Table of Contents

SECTION A...............................................................................................................................................2
SECTION B...............................................................................................................................................2
QUESTION ONE......................................................................................................................................2
QUESTION TWO..........................................................................................................................................4
SECTION C...............................................................................................................................................5
QUESTION 4.............................................................................................................................................5
QUESTION 6.............................................................................................................................................8

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SECTION A
1.0 . C. Pricing
2.0. B. The accounting equation
3.0 C. liquidity
4.0 B. Income statement
5.0. D Common size statements
6.0. D All of the above
7.0. C Financial management
8.0 C. maximizing shareholder value
9.0. A. possibility of conflict of interests between the principal and the agent
10.0. D. inventory turnover ratio

SECTION B

QUESTION ONE
PART A
At Chiyeyeye Food Corporation, the capital budgeting process begins with finding likely
projects at the time of strategic planning is the first phase. These are chosen to support the
corporation's strategic goals. The identification often has minimum financial evaluation
associated and a broad reach. Major capital expenditures are scrutinised more closely when the
planning process concentrates more on short-term objectives. Project expenditures are
scrutinised more carefully, and some projects might be reevaluated. Then, each proposal is
examined and approved separately. At Chiyeyeye Food Corporation, the capital program is
planned, developed, and refined around cash flows. Once cash flows have been established,
capital evaluation techniques including net present value, internal rate of return, and payback
time are routinely applied. Sensitivity analysis is used to improve the data' presentation, and
management heavily relies on it to evaluate key assumptions and determine the impact. The post-
completion evaluations, which take place in the last phase, compare the project's performance
predictions to actual outcomes and/or amended expectations. Nevertheless, it can be observed
that they use too many capital budgeting techniques for their projects, which might in the long
run confuse them as different projects will be favourable in different capital budgeting
techniques, making it harder to pick out a favourable project.
PART B
The Net Present Value (NPV), which stands for Net Present Value and incorporates both positive
and negative future cash flows throughout a project's life cycle discounted today, is the first

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capital budgeting evaluation technique that Chiyeyeye Food Corporation has been adopting.
NPV stands for an intrinsic evaluation and is used in accounting and finance to value businesses,
evaluate new enterprises, determine investment security, and uncover cost-cutting opportunities.
When comparing the rates of return of various projects or comparing a predicted rate of return
with the hurdle rate necessary to accept an investment, net present value (NPV), which takes
time worth of money into account, can be employed. The discount rate, which is based on a
company's cost of capital, may be a hurdle rate for a project because it represents the time value
of money in the NPV formula. A negative NPV indicates that the expected rate of return will be
lower than it, which means that the project won't add value, regardless of how the discount rate is
calculated.
Second, they have been examining the Internal Rate of Return (IRR), which is a metric that can
be used in capital budgeting. It is employed to determine the profitability of potential business
endeavours. The indicator functions as a discount rate that makes the NPV of cash flows equal to
zero. An essential part of capital budgeting and corporate finance is the internal rate of return
(IRR). It is used by businesses to establish the discount rate at which the present value of future
after-tax cash flows equals the capital investment's initial cost. The IRR aids managers in
selecting possible projects that create value and are worthwhile to pursue. The benefit of stating
project values as rates is the obvious barrier they offer. The project provides value as long as the
financing cost is lower than the rate of prospective return.
PART C
Use of net present value (NPV) against internal rate of return is one of the issues that Chiyeyeye
Food Corporation is currently dealing with (IRR). When dealing with mutually exclusive
alternatives, NPV provides the appropriate investment indicators. However, it can occasionally
be challenging for decision-makers at all levels to understand the outcome. The NPV of each
given amount needs to be specifically interpreted. Knowing that the NPV is favourable or even
more favourable than an alternative is insufficient. By comparing it to other benchmarks,
decision-makers attempt to gain some "comfort" about how profitable the investment is. The
outcome is delivered in a way that can be understood by all stakeholders, even though the IRR
may give a deceptive indication of which project to choose. The resulting IRR can be
conceptually compared to the return on an equities portfolio, cost of capital, predicted inflation,
current borrowing rates, and so on. There are a few projects for which traditional and capital
expenditure analysis is challenging to apply because the cash flows can't be established, in
addition to the NPV versus IRR problem. The use of conventional evaluation procedures is
constrained since it is practically impossible to identify the cash flows when new computer
equipment is bought, an office building is remodelled, or a parking lot is repaved. Other methods
that rely on managerial discretion are used to make these "capital expenditure" decisions.
PART D
What this simply means is that the net present values of all the future cash flows of a particular
project are added and subtracted from the initial investment, if the value that it yields is positive

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as in the case above with the ZMW 535 000, then that means the project is profitable and viable
and worth investing in.

QUESTION TWO
a)

Profoma Income statement

20000
Sales 0
13700
Cost of goods sold 0
Depreciation 30000
Tax 15300
Net income after tax 17700

C)

Particulars Year 0 Year 1 Year 2 Year 3

Sales   200,000.00 200,000.00 200,000.00

(125,000.00 (125,000.00 (125,000.00

Variable costs   ) ) )

Depreciation   (30,000.00) (30,000.00) (30,000.00)

Profit before tax   45,000.00 45,000.00 45,000.00

Tax payable @34%   (15,300.00) (15,300.00) (15,300.00)

Profit after tax   29,700.00 29,700.00 29,700.00

Depreciation   30,000.00 30,000.00 30,000.00

Fixed costs   (12,000.00) (12,000.00) (12,000.00)

Equipment cost (90,000.00) - - -

Working capital (20,000.00) - - -

Cash flows from the
project (110,000.00) 122,400.00 122,400.00 122,400.00

Cash flows

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 Year 0 (110,000.00)

Year 1 122,400.00

Year 2 122,400.00

Year 3 122,400.00

Net Cash flows 257,200.00

Disc fact Disc Cash
  Cash flows (20%) flow

Year 0 (110,000.00) 1 (110,000.00)

Year 1 122,400.00 0.833333333 102,000.00

Year 2 122,400.00 0.694444444 85,000.00

Year 3 122,400.00 0.578703704 70,833.33

Net present value 147,833.33

d)
IRR=96.6%, this IRR is very much higher than the interest rate of 20%, meaning that this project
is viable and should be implemented.

