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UNIVERSITY OF ESWATINI
DEPARTMENT OF ACCOUNTING AND FINANCE
MAIN ASSIGNMENT PAPER - ACADEMIC YEAR 2022/2023

ASSIGNMENT ONE (1)

PROGRAMME OF STUDY : Bachelor of Commerce

YEAR OF STUDY : Year 3

TITLE OF THE PAPER : Intermediate Corporate Finance

COURSE CODE : ACF319 / AC322

LECTURER : Dr H. Matsongoni

DUE DATE : 03rd June 2023

TOTAL MARKS : 100

INSTRUCTIONS

1. There are FOUR (4) questions, ANSWER ALL.

2. Begin the solution to each question on a new page.
3. The marks awarded for a question are indicated at the end of each question.
4. Show your necessary workings.

NOTE: You are reminded that in assessing your work, account will be taken of accuracy of the language
and the general quality of expression, together with layout and presentation of your answer.

SPECIAL REQUIREMENT: FINANCIAL / SCIENTIFIC CALCULATOR

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ANSWER ALL THE QUESTIONS.

QUESTION ONE (25 Marks)

1.1 African Banking Corporation (ABC) Eswatini’s outstanding bond has a E1 000.00
maturity value and a 4.5% coupon rate of interest (paid semi-annually). The bond, which
was issued five years ago, matures in 10 years. If investors require a return equal to 6% to
invest in similar bonds, what is the current market value of ABC’s bond? (3 Marks)
1.2 Four years ago Messy House Painting Eswatini issued a 20-year bond with a E1 000.00
maturity value and a 4 percent coupon rate of interest. Interest is paid semi-annually. The
bond is currently selling for E714.00.
1.2.1 What is the bond’s yield to maturity? (3 Marks)
1.2.2 If the bond can be called in three years for a redemption price of E1 016.00, what is the
bond’s yield to call? (3 Marks)
1.3 Heart Farm’s bond has four years remaining to maturity. Interest is paid semi-annually,
the bond has a E1 000.00 par value and a coupon interest rate is 9%. Compute the yield to
maturity for the bonds if the current market prices are (i) E851.00 and (ii) E1 105.00.
(6 Marks)
1.4 Mighty Movie International is planning to save R2 million per year for five years. The
first deposit, which is presently being made and all subsequent deposits, will earn interest
at a 12% annual rate.
1.4.1 Calculate the future for this annuity if interest is compounded semi-annually. (2 Marks)
1.4.2 Calculate the future for this annuity if interest is compounded quarterly. (2 Marks)
1.4.3 How would your answer in part 1.4.1 have changed if the initial deposit was not made
until the end of the first year? (2 Marks)
1.4.4 In order to provide for R10 million to build a new warehouse in five years’ time, a
company plans to make equal payments at the end of each six months into a fund which
earns 9% per year interest compounded semi-annually. After two years of payments,
escalating costs lead the directors to increase the semi-annual deposit so that the fund will
contain R12 million at the scheduled time of building. Find the increased semi-annual
payment required for the remaining 3 years. (4 Marks)
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QUESTION TWO (25 Marks)

2.1 Manzini Ltd manufactures swimwear, fashion accessories and sunglasses. The
company’s design has resulted in a high growth rate in earnings and dividends. The
company expects to grow its current dividend of 120 cents by 30% per year for the next 4
years and thereafter growth is expected to be 5% per year? If shareholders require a
return of 10% per year, what is the value of each ordinary share in Manzini Ltd.?
(10 Marks)
2.2 Barry and Smith International just borrowed $25 000 000.00. The loan is to be repaid in
equal installments at the end of each of the next five years and the interest rate is 10%.

(a) Set up an amortization schedule for the loan and indicate how much interest Barry and
Smith International will pay in year 4. (8 Marks)

(b) How large must each annual payment be if the loan is for $50 000 000.00? Assuming
that the interest rate remains at 10% and that the loan is paid off over five years.

