

3.342

3.797

4.310

4.887

5.535

6.261

7.076

7.988

12.84

22.74

39.37

66.78

15

1 .161

1 .346

1 .558

1 .801

2.079

2.397

2.759

3.172

3.642

4.177

4.785

5.474

6.254

7.138

8.137

9.266

15.41

28.42

51 .19

90.16

16

1 .173

1 .373

1 .605

1 .873

2.183

2.540

2.952

3.426

3.970

4.595

5.31 1

6.130

7.067

8.137

9.358

10.75

18.49

35.53

66.54

121 .7

17

1 .184

1 .400

1 .653

1 .948

2.292

2.693

3.159

3.700

4.328

5.054

5.895

6.866

7.986

9.276

10.76

12.47

22.19

44.41

86.50

164.3

18

1 .196

1 .428

1 .702

2.026

2.407

2.854

3.380

3.996

4.717

5.560

6.544

7.690

9.024

10.58

12.38

14.46

26.62

55.51

1 12.5

221 .8

19

1 .208

1 .457

1 .754

2.107

2.527

3.026

3.617

4.316

5.142

6.1 16

7.263

8.613

10.20

12.06

14.23

16.78

31 .95

69.39

146.2

299.5

20

1 .220

1 .486

1 .806

2.191

2.653

3.207

3.870

4.661

5.604

6.727

8.062

9.646

1 1 .52

13.74

16.37

19.46

38.34

86.74

190.0

404.3

21

1 .232

1 .516

1 .860

2.279

2.786

3.400

4.141

5.034

6.109

7.400

8.949

10.80

13.02

15.67

18.82

22.57

46.01

108.4

247.1

545.8

22

1 .245

1 .546

1 .916

2.370

2.925

3.604

4.430

5.437

6.659

8.140

9.934

12.10

14.71

17.86

21 .64

26.19

55.21

135.5

321 .2

736.8

23

1 .257

1 .577

1 .974

2.465

3.072

3.820

4.741

5.871

7.258

8.954

1 1 .03

13.55

16.63

20.36

24.89

30.38

66.25

169.4

417.5

994.7

24

1 .270

1 .608

2.033

2.563

3.225

4.049

5.072

6.341

7.91 1

9.850

12.24

15.18

18.79

23.21

28.63

35.24

79.50

21 1 .8

542.8

1343

25

1 .282

1 .641

2.094

2.666

3.386

4.292

5.427

6.848

8.623

10.83

13.59

17.00

21 .23

26.46

32.92

40.87

95.40

264.7

705.6

1813

30

1 .348

1 .81 1

2.427

3.243

4.322

5.743

7.612

10.06

13.27

17.45

22.89

29.96

39.12

50.95

66.21

85.85

237.4

807.8

2620

8129

35

1 .417

2.000

2.814

3.946

5.516

7.686

10.68

14.79

20.41

28.10

38.57

52.80

72.07

98.10

133.2

180.3

590.7

2465

9728

36449

40

1 .489

2.208

3.262

4.801

7.040

10.29

14.97

21 .72

31 .41

45.26

65.00

93.05

132.8

188.9

267.9

378.7

1470

7523

361 19

*

45

1 .565

2.438

3.782

5.841

8.985

13.76

21 .00

31 .92

48.33

72.89

109.5

164.0

244.6

363.7

538.8

795.4

3657

22959

*

*

50

1 .645

2.692

4.384

7.107

1 1 .47

18.42

29.46

46.90

74.36

1 17.4

184.6

289.0

450.7

700.2

1084

1671

9100

70065

*

*

* FVIF > 99999

)k + (1 = FVIFn

nk,

FMA401V/101/0/2018

43

Table 2: Future-value interest factors for a R1 annuity compounded at k% for n periods:

