Company SBS9 is evaluating the following list of Investments The target capital structure is to use 50% Debt and 50% Equity: Finance, Accounting and Management Assignment, UON, Malaysia
| University | University of Nottingham (UON) |
| Subject | Finance Accounting and Management |
Question 1
| Required Investment RM | ROIC | |
| Project A | 40 | 16% |
| Project B | 40 | 13.50% |
| Project C | 20 | 13% |
| Total Investment | 100 |
The target capital structure is to use 50% Debt and 50% Equity. Net Income last year was RM40 and the company intends to pay dividends to the amount of RM10. The interest rate that banks will charge for any amount of loans is 8%. The Corporate Tax Rate is 30%. Fixed deposits rates in the market is currently 3%. This rate is considered risk free (RF). The stock market is forecasted to provide a return of 15% which will be used as the required return from the market. The unlevered beta for the company is 0.8. Any new shares issue will be charge a 3% flotation cost.
Required:
What is the amount of the first stage financing using the intended capital structure and that the company needs to pay the dividends
1.Calculate the leverage beta at the first stage of financing?
2. Calculate the cost of equity at the first stage of financing?
3. Calculate the cost of equity after the first stage of financing?
4. Calculate the Weighted Average Cost of Capital at the first financing stage and the second financing stage?
5.Explain whether each of the project can be Explanation must include the cost of capital of the project.
6. Based on the answer in part f, what is the total amount of investment
QUESTION 2
The CNC company have acess to the following information to prepare for the budget.
Direct Materials: Cost RM1 per kg, and required amount per unit is 2.5kg. The number of hours workers require to finish a product is 2 hours. The direct labor rate is RM5.00 per hour. Production also require 2 machine hours per unit.
Manufacturing Overheads Cost are estimated and allocated as follows:
| Variable Overheads | Total Estimate Cost (RM) | Allocation Basis |
| Cleaning | 18,000.00 | Direct Labour Hours |
| Maintenance | 12,000.00 | Machine Hours |
| Supervision | 24,000.00 | Direct Labour Hours |
The following fixed overheads were also estimated
| Fixed Manufacturing Overheads | Total Estimated Cost (RM) |
| Insurance | 36,000.00 |
| Advertising | 14,000.00 |
| Depreciation | 10,000.00 |
| Administration Cost | Total Estimate Cost (RM) |
| Managers Salary | 108,000.00 |
| Utilities in Main Office | 12,000.00 |
Required
- Prepare the budget net operating income for the
- Calculate the product cost per unit using the absorption costing method.
- Calculate the product cost per unit using the variable costing method?
The actual results of operations are as follows.
| Units | 100,000 | |||
| Price (RM) | 12.00 | |||
| Sales (RM) | 1,200,000.00 | |||
| Variable Costs | Quantity Used | Rate (RM) | ||
| Direct Materials | 240,000 | 0.80 | 192,000.00 | |
| Direct Labour | 150,000 | 4.50 | 675,000.00 | |
| Variable Overheads | Quantity Used | Rate (RM) | ||
| Cleaning | 150,000.00 | 0.120 | 18,000.00 | |
| Maintenance | 200,000.00 | 0.060 | 12,000.00 | |
| Supervision | 150,000.00 | 0.320 | 48,000.00 | |
| Total Variable Overhead | 78,000.00 | |||
| Fixed Overheads | ||||
| Insurance | 36,000.00 | |||
| Advertising | 14,000.00 | |||
| Depreciation | 10,000.00 | |||
| Total Fixed Cost | 60,000.00 | |||
| Total Manufacturing Cost | 1,005,000.00 | |||
| Administration | ||||
| Managers Salary | 180,000.00 | |||
| Utilities | 12,000.00 | |||
| Total Administration Cost | 192,000.00 | |||
| NET OPERATING INCOME | 3,000.00 |
4. Prepare a usage/efficiency variance analysis and price variance analysis for direct materials, direct labour, cleaning, maintenance and
5. Prepare a variance analysis on the Unit Sales, Sales Price, Fixed Overhead and Administration
6. There was a dispute between the workers in production and the management with regard to their Explain the major cause of the low actual net operating income and whether the complaints are justified. Suggest actions that the company can take.
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