(2 Marks)

(c)Explain what you understand by an amortised loan and amortization schedule and
highlight their importance especially for financial institutions in Eswatini. (5 Marks)

QUESTION THREE (25 Marks)

Large firms, both in the United States (US) and in other countries, generally do not operate in a
single country; rather they conduct business throughout the world. Because large multinational
companies are involved in all phases of the production process, from extraction of raw
materials, through the manufacturing process, to distribution to consumers throughout the
world, managers of such firms face a wide range of issues that are not present when a company
operates in a single country.

Adapted: Besley, S and Brigham, E (2019), Corporate Finance, Cengage Edition

3.1 In the context of the given extract, discuss fully with the aid of practical examples why
United States (US) and foreign companies ‘go international’ and also highlight the major
differences between multinational versus domestic managerial finance. (15 Marks)
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3.2 Outline what you understand by corporate governance and highlight with the aid of
examples how corporate governance affects the returns generated for stockholders.
(10 Marks)

QUESTION FOUR (25 Marks)

4.1 After completing a scenario analysis for a prospective investment, the Chief Finance
Officer (CFO) of a company reported to the Chief Executive Officer (CEO) that there is a
60% chance the investment will provide the firm with a net present value (NPV) equal to
$128 300.00, there is a 25% percent chance the investment’s NPV will be $185 400.00
and there is a 15% chance the NPV will be -$77 600. The CEO will not purchase
investments that have coefficients of variation greater than 0.7. Should the CEO purchase
the investment? (7 Marks)

4.2 Using the information in Table 4.1 for the following investments:

Probability rABC RRST

0.2 20% -3%
0.5 11 11
0.3 3 32
Table 4.1

Compute the following:

4.2.1 expected return (3 Marks)

4.2.2 standard deviation (5 Marks)

4.2.3 Suppose you form a portfolio that consists of 70% Investment ABC and 30%
Investment RST. Compute the expected return and standard deviation of the
portfolio. (6 Marks)

4.2.4 Compare the portfolio’s standard deviation with the individual investments’
standard deviations. (4 Marks)
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INTERMEDIATE CORPORATE FINANCE - FORMULAE SHEET

D 0 1  g 
 RE  g
P0
 RP = D
P0
 
R E  R F  E x R M  R F 

 Bond value = C x 1 – 1/(1 + r)t + F / (1 + r)t

r
     
=  x RE    x RP    x RD x 1  Tc 
E P D
 WACC
V  V  V 

 PBIT(1TC ) TC RD D
VL  
RU RD

PBIT(1TC )
 VU 
RU

 RE  RU  RU  RD D / E (1  Tc )

𝑖+( 𝐹𝑑 −𝑉𝑑 )/𝑛

 𝑌𝑇𝑀 = (𝐹𝑑 +2𝑉𝑑 )/3
D1
 RE  g
P0
 g = ROE x b
L  VB
 r  l [ x(h  l )]
LH
 P0 = D1 / (r – g)

 Pt = Dt+1 / (R – g)

 P0 = D
RP

END OF PAPER
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ASSIGNMENT GUIDELINES

1. Your Assignment should include a Cover Page with all your details and a Table of
Contents page.
2. Indicate whether you are a Full Time Student or Part Time – IDE student on the
Cover page.
3. Text: Font: Arial or Times New Roman (12), Spacing: 1.5 lines.
4. All text must be justified at each margin.
5. The length of your answers to each question should be in line with the mark
allocation. Your answers must include any theories, charts, and tables, exhibits
necessary to support your discussion, analysis and recommendations.
6. Show all your relevant calculations / workings.
7. References – At least 5 academic sources of reference must be used (These include
textbooks, journal articles and internet sources that are relevant to the field of study.
8. Do not use Wikipedia and blogs.
9. Reference list must be provided at the end of your assignment.
10. The APA Referencing System must be used.
11. It is imperative that students proof read and edit their assignment prior to submitting
them.
12. Assignment must be free from errors and of professional standard.
13. Assignment must be submitted in hard copy before and / or on the due date.