Question Tag: Financing

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FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

Question

MK Plc is considering the best way to finance the replacement for a particular high specification piece of equipment that has become too costly to maintain. The replacement equipment is estimated to have a useful life of 4 years with no residual value after that time.

Two alternative financing schemes are being evaluated:

Scheme A: Buy the equipment outright funded by a bank loan
Scheme B: Enter into a four-year finance lease

Scheme A: Buy outright, funded by a bank loan
MK Plc could purchase the equipment outright at a cost of N200 million on July 1, 2016. MK Plc can normally borrow at an annual interest rate of 13% per year.

Scheme B: Four-year finance lease
The equipment would be delivered on July 1, 2016, and MK Plc would pay a fixed amount of N58,790,000 each year in advance, starting on July 1, 2016, for four years. At the end of four years, ownership of the equipment will pass to MK Plc without further payment.

Other Information:

MK Plc has a cost of equity of 20% and WACC of 16%
MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

Answer

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Tags: Discount rate, Equipment Financing, Financing, Lease, Loan, Present Value
Level: Level 3

Topic: Financing Decisions and Capital Markets

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

Question

Which of the following is NOT a source of financing?
A. Bank overdrafts
B. Short-term bank loans
C. Suppliers
D. Proceeds of disposal of fixed assets
E. Operating leases

Answer

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Tags: Asset Disposal, Financing, Short-term Finance
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2016

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

Question

With reference to Option Two:

i) What would be its effective rate of borrowing for the three months if US dollar LIBOR is 4.50% at the start of the notional interest period for the FRA? (2 marks)
ii) What are the advantages of Convertible Bonds? (3 marks)

Answer

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Tags: Borrowing rate, Convertible Bonds, Financing, FRA
Level: Level 3

Topic: Financial management
Series: MAR 2024

BMF – May 2018 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Identifying a source of financing negotiated between a bank and a company for a specific duration.

Question

A source of financing, negotiated between a bank and a company for a duration of 4–10 years at a fixed rate of interest, is called:
A. Finance lease
B. Term loan
C. Acceptance credit
D. Factoring of debtors
E. Preference share

Answer

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Tags: Financing, Long-term Financing, Term Loan
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2018

FA – Nov 2014 – L1 – SB – Q6a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)

Defining operating, investing, and financing cash flows with two examples for each.

Question

a. In relation to the Statement of Cash Flows, define the following terms and give two examples in each case:

i. Operating Cash Flows
ii. Investing Cash Flows
iii. Financing Cash Flows
(Total 9 Marks)

Answer

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Tags: Cash Flow, Financing, IAS 7, Investing, Operating
Level: Level 1

BMF – Nov 2019 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Identifying a short-term funding source that is not used for long-term financing of public limited companies

Question

Public limited liability companies (Plc) obtain funds from a variety of sources. Which of the following is NOT a source of long-term funds for a public limited liability company?
A. Public offer
B. Commercial paper
C. Rights issue
D. Offer for Sale
E. Retained earnings

Answer

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Tags: Financing, Long-Term Funding, Public Companies
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2019

BMF – May 2017 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Multiple-choice question on identifying a source that is not typical for long-term capital.

Question

Which of the following is NOT a main source of long-term capital?

A. Venture capital
B. Equity finance
C. Debt factoring
D. Lease finance
E. Debt finance

Answer

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Tags: Capital structure, Financing, Long-term Capital
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2017

AFM – Nov 2017 – L3 – Q5b – Dividend policy in multinationals and transfer pricing

Discusses the factors that affect dividend repatriation policies in multinational companies.

Question

The amount of dividends subsidiaries pay to the parent company depends on the parent company’s dividend policies. Dividend repatriation represents significant flow for parent companies and contributes to dividend payments.

Required:
Discuss FOUR factors that affect dividend repatriation policies of Multinational Companies. (8 marks)

Answer

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Tags: Dividend repatriation, Financing, multinational companies, Tax implications
Level: Level 3

Topic: Dividend policy in multinationals and transfer pricing
Series: NOV 2017

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

Question

Abbot Ltd needs to increase its working capital by GH¢100,000. It has decided that there are essentially three alternatives of financing available. They are:

i) Borrow from a bank at 8%. This alternative would necessitate maintaining a 25% compensation balance.

ii) Issue promissory notes at 7.5%. The cost of placing the issue would be GH¢500 each six months.

iii) Forego cash discount, granted on the basis of 3/10, net 30.

