Tutorial Letter: May 2014 examination session. Financial Management 3 (FM303) Semester One 2014

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Tutorial Letter: May 2014 examination session Financial Management 3 () Semester One 2014 Dear Student Please make note of the following key areas and notes pertaining to the Financial Management 3

1 Tutorial Letter: May 2014 examination session Financial Management 3 () Semester One 2014 Dear Student Please make note of the following key areas and notes pertaining to the Financial Management 3 Examination on 23 May You are reminded that the detail provided herein is merely a guideline for clarity and direction and you are encouraged to complete the entirety of the module content as outlined in the Learner Guide. Exam Structure The paper consists of five (5) questions resulting in an exam total of 100 marks. All questions must be attempted. There will be no multiple choice questions. At an level students are required to apply their knowledge to case scenarios. This tests the students true understanding of finance concepts and their application to real life case study. Question 1 (18 marks) consists of three independent short questions that are based on case studies. Students will have to apply their knowledge to the case study. These questions are all based on unit 1. Question 2 (12 marks) is based on unit 2 risk and return. Students will have to complete various risk based calculations and interpret the meaning thereof. Question 3 (25 marks) comprises of two independent parts that are based on unit 3 the long term investment decision. Again students will have to calculate and recommend the appropriate investments to make under certain scenarios.

2 Page 2 of 11 Question 4 (39 marks), comprises of two independent parts that are based on unit 4 the long term financing decision. Various calculations on the cost of equity and debt will be asked from a case study. Students may be asked to advise on the appropriate financing option. Question 5 (6 marks) is a leasing question based on unit 5. This question is pure application of leasing theory. Exam Content 52% (52 marks) of the paper is based on calculations of the module and on interpretation of calculated figures. The remainder of the questions incorporate theoretical aspects of the sections covered within the study units. You will be required to comment, analyse or interpret your results for various answers. Calculation focus: Leverage and capital structure, fundamentals of financial management (value of share capital both debt and equity, WACC, DOL, DFL and DTL), risk and return fundamentals (standard deviation, CV, etc.), long term investment calculations (NPV, IRR, payback period, Gordon Constant Growth valuation model etc.). You are reminded to have fully grasped the following concepts amongst others in order to master the topics covered in the examination: The theory on leasing (types of leases, characteristics etc.), theory on capital budgeting, risk and return in its entirety (including a working understanding of the terms), cost of share capital and leverage. Please note Appendix A and Appendix B on pages 4 to 11 of this Tutorial Letter which relate to the formula sheet and interest factor tables you will be given in your exam. You are reminded that a formula sheet is just a tool to aid in the calculation process and is certainly not an exhaustive list of all that will be tested. It also does not give guidance on the interpretation and understanding of results which are skills you must master in your studying process. These have been developed as standardised documents for both FM202 and in order to create some consistency. You are expected to familiarise yourself with the respective formulas prior to your exam.

3 Page 3 of 11 General Manage your time carefully! You are reminded to show your workings and calculations where necessary and ensure that they can be easily referenced. Examiners will not hunt for substantiating workings. This has cost students in the past. Number all questions CLEARLY and indicate End when you have completed all questions in the exam. It will most certainly aid in being time efficient in an exam if you are able to master the use of a financial calculator, however, you will not be penalised should you choose to use a formula. It is a requirement to continue to illustrate all workings in any answer. There are some questions which provide suggested formats. These are to be used as a guide and time must not be wasted on formats unnecessarily. NO ANSWER SHEET is provided in this exam session. Look to the required and given guidelines, where applicable, on how to structure your answers. You are reminded to clearly and logically answer each question in a format that can be easily followed by the marker. An indication as to how many decimal places should be applied in your answers will be provided wherever necessary. You are encouraged to follow the indicated units carefully. Use mark allocation as a guide as to how much information is required when formulating your responses. Ensure that you indicate negative/subtracted values through the use of brackets. May we remind you that we are always available to assist with academic queries. Academic queries should be submitted in writing to: academic-ug@immgsm.ac.za We wish you a successful May 2014 examination session. Kind regards The IMM GSM Team

4 Chapter 1: Appendix A Formula Sheet Page 4 of 11 MVA = Market value of shares Equity capital supplied by shareholders EVA = EBIT (1 Tax rate) (Total net operating capital) (WACC) EVA = (Operating capital) (ROIC WACC) Chapter 2: Financial statements and analysis Current ratio = Quick (acid-test) ratio = Inventory turnover = Average collection period = Average payment period = Total asset turnover = Debt ratio = Times interest earned ratio = Gross profit margin = Operating profit margin = Net profit margin = EPS= ROA = ROE= Price/earnings (P/E) ratio = Market/book (M/B) ratio =

5 Page 5 of 11 Chapter 4: Time Value of Money [ ] [ ] Chapter 5: Risk and return Chapter 6: Interest rates and bond valuation [ ] [ ]

6 Page 6 of 11 Chapter 7: Share Valuation Zero growth: Constant growth: Variable Growth: [ ] FCF Value of entire company Chapter 9: Long term investment decisions

7 Page 7 of 11 Chapter 11: The cost of capital After tax cost of debt: Cost of preference shares: Cost of ordinary shares using constant growth model: Weighted average capital (WACC): ( ) Chapter 12: Leverage and capital structure DOL = DOL at base sales level = ( ) DFL = DFL at base level EBIT = DTL = DTL = DOL x DFL Chapter 14: Working capital and current assets management Operating Cycle = AAI + ACP Cash Conversion Cycle = OC APP

8 Appendix B: Factor Tables Table A-1: Future value interest factors for one rand compounded at I percent for n periods: n 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% IMM Graduate School of Marketing

9 Table A-2: Present value interest factors for one rand compounded at I percent for n periods: Page 2 of 11 n 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

10 Table A-3: Future value interest factor for a one-rand annuity discounted at I percentage for n periods: n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% Page 3 of 14% 11 15%

11 Table A-4: Present value interest factor for a one-rand annuity discounted at I percentage for n periods: Page 4 of 11 n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

Tutorial Letter: May 2014 examination session. Financial Management 2 (FM202) Semester One 2014

Tutorial Letter: May 2014 examination session Financial Management 2 () Semester One 2014 Dear Student Please make note of the following key areas and notes pertaining to the Financial Management 2 Examination