Period

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 1%

12%

13%

14%

15%

16%

20%

25%

30%

35%

1

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

1 .000

2

2.010

2.020

2.030

2.040

2.050

2.060

2.070

2.080

2.090

2.100

2.1 10

2.120

2.130

2.140

2.150

2.160

2.200

2.250

2.300

2.350

3

3.030

3.060

3.091

3.122

3.153

3.184

3.215

3.246

3.278

3.310

3.342

3.374

3.407

3.440

3.473

3.506

3.640

3.813

3.990

4.173

4

4.060

4.122

4.184

4.246

4.310

4.375

4.440

4.506

4.573

4.641

4.710

4.779

4.850

4.921

4.993

5.066

5.368

5.766

6.187

6.633

5

5.101

5.204

5.309

5.416

5.526

5.637

5.751

5.867

5.985

6.105

6.228

6.353

6.480

6.610

6.742

6.877

7.442

8.207

9.043

9.954

6

6.152

6.308

6.468

6.633

6.802

6.975

7.153

7.336

7.523

7.716

7.913

8.1 15

8.323

8.536

8.754

8.977

9.930

1 1 .259

12.756

14.438

7

7.214

7.434

7.662

7.898

8.142

8.394

8.654

8.923

9.200

9.487

9.783

10.089

10.405

10.730

1 1 .067

1 1 .414

12.916

15.073

17.583

20.492

8

8.286

8.583

8.892

9.214

9.549

9.897

10.26

10.64

1 1 .03

1 1 .44

1 1 .86

12.30

12.76

13.23

13.73

14.24

16.50

19.84

23.86

28.66

9

9.369

9.755

10.16

10.58

1 1 .03

1 1 .49

1 1 .98

12.49

13.02

13.58

14.16

14.78

15.42

16.09

16.79

17.52

20.80

25.80

32.01

39.70

10

10.46

10.95

1 1 .46

12.01

12.58

13.18

13.82

14.49

15.19

15.94

16.72

17.55

18.42

19.34

20.30

21 .32

25.96

33.25

42.62

54.59

1 1

1 1 .57

12.17

12.81

13.49

14.21

14.97

15.78

16.65

17.56

18.53

19.56

20.65

21 .81

23.04

24.35

25.73

32.15

42.57

56.41

74.70

12

12.68

13.41

14.19

15.03

15.92

16.87

17.89

18.98

20.14

21 .38

22.71

24.13

25.65

27.27

29.00

30.85

39.58

54.21

74.33

101 .8

13

13.81

14.68

15.62

16.63

17.71

18.88

20.14

21 .50

22.95

24.52

26.21

28.03

29.98

32.09

34.35

36.79

48.50

68.76

97.63

138.5

14

14.95

15.97

17.09

18.29

19.60

21 .02

22.55

24.21

26.02

27.97

30.09

32.39

34.88

37.58

40.50

43.67

59.20

86.95

127.9

188.0

15

16.10

17.29

18.60

20.02

21 .58

23.28

25.13

27.15

29.36

31 .77

34.41

37.28

40.42

43.84

47.58

51 .66

72.04

109.7

167.3

254.7

16

17.26

18.64

20.16

21 .82

23.66

25.67

27.89

30.32

33.00

35.95

39.19

42.75

46.67

50.98

55.72

60.93

87.44

138.1

218.5

344.9

17

18.43

20.01

21 .76

23.70

25.84

28.21

30.84

33.75

36.97

40.54

44.50

48.88

53.74

59.12

65.08

71 .67

105.9

173.6

285.0

466.6

18

19.61

21 .41

23.41

25.65

28.13

30.91

34.00

37.45

41 .30

45.60

50.40

55.75

61 .73

68.39

75.84

84.14

128.1

218.0

371 .5

630.9

19

20.81

22.84

25.12

27.67

30.54

33.76

37.38

41 .45

46.02

51 .16

56.94

63.44

70.75

78.97

88.21

98.60

154.7

273.6

484.0

852.7

20

22.02

24.30

26.87

29.78

33.07

36.79

41 .00

45.76

51 .16

57.27

64.20

72.05

80.95

91 .02

102.4

1 15.4

186.7

342.9

630.2

1 152

21

23.24

25.78

28.68

31 .97

35.72

39.99

44.87

50.42

56.76

64.00

72.27

81 .70

92.47

104.8

1 18.8

134.8

225.0

429.7

820.2

1556

22

24.47

27.30

30.54

34.25

38.51

43.39

49.01

55.46

62.87

71 .40

81 .21

92.50

105.5

120.4

137.6

157.4

271 .0

538.1

1067

2102

23

25.72

28.84

32.45

36.62

41 .43

47.00

53.44

60.89

69.53

79.54

91 .15

104.6

120.2

138.3

159.3

183.6

326.2

673.6

1388

2839

24

26.97

30.42

34.43

39.08

44.50

50.82

58.18

66.76

76.79

88.50

102.2

1 18.2

136.8

158.7

184.2

214.0

392.5

843.0

1806

3834

25

28.24

32.03

36.46

41 .65

47.73

54.86

63.25

73.1 1

84.70

98.35

1 14.4

133.3

155.6

181 .9

212.8

249.2

472.0

1055

2349

5177

30

34.78

40.57

47.58

56.08

66.44

79.06

94.46

1 13.3

136.3

164.5

199.0

241 .3

293.2

356.8

434.7

530.3

1 182

3227

8730

23222

35

41 .66

49.99

60.46

73.65

90.32

1 1 1 .4

138.2

172.3

215.7

271 .0

341 .6

431 .7

546.7

693.6

881 .2

1 121

2948

9857

32423

*

40

48.89

60.40

75.40

95.03

120.8

154.8

199.6

259.1

337.9

442.6

581 .8

767.1

1014

1342

1779

2361

7344

30089

*

*

45

56.48

71 .89

92.72

121 .0

159.7

212.7

285.7

386.5

525.9

718.9

986.6

1358

1874

2591

3585

4965

18281

91831

*

*

50

64.46

84.58

1 12.8

152.7

209.3

290.3

406.5

573.8

815.1

1 164

1669

2400

3460

4995

7218

10436

45497

*

*

*

* FVIFA > 99999

)k + (1 = FVIFA1-t

n

=1t

nk,

44

Table 3: Present-value interest factors for R1 discounted at k% for n periods:

)k + (1

1 = PVIF nnk,

Period

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 1%

12%

13%

14%

15%

16%

20%

25%

30%

35%

1

0.990

0.980

0.971

0.962

0.952

0.943

0.935

0.926

0.917

0.909

0.901

0.893

0.885

0.877

0.870

0.862

0.833

0.800

0.769

0.741

2

0.980

0.961

0.943

0.925

0.907

0.890

0.873

0.857

0.842

0.826

0.812

0.797

0.783

0.769

0.756

0.743

0.694

0.640

0.592

0.549

3

0.971

0.942

0.915

0.889

0.864

0.840

0.816

0.794

0.772

0.751

0.731

0.712

0.693

0.675

0.658

0.641

0.579

0.512

0.455

0.406

4

0.961

0.924

0.888

0.855

0.823

0.792

0.763

0.735

0.708

0.683

0.659

0.636

0.613

0.592

0.572

0.552

0.482

0.410

0.350

0.301

5

0.951

0.906

0.863

0.822

0.784

0.747

0.713

0.681

0.650

0.621

0.593

0.567

0.543

0.519

0.497

0.476

0.402

0.328

0.269

0.223

6

0.942

0.888

0.837

0.790

0.746

0.705

0.666

0.630

0.596

0.564

0.535

0.507

0.480

0.456

0.432

0.410

0.335

0.262

0.207

0.165

7

0.933

0.871

0.813

0.760

0.71 1

0.665

0.623

0.583

0.547

0.513

0.482

0.452

0.425

0.400

0.376

0.354

0.279

0.210

0.159

0.122

8

0.923

0.853

0.789

0.731

0.677

0.627

0.582

0.540

0.502

0.467

0.434

0.404

0.376

0.351

0.327

0.305

0.233

0.168

0.123

0.091

9

0.914

0.837

0.766

0.703

0.645

0.592

0.544

0.500

0.460

0.424

0.391

0.361

0.333

0.308

0.284

0.263

0.194

0.134

0.094

0.067

10

0.905

0.820

0.744

0.676

0.614

0.558

0.508

0.463

0.422

0.386

0.352

0.322

0.295

0.270

0.247

0.227

0.162

0.107

0.073

0.050

1 1

0.896

0.804

0.722

0.650

0.585

0.527

0.475

0.429

0.388

0.350

0.317

0.287

0.261

0.237

0.215

0.195

0.135

0.086

0.056

0.037

12

0.887

0.788

0.701

0.625

0.557

0.497

0.444

0.397

0.356

0.319

0.286

0.257

0.231

0.208

0.187

0.168

0.1 12

0.069

0.043

0.027

13

0.879

0.773

0.681

0.601

0.530

0.469

0.415

0.368

0.326

0.290

0.258

0.229

0.204

0.182

0.163

0.145

0.093

0.055

0.033

0.020

14

0.870

0.758

0.661

0.577

0.505

0.442

0.388

0.340

0.299

0.263

0.232

0.205

0.181

0.160

0.141

0.125

0.078

0.044

0.025

0.015

15

0.861

0.743

0.642

0.555

0.481

0.417

0.362

0.315

0.275

0.239

0.209

0.183

0.160

0.140

0.123

0.108

0.065

0.035

0.020