The firm prefers the flexibility of bank financing, and has provided an additional cost of this flexibility to be 1%.

Required: Assess which alternative financing method should be selected.

Answer

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Tags: Bank Loan, Cash discount, Cost Analysis, Financing, Promissory notes, Working Capital
Level: Level 3

Topic: Sources of finance and cost of capital
Series: NOV 2017

AFM – Nov 2018 – L3 – Q2a – International investment and financing decisions

Evaluate an international mining investment opportunity in South Africa using NPV approach for financial feasibility.

Question

Rock Minerals Ltd (Rock) is a minerals mining company based in Ghana. Rock is considering an investment opportunity in South Africa, which involves developing and operating a gold mine and later transferring the mine to the South African government.

Last year, the directors commissioned a special committee to assess investments and regulatory requirements relating to the project. Based on the committee’s report, the directors estimate that it will take two years to develop the mine. Development of the mine entails an immediate outlay of ZAR1.2 million in regulatory requirement expenditures, an investment of ZAR20 million in plants and equipment in the first year, and ZAR15 million for development expenditure in the second year. The directors also estimate that Rock will invest ZAR2 million in net working capital at the beginning of the third year. The investment in net working capital is expected to be increased to ZAR3 million at the beginning of the fifth year.

Commercial production and sales are expected to begin in the third year. Below are estimated operating cash flows before tax in the first three years of commercial production:

Year	Revenue collections (ZAR’ millions)	Variable operating costs (ZAR’ millions)	Fixed operating costs (ZAR’ millions)
3	100	40	20
4	150	50	25
5	210	80	30

At the end of the fifth year, Rock will transfer ownership and control of the mine to the South African government for an after-tax consideration of ZAR100 million. The special committee also reports that the income tax rate for mining operations is 30%, and capital expenditure in relation to acquisition of property, plant, and equipment, and development expenditure qualifies for capital allowance at the rate of 20% per annum on a straight-line basis. Capital allowance is granted at the end of each year of commercial production. On repatriation of profit, the committee reports that the South African government does not restrict the repatriation of profit, and there are no profit repatriation taxes. Rock would repatriate cash returns as they become available.

Rock plans to finance this project using existing capital. Rock’s after-tax cost of capital is 25% in Ghana. The annual rate of inflation is expected to be 11% in Ghana and 5% in South Africa in the coming years. Currently, the rate of exchange between the Ghanaian cedi (GH¢) and the South African rand (ZAR) is GH¢0.3822 = ZAR1.

Required:
Evaluate the project on financial grounds using the net present value (NPV) approach and recommend whether the investment proposal should be accepted for implementation or not.
(12 marks)

Answer

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Tags: Capital Budgeting, Cash Flows, Currency Exchange Rates, Financing, International Investment, Mining Projects, Net Present Value (NPV)
Level: Level 3

Topic: International investment and financing decisions
Series: NOV 2018

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

Question

Two alternative financing schemes are being evaluated:

Scheme A: Buy the equipment outright funded by a bank loan
Scheme B: Enter into a four-year finance lease

Other Information:

MK Plc has a cost of equity of 20% and WACC of 16%
MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discount rate, Equipment Financing, Financing, Lease, Loan, Present Value
Level: Level 3

Topic: Financing Decisions and Capital Markets

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

Question

Which of the following is NOT a source of financing?
A. Bank overdrafts
B. Short-term bank loans
C. Suppliers
D. Proceeds of disposal of fixed assets
E. Operating leases

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Disposal, Financing, Short-term Finance
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2016

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

Question

With reference to Option Two:

Answer

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Tags: Borrowing rate, Convertible Bonds, Financing, FRA
Level: Level 3

Topic: Financial management
Series: MAR 2024

BMF – May 2018 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Identifying a source of financing negotiated between a bank and a company for a specific duration.

Question

Answer

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Tags: Financing, Long-term Financing, Term Loan
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2018

FA – Nov 2014 – L1 – SB – Q6a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)

Defining operating, investing, and financing cash flows with two examples for each.

Question

a. In relation to the Statement of Cash Flows, define the following terms and give two examples in each case:

i. Operating Cash Flows
ii. Investing Cash Flows
iii. Financing Cash Flows
(Total 9 Marks)

Answer

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Tags: Cash Flow, Financing, IAS 7, Investing, Operating
Level: Level 1

BMF – Nov 2019 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Identifying a short-term funding source that is not used for long-term financing of public limited companies

Question

Answer

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Tags: Financing, Long-Term Funding, Public Companies
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2019

BMF – May 2017 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Multiple-choice question on identifying a source that is not typical for long-term capital.

