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BACC3701 Financial Management

Question

Answered

Task:

Question 1 

a) In Finance, the focus is more on wealth maximization of the shareholder, though profit maximization is considered as a part of the wealth maximization objective. Discuss.

b) Define “the stand-alone principle” applying in evaluating projects and discuss the types of cashflows in project evolution. 

Question 2

a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available.

b) Calculate the WACC given the existing weights 

c) What impact do these new weights have on the WACC?  Calculate the Net Present Value, Internal Rate of Return and Payback Period

e) Calculate the CAPM f) Explain why this figure may differ from that calculated above (i.e. Cost of equity – Ordinary Shares) 

Question 3

Percentage of Sales Approach – Assume all spontaneous variables move as a percentage of sales.

a) Given an expected increase in sales of 12%, what is the amount of external funding required?

b) To maintain the current debt/equity ratio how much debt and how much equity is required?

c) Assuming the company is only operating at 95% capacity, how much new funding (if any) is required? 

BACC3701 Financial Management

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