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Assignment Calcs4

The document compares the costs and cash flows of leasing versus outright purchasing an asset over 5 years. It provides net present value calculations for both options. It also includes analysis of financing a new business division through acquisition versus establishing a new division.

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Ismaeel Tar
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50 views18 pages

Assignment Calcs4

The document compares the costs and cash flows of leasing versus outright purchasing an asset over 5 years. It provides net present value calculations for both options. It also includes analysis of financing a new business division through acquisition versus establishing a new division.

Uploaded by

Ismaeel Tar
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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Total cost 500,000.

00 Lease
Debt cost 0.07 Year 1 Year 2 Year 3
Tax rate 0.30 Lease payment -88,150 -88,150 -88,150
Tax shield 26,445 26,445 26,445
Lease Purchase option
Annual pa 88,150.00 Net cash flow -61,705 -61,705 -61,705
Purchase v 30,000.00 PV factor 0.9346 0.8734 0.8163
No of year 5.00 PV cash outflow -57,669 -53,893 -50,370
Total Cash outflow (NPV)

Purchase
Term (year 5.00 Outright purchase
Annual pa 142,300.00 Year 1 Year 2 Year 3
Final paym 188,538.00 Loan payments -142,300 -142,300 -142,300
Service costs -12,000 -12,000 -15,000
Service plan Service costs tax shield 3,600 3,600 4,500
year 1 12,000.00 Depreciation tax shield 30,000 30,000 30,000
year 2 12,000.00 Interest tax shield 22,500 19,472 15,989
year 3 15,000.00 Net cash flow -98,200 -101,229 -106,811
year 4 15,000.00 PV factor 0.9346 0.8734 0.8163
year 5 15,000.00 PV cash outflow -91,778 -88,413 -87,190
Total Cash outflow (NPV)

year 1 year 2 year 3 year 4 year 5


### 12,000.00 ### 15,000.00 15,000.00
Lease
Year 4 Year 5 Year 1 Year 5
-88,150 -88,150 Lease pay -88,150 -88,150
26,445 26,445 Tax shield 26,445 26,445
-30,000 Purchase option -30,000
-61,705 -91,705 Net cash f -61,705 -91,705
0.7629 0.7130 PV factor 3.3872 0.7130
-47,075 -65,386 PV cash ou -209,007 -65,386
-274,393 Total Cash outflow (NPV)-274,393

Year 4 Year 5
-142,300 -188,538
-15,000 -15,000
4,500 4,500
30,000 30,000
11,984 7,378
-110,817 -161,660
0.7629 0.7130
-84,542 -115,264
-467,186
Revenue 2.80E+09
Costs 2.44E+09
Operating profit 3.62E+08

No of shares 2.22E+08
Headline earnings 2.09E+08
norm HEPS 0.94
Market price 24
P/E 25.53191 0.039167
Dividends per share 0.19

ERR 0.797872
Total cost 500,000.00 Lease
Debt cost 0.07 Year 1 Year 2 Year 3
Tax rate 0.30 Lease payment -88,150.00 -88,150.00 -88,150.00
Tax shield (30% of a) 26,445.00 26,445.00 26,445.00
Lease Purchase option
Annual pa 88,150.00 Net cash flow -61,705.00 -61,705.00 -61,705.00
Purchase v 30,000.00 PV factor 0.93 0.87 0.82
No of year 5.00 PV cash outflow -57,669.49 -53,893.15 -50,369.79
Total Cash outflow (NPV)

Purchase
Term (year 5.00 Outright purchase
Annual pa 142,300.00 Year 1 Year 2 Year 3
Final paym 188,538.00 Loan payments -142,300.00 -142,300.00 -142,300.00
Service costs -12,000.00 -12,000.00 -10,500.00
Service plan Service costs tax shield -3,600.00 -3,600.00 -3,150.00
year 1 12,000.00 Depreciation tax shield 30,000.00 30,000.00 30,000.00
year 2 12,000.00 Interest tax shield 22,500.00 19,471.50 15,988.80
year 3 15,000.00 Net cash flow -105,400.00 -108,428.50 -109,961.20
year 4 15,000.00 PV factor 0.93 0.87 0.82
year 5 15,000.00 PV cash outflow -98,506.84 -94,701.45 -89,761.33
Total Cash outflow (NPV)

year 1 year 2 year 3 year 4 year 5


### 12,000.00 ### 15,000.00 15,000.00
Lease
Year 4 Year 5 Year 1 - 4 Year 5
-88,150.00 -88,150.00 Lease pay -88,150.00 -88,150.00
26,445.00 26,445.00 Tax shield 26,445.00 26,445.00
-30,000.00 Purchase option -30,000.00
-61,705.00 -91,705.00 Net cash f -61,705.00 -91,705.00
0.76 0.71 PV factor a3.39 0.71
-47,074.74 -65,385.67 PV cash ou-209,007.18 -65,385.67
-274,392.84 Total Cash outflow (NPV)-274,392.84

