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Past Papers Practice

The document presents financial data for three companies: Droxfol Co, Trecor Co, and Duo Co, detailing their capital structures, cash flows, and profitability metrics. Key calculations include the cost of capital, interest coverage ratios, and net present values (NPV) for investment projects. It also compares risk versus uncertainty in financial decision-making, highlighting the importance of NPV and IRR in evaluating investments.

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Osamah Khan
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11 views15 pages

Past Papers Practice

The document presents financial data for three companies: Droxfol Co, Trecor Co, and Duo Co, detailing their capital structures, cash flows, and profitability metrics. Key calculations include the cost of capital, interest coverage ratios, and net present values (NPV) for investment projects. It also compares risk versus uncertainty in financial decision-making, highlighting the importance of NPV and IRR in evaluating investments.

Uploaded by

Osamah Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Droxfol Co

capital structure working market value cost of capital MV x cost of capital


ordinary shares W-1 22500 12.089% 2,720.00
10% loan notes W-2 5250 6.189% 324.91
9% pref shares W-3 1905 11.811% 225.00
29655 3,269.91

workings:

W-1
Ke = D1/Po +g
D1=Do(1+g)
D1= 0.364
Po= 4.5
Ke= 12.09%

W-2
0 -105
1 7
2 7
3 7
4 7
5 7
6 7
7 7
8 107 IRR 6.189%

W-3
Kp=D/Po
D= 0.09
Po= 0.762
Kp= 12%

PART C

PBIT 7000
Interest 500
Current interest cover 14

PBIT after expansion 7840


Interest after expansion 1400
Current interest cover after expansion 5.6

before expansion after expansion


debt 7500 17500
equity 27500 29963
current gearing 27.27% 58.41% 31.13%

after expansion
ordinary dividend 1820
pref shares dividend 225

P&L after expansion


PBIT 7840
Interest -1400
PBT 6440
Tax -1932
PAT 4508
ordinary dividend -1820
pref shares dividend -225
retained earnings 2463

EPS
current after
earnings 4325 4283
shares 5000 5000
EPS 0.865 0.8566
WACC

11.0265%
Trecor Co
0 1 2 3 4 5
sales W-1 432600 509232 655636.2 337652.6 0
variable cost W-2 -283920 -337459.2 -438697 -228122 0
fixed cost W-3 -26500 -28090 -29775.4 -31561.92 0
pbt 122180 143682.8 187163.84 77968.3 0
tax -36654 -43104.84 -56149.15 -23390.49
tax savings W-4 0 18750 14062.5 10546.88 30140.63
cashflows 0 122180 125778.8 158121.5 32366.02 6750.135
scrap value 5000
initial outlay -250000
net cashflows -250000 122180 125778.8 158121.5 37366.02 6750.135
discount factor W-5 11% 1 0.901023 0.811842 0.7314879 0.659087 0.593852
PV -250000 110086.9 102112.5 115664 24627.47 4008.584
NPV 106499.5

W-1
3% 3% 3% 3%
1 2 3 4
volume 35000 40000 50000 25000
SP 12 12 12 12
Sales 420000 480000 600000 300000
Sales inflated 432600 509232 655636.2 337652.6

W-2
4% 4% 4% 4%
1 2 3 4
volume 35000 40000 50000 25000
PP 7.8 7.8 7.8 7.8
Variable cost 273000 312000 390000 195000
VC inflated 283920 337459.2 438697 228122.4

W-3
6% 6% 6% 6%
1 2 3 4
FC 25000 25000 25000 25000
FC inflated 26500 28090 29775.4 31561.92

W-4
1 2 3 4 5
cost of machine 250,000
depn -62500 -46875 -35156.25 (100,469)
tax savings 18750 14062.5 10546.875 30140.63

bal fig 105,469


scrap value -5000
100,469

W-5
Fisher effect

real cost of capital 5.70%


general infl 5%
(1+n)=(1+r)*(1+i)
(1+r) 105.70%
(1+i) 105%
1+n 1.10985
n= 10.99%

average investment 127500

accounting profit
PBT 530994.9398
depn -245000
accounting profit 285994.9398
avg acc profit 71498.73495

ARR 56.08%
Duo Co 2/22/2025 12:53 2/22/2025 13:06 12.69

workings 0 1 2 3
sales W-1 3,200,000.00 4,000,000.00 4,800,000.00
cost of material W-2 (2,000,000.00) (2,500,000.00) (3,000,000.00)
variable cost W-3 (760,000.00) (950,000.00) (1,140,000.00)
fixed cost W-4 (240,000.00) (260,000.00) (280,000.00)
cashflows 0.00 200,000.00 290,000.00 380,000.00
tax (60,000.00) (87,000.00)
tax benfit W-5 60,000.00 45,000.00
scrap value
initial outlay (800,000.00)
net cashflows (800,000.00) 200,000.00 290,000.00 338,000.00
disocunt rate 10% 1.00 0.9091 0.8264 0.7512
present value (800,000.00) 181,811.57 239,651.99 253,916.70
net present value 77,135.18

440,000.00 550,000.00 660,000.00


workings

W-1
demand 400,000.00 500,000.00 600,000.00
sale price 8.00 8.00 8.00
sales 3,200,000.00 4,000,000.00 4,800,000.00

W-2
demand 400,000.00 500,000.00 600,000.00
unit 5.00 5.00 5.00
cost of material 2,000,000.00 2,500,000.00 3,000,000.00

W-3
demand 400,000.00 500,000.00 600,000.00
unit 1.90 1.90 1.90
variable cost 760,000.00 950,000.00 1,140,000.00

W-4
fixed cost 240,000.00 260,000.00 280,000.00

W-5
cost of machine 800,000.00
depn (200,000.00) (150,000.00) (112,500.00)
tax savings 60,000.00 45,000.00 33,750.00

bal fig 337,500.00


scrap value (30,000.00)
307,500.00
W-6

[Ve/Ve+Vd]*Ke + [Vd/Ve+Vd]*Kd(1-t)
WACC 10.004%
Ve 80%
Vd 20%
Vd(1-t) 14.00%

[Ve/Ve+Vd] 80.0%
Ke 11%

[Vd/Ve+Vd] 20.0%
Kd(1-t) 6.02%
4 5
4,800,000.00 0.00
(3,000,000.00) 0.00
(1,140,000.00) 0.00
(300,000.00) 0.00
360,000.00 0.00
(114,000.00) (108,000.00)
33,750.00 92,250.00
30,000.00

309,750.00 (15,750.00)
0.6829 0.6208
211,532.65 (9,777.73)

660,000.00 0.00

600,000.00
8.00
4,800,000.00

600,000.00
5.00
3,000,000.00

600,000.00
1.90
1,140,000.00

300,000.00

(307,500.00)
92,250.00
Risk vs uncertainity
NPV vs IRR

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