Question

Which of the following is NOT a main source of long-term capital?

A. Venture capital
B. Equity finance
C. Debt factoring
D. Lease finance
E. Debt finance

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital structure, Financing, Long-term Capital
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2017

AFM – Nov 2017 – L3 – Q5b – Dividend policy in multinationals and transfer pricing

Discusses the factors that affect dividend repatriation policies in multinational companies.

Question

Required:
Discuss FOUR factors that affect dividend repatriation policies of Multinational Companies. (8 marks)

Answer

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Tags: Dividend repatriation, Financing, multinational companies, Tax implications
Level: Level 3

Topic: Dividend policy in multinationals and transfer pricing
Series: NOV 2017

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

Question

Abbot Ltd needs to increase its working capital by GH¢100,000. It has decided that there are essentially three alternatives of financing available. They are:

i) Borrow from a bank at 8%. This alternative would necessitate maintaining a 25% compensation balance.

ii) Issue promissory notes at 7.5%. The cost of placing the issue would be GH¢500 each six months.

iii) Forego cash discount, granted on the basis of 3/10, net 30.

The firm prefers the flexibility of bank financing, and has provided an additional cost of this flexibility to be 1%.

Required: Assess which alternative financing method should be selected.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Cash discount, Cost Analysis, Financing, Promissory notes, Working Capital
Level: Level 3

Topic: Sources of finance and cost of capital
Series: NOV 2017

AFM – Nov 2018 – L3 – Q2a – International investment and financing decisions

Evaluate an international mining investment opportunity in South Africa using NPV approach for financial feasibility.

Question

Commercial production and sales are expected to begin in the third year. Below are estimated operating cash flows before tax in the first three years of commercial production:

Year	Revenue collections (ZAR’ millions)	Variable operating costs (ZAR’ millions)	Fixed operating costs (ZAR’ millions)
3	100	40	20
4	150	50	25
5	210	80	30

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Budgeting, Cash Flows, Currency Exchange Rates, Financing, International Investment, Mining Projects, Net Present Value (NPV)
Level: Level 3

Topic: International investment and financing decisions
Series: NOV 2018

Question Tag: Financing

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FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

a.

b.

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BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

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SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

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BMF – May 2018 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Identifying a source of financing negotiated between a bank and a company for a specific duration.

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FA – Nov 2014 – L1 – SB – Q6a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)

Defining operating, investing, and financing cash flows with two examples for each.

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BMF – Nov 2019 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Identifying a short-term funding source that is not used for long-term financing of public limited companies

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BMF – May 2017 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Multiple-choice question on identifying a source that is not typical for long-term capital.

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AFM – Nov 2017 – L3 – Q5b – Dividend policy in multinationals and transfer pricing

Discusses the factors that affect dividend repatriation policies in multinational companies.

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AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

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AFM – Nov 2018 – L3 – Q2a – International investment and financing decisions

Evaluate an international mining investment opportunity in South Africa using NPV approach for financial feasibility.

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FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

a.

b.

You're reporting an error for "FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets"

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

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SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

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BMF – May 2018 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Identifying a source of financing negotiated between a bank and a company for a specific duration.

You're reporting an error for "BMF – May 2018 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets"

FA – Nov 2014 – L1 – SB – Q6a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)

Defining operating, investing, and financing cash flows with two examples for each.

You're reporting an error for "FA – Nov 2014 – L1 – SB – Q6a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)"

BMF – Nov 2019 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Identifying a short-term funding source that is not used for long-term financing of public limited companies

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BMF – May 2017 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Multiple-choice question on identifying a source that is not typical for long-term capital.

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AFM – Nov 2017 – L3 – Q5b – Dividend policy in multinationals and transfer pricing

Discusses the factors that affect dividend repatriation policies in multinational companies.

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AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

You're reporting an error for "AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital"

AFM – Nov 2018 – L3 – Q2a – International investment and financing decisions

Evaluate an international mining investment opportunity in South Africa using NPV approach for financial feasibility.

You're reporting an error for "AFM – Nov 2018 – L3 – Q2a – International investment and financing decisions"

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