Outright purchase
Year 4 Year 5 Year 1 Year 5
-142,300.00 -188,538.00 Loan paym-142,300.00 -188,538.00
-10,500.00 -10,500.00 Service cos0.00 0.00
-3,150.00 -3,150.00 Depreciatio30,000.00 30,000.00
30,000.00 30,000.00 Interest tax22,500.00 7,377.60
11,983.50 7,377.60 Net cash f -89,800.00 -151,160.40
-113,966.50 -164,810.40 PV factor 3.39 0.71
0.76 0.71 PV cash ou-304,170.56 -107,777.37
-86,945.04 -117,509.82 Total Cash outflow (NPV)-411,947.93
-487,424.48
Ordinary s 1500000
Market pri 3
last divide 0.9 1.017
dividend g 13%
total ord s 4500000
Total value 1000000
No of pref 1000000
Rate 12%
M Value 2 total share 2000000

Debentures 1000000 Market value calc


Rate 9% PVIF 4.8684 PV Int 438156
Term (year 7 PVAF 0.5132 PV Cap 513200
y/mat 10% Interest p 90000 951356

Loan 1100000
Rate 14% Valueq 1100000 0.339
Due Dec-23 6

Tax rate 30%


Beta 1.8
Risk free r 7% Capital register
Market ret 15% Market Value ProportionMarket pricAdjusted weighted cost
Ord share 4500000 0.526 0.339 0.178
Re 0.214 Pref share 2000000 0.234 0.060 0.014
Debenture 951356 0.111 0.095 0.007
Loan 1100000 0.129 0.140 0.013
8551356 1.00 0.212
Yield
Equity
Pref Cost of equity
Deb 21.4000%
Loan
Adjusted weighted cost
Euro Rand Exchange r
New Division
Premises 45,000,000.00
Machinery 18,000,000.00
Sales 25,000,000.00
Variable costs 7,000,000.00
Add Head office expenses 1,000,000.00
Existing HO expenses 800,000.00
Annual Depreciation on machinery 4,500,000.00

Acquisition
Acquire shares from existing shareholders 14,000,000.00 224,000,000.00
Annual sales 8,000,000.00 128,000,000.00
Annual variable costs 4,000,000.00 64,000,000.00
Annual fixed costs 1,000,000.00 16,000,000.00
consultant fees 700,000.00 11,200,000.00

New Division
Year 0 1-10'
Annuity factor 1.00 5.65
Initial costs -64,800,000.00
Premises -45,000,000.00
Machinery -18,000,000.00
Add HO expenses -1,000,000.00
Existing HO expenses -800,000.00

Annual cash flows 13,500,000.00


Sales 25,000,000.00
Variable costs -7,000,000.00
Depreciation -4,500,000.00

NPV -64,800,000.00 76,277,700.00


NPV 11,477,700.00
16.00

Acquisition
Year 0 1-10'
Annuity factor 1.00 5.65
Initial costs -235,200,000.00
Share acquisition -224,000,000.00
Consultant fees -11,200,000.00

Annual cash flows 48,000,000.00


Sales 128,000,000.00
Variable costs -64,000,000.00
Fixed costs -16,000,000.00

NPV -235,200,000.00 271,209,600.00


NPV 36,009,600.00
Ordinary s 1500000
Market pri 3
last divide 0.9 1.017 Gordon Value
dividend g 13%
total ord s 4500000
Total value 1000000
No of pref 1000000
Rate 12%
M Value 2 total share 2000000

Debentures 1000000 Market value calc


Rate 9% PVIF 4.8684 PV Int
Term (year 7 PVAF 0.5132 PV Cap
y/mat 10% Interest p 90000

Loan 1100000
Rate 14% Valueq 1100000
Due Dec-23 6

Tax rate 30%


Beta 1.8
Risk free r 7% Capital register