0.01 1

16

0.853

0.728

0.623

0.534

0.458

0.394

0.339

0.292

0.252

0.218

0.188

0.163

0.141

0.123

0.107

0.093

0.054

0.028

0.015

0.008

17

0.844

0.714

0.605

0.513

0.436

0.371

0.317

0.270

0.231

0.198

0.170

0.146

0.125

0.108

0.093

0.080

0.045

0.023

0.012

0.006

18

0.836

0.700

0.587

0.494

0.416

0.350

0.296

0.250

0.212

0.180

0.153

0.130

0.1 1 1

0.095

0.081

0.069

0.038

0.018

0.009

0.005

19

0.828

0.686

0.570

0.475

0.396

0.331

0.277

0.232

0.194

0.164

0.138

0.1 16

0.098

0.083

0.070

0.060

0.031

0.014

0.007

0.003

20

0.820

0.673

0.554

0.456

0.377

0.312

0.258

0.215

0.178

0.149

0.124

0.104

0.087

0.073

0.061

0.051

0.026

0.012

0.005

0.002

21

0.81 1

0.660

0.538

0.439

0.359

0.294

0.242

0.199

0.164

0.135

0.1 12

0.093

0.077

0.064

0.053

0.044

0.022

0.009

0.004

0.002

22

0.803

0.647

0.522

0.422

0.342

0.278

0.226

0.184

0.150

0.123

0.101

0.083

0.068

0.056

0.046

0.038

0.018

0.007

0.003

0.001

23

0.795

0.634

0.507

0.406

0.326

0.262

0.21 1

0.170

0.138

0.1 12

0.091

0.074

0.060

0.049

0.040

0.033

0.015

0.006

0.002

0.001

24

0.788

0.622

0.492

0.390

0.310

0.247

0.197

0.158

0.126

0.102

0.082

0.066

0.053

0.043

0.035

0.028

0.013

0.005

0.002

0.001

25

0.780

0.610

0.478

0.375

0.295

0.233

0.184

0.146

0.1 16

0.092

0.074

0.059

0.047

0.038

0.030

0.024

0.010

0.004

0.001

0.001

30

0.742

0.552

0.412

0.308

0.231

0.174

0.131

0.099

0.075

0.057

0.044

0.033

0.026

0.020

0.015

0.012

0.004

0.001

*

*

35

0.706

0.500

0.355

0.253

0.181

0.130

0.094

0.068

0.049

0.036

0.026

0.019

0.014

0.010

0.008

0.006

0.002

*

*

*

40

0.672

0.453

0.307

0.208

0.142

0.097

0.067

0.046

0.032

0.022

0.015

0.01 1

0.008

0.005

0.004

0.003

0.001

*

*

*

45

0.639

0.410

0.264

0.171

0.1 1 1

0.073

0.048

0.031

0.021

0.014

0.009

0.006

0.004

0.003

0.002

0.001

0.000

*

*

*

50

0.608

0.372

0.228

0.141

0.087

0.054

0.034

0.021

0.013

0.009

0.005

0.003

0.002

0.001

0.001

0.001

*

*

*

*

* PVIF = .000 when rounded off to three decimal places

FMA401V/101/0/2018

45

Table 4: Present-value interest factors for a R1 annuity discounted at k% for n periods:

Period

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 1%

12%

13%

14%

15%

16%

20%

25%

30%

35%

1

0.990

0.980

0.971

0.962

0.952

0.943

0.935

0.926

0.917

0.909

0.901

0.893

0.885

0.877

0.870

0.862

0.833

0.800

0.769

0.741

2

1 .970

1 .942

1 .913

1 .886

1 .859

1 .833

1 .808

1 .783

1 .759

1 .736

1 .713

1 .690

1 .668

1 .647

1 .626

1 .605

1 .528

1 .440

1 .361

1 .289

3

2.941

2.884

2.829

2.775

2.723

2.673

2.624

2.577

2.531

2.487

2.444

2.402

2.361

2.322

2.283

2.246

2.106

1 .952

1 .816

1 .696

4

3.902

3.808

3.717

3.630

3.546

3.465

3.387

3.312

3.240

3.170

3.102

3.037

2.974

2.914

2.855

2.798

2.589

2.362

2.166

1 .997

5

4.853

4.713

4.580

4.452

4.329

4.212

4.100

3.993

3.890

3.791

3.696

3.605

3.517

3.433

3.352

3.274

2.991

2.689

2.436

2.220

6

5.795

5.601

5.417

5.242

5.076

4.917

4.767

4.623

4.486

4.355

4.231

4.1 1 1

3.998

3.889

3.784

3.685

3.326

2.951

2.643

2.385

7

6.728

6.472

6.230

6.002

5.786

5.582

5.389

5.206

5.033

4.868

4.712

4.564

4.423

4.288

4.160

4.039

3.605

3.161

2.802

2.508

8

7.652

7.325

7.020

6.733

6.463

6.210

5.971

5.747

5.535

5.335

5.146

4.968

4.799

4.639

4.487

4.344

3.837

3.329

2.925

2.598

9

8.566

8.162

7.786

7.435

7.108

6.802

6.515

6.247

5.995

5.759

5.537

5.328

5.132

4.946

4.772

4.607

4.031

3.463

3.019

2.665

10

9.471

8.983

8.530

8.1 1 1

7.722

7.360

7.024

6.710

6.418

6.145

5.889

5.650

5.426

5.216

5.019

4.833

4.192

3.571

3.092

2.715

1 1

10.37

9.787

9.253

8.760

8.306

7.887

7.499

7.139

6.805

6.495

6.207

5.938

5.687

5.453

5.234

5.029

4.327

3.656

3.147

2.752

12

1 1 .26

10.58

9.954

9.385

8.863

8.384

7.943

7.536

7.161

6.814

6.492

6.194

5.918

5.660

5.421

5.197

4.439

3.725

3.190

2.779

13

12.13

1 1 .35

10.63

9.986

9.394

8.853

8.358

7.904

7.487

7.103

6.750

6.424

6.122

5.842

5.583

5.342

4.533

3.780

3.223

2.799

14

13.00

12.1 1

1 1 .30

10.56

9.899

9.295

8.745

8.244

7.786

7.367

6.982

6.628

6.302

6.002

5.724

5.468

4.61 1

3.824

3.249

2.814

15

13.87

12.85

1 1 .94

1 1 .12

10.38

9.712

9.108

8.559

8.061

7.606

7.191

6.81 1

6.462

6.142

5.847

5.575

4.675

3.859

3.268

2.825

16

14.72

13.58

12.56

1 1 .65

10.84

10.1 1

9.447

8.851

8.313

7.824

7.379

6.974

6.604

6.265

5.954

5.668

4.730

3.887

3.283

2.834

17

15.56

14.29

13.17

12.17

1 1 .27

10.48

9.763

9.122

8.544

8.022

7.549

7.120

6.729

6.373

6.047

5.749

4.775

3.910

3.295

2.840

18

16.40

14.99

13.75

12.66

1 1 .69

10.83

10.06

9.372

8.756

8.201

7.702

7.250

6.840

6.467

6.128

5.818

4.812

3.928

3.304

2.844

19

17.23

15.68

14.32

13.13

12.09

1 1 .16

10.34

9.604

8.950

8.365

7.839

7.366

6.938

6.550

6.198

5.877

4.843

3.942

3.31 1

2.848

20

18.05

16.35

14.88

13.59

12.46

1 1 .47

10.59

9.818

9.129

8.514

7.963

7.469

7.025

6.623

6.259

5.929

4.870

3.954

3.316

2.850

21

18.86

17.01

15.42

14.03

12.82

1 1 .76

10.84

10.02

9.292

8.649

8.075

7.562

7.102

6.687

6.312

5.973

4.891

3.963

3.320

2.852

22

19.66

17.66

15.94

14.45

13.16

12.04

1 1 .06

10.20

9.442

8.772

8.176

7.645

7.170

6.743

6.359

6.01 1

4.909

3.970

3.323

2.853

23

20.46

18.29

16.44

14.86

13.49

12.30

1 1 .27

10.37

9.580

8.883

8.266

7.718

7.230

6.792

6.399

6.044

4.925

3.976

3.325

2.854

24

21 .24

18.91

16.94

15.25

13.80

12.55

1 1 .47

10.53

9.707

8.985

8.348

7.784

7.283

6.835

6.434

6.073

4.937

3.981

3.327

2.855

25

22.02

19.52

17.41

15.62

14.09

12.78

1 1 .65

10.67

9.823

9.077

8.422

7.843

7.330

6.873

6.464

6.097

4.948

3.985

3.329

2.856

30

25.81

22.40

19.60

17.29

15.37

13.76

12.41

1 1 .26

10.27

9.427

8.694

8.055

7.496

7.003

6.566

6.177

4.979

3.995

3.332

2.857

35

29.41

25.00

21 .49

18.66

16.37

14.50

12.95

1 1 .65

10.57

9.644

8.855

8.176

7.586

7.070

6.617

6.215

4.992

3.998

3.333

2.857

40

32.83

27.36

23.1 1

19.79

17.16

15.05

13.33

1 1 .92

10.76

9.779

8.951

8.244

7.634

7.105

6.642

6.233

4.997

3.999

3.333

2.857

45

36.09

29.49

24.52

20.72

17.77

15.46

13.61

12.1 1

10.88

9.863

9.008

8.283

7.661

7.123

6.654

6.242

4.999

4.000

3.333

2.857

50

39.20

31 .42

25.73

21 .48

18.26

15.76

13.80

12.23

10.96

9.915

9.042

8.304

7.675

7.133

6.661

6.246

4.999

4.000

3.333

2.857

©

UNISA 2018

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