SECTION C

QUESTION 4
PART A

Komfwe enterprise limited's

Balance sheets as at 31st December, 2018
2018
Current assets 2,140
Net fixed assets 6,770
Total assets 8,910

Current liabilities 994

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Long term debt 2,869
equity 5,047
Total liabilities and shareholder equity 8,910

Komfwe enterprise limited's

2019
Current assets 2,346
Net fixed assets 7,087
Total assets 9,433

Current liabilities 1,126

Long term debt 2,956
equity 5,351
Total liabilities and shareholder equity 9,433

Komfwe enterprise limited's

Income statement for the year ended 31st Dec, 2019
Sales 3,990.00
Cost of goods sold 2,137.00
depreciation 1,018.00
earnings before interest and taxes 835.00
interest paid 267.00
taxable income 568.00
tax @34% 193.12
Net income 374.88
Dividends 225.00
Additional retained earnings 149.88

Komfwe enterprise limited's

2019 Operating cash flow
Earnings before interest and 835.
taxes 00
1,018.
Depreciation 00

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 (193.
taxes 12)
1,659.
Operating cash flow 88

Komfwe enterprise limited's

cash flows to creditors for 2019
interest paid 267
Net new borrowing 87
Csh flow to creditors 354

Komfwe enterprise limited's

Cash flows to stockholders for 2019
Dividends paid 225
New equity raised 154.12
Cash flow to stock holders 379.12

PART B
i)
Chang Source or use of
2018 2019 e cash
Current assets        
1 (
Cash 20 88 32)  Source
2 1 (
accounts receivable 24 92 32) Source
4 3 (
inventory 24 68 56) Source
7 6 (1
Total 68 48 20)  
         
Fixed Assets        
5,2 5,3 1
Net plant and equipment 28 54 26 Use
5,9 6,0
Total assets 96 02 6  
         
Current liabilities        

Accounts payable 124 144 20 Source

(3
Notes payable 1412 1039 73) Use
Total 1536 1183 (3  

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 53)
2
Long term debt 1804 2077 73 Source
         
Owners equity        
Common stock and paid in
surplus 300 300 -  

Retained earnings 2356 2442 86 Source

Total 2656 2742 86  

Total liabilities and owners
equity 5996 6002 6  

ii)
Ellipet Co-operation used its cash primarily to purchase fixed assets and to pay off shortterm
debt. The major sources of cash to do this were additional long-term borrowing, reductions in
current assets, and additions to retained earnings. The current ratio went from 768/1536 = 0.5 to
648/1183 = 0.55, so the firm’s liquidity appears to have increased. Overall, the amount of cash
on hand also decreased by K32.

QUESTION 6
PART A
COMPOUNDED YEARLY FOR 4 YEARS
PV=2,000
R=8%
T=4 Years
FV=PV(1+R)t
=2000(1.08)4
=2000(1.360489)
=K2,720.978
COMPOUNDED QUARTERLY FOR 4 YEARS

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PV=2,000
R=8/4=2%
T=4*4=16
FV=PV(1+R)t
=2000(1.02)16
=2000(1.372786)
=K 2,745.571
COMPOUNDED QUARTERLY FOR 4.5 YEARS
PV=2,000
R=8/4=2%
T=4.5*4=18
FV=PV(1+R)t
=2000(1.02)18
=2000(1.428246)
= K2,856.492

PART B
CASH FLOW
YEAR (ZMW) DISC FACT DISC CF (ZMW)
0 1,000,000.00 1.00 1,000,000.00
1 2,000,000.00 0.9091 1,818,181.82
2 3,000,000.00 0.8264 2,479,338.84
3 4,000,000.00 0.7513 3,005,259.20
NET PRESENT VALUE 8,302,779.86
Therefore, this package is not worth 10 million ZMW, it is actually worth only
ZMW8,302,779.86

PART C
Present value of annuities=PMT[(1-(1+r)-n/r]
PMT=12,000
R=15%

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N=10 years
=12,000[1-(1.15)-10/0.15]
= K60,225.22

PART D
A=?
P=10,000
I=14%
N=5
Periodic payment =P[r(1+r)n/(1+r)n-1]
=10,000[0.14(1.14)5/(1.14)5-1
=10,000[0.14(1.925415)/(1.925415-1)
=K2,912.835
AMORTIZATION SCHEDULE
Opening Periodic Interest Principal Closing
bal payment paid paid balance
10,000 2,91 1,400. 1,512 8,487
.00 2.84 00 .84 .17
8,487 2,91 1,188. 1,724 6,762
.17 2.84 20 .63 .53
6,762 2,91 946 1,966 4,796
.53 2.84 .75 .08 .45
4,796 2,91 671 2,241 2,555
.45 2.84 .50 .33 .12
2,555 2,91 357 2,555
.12 2.84 .72 .12 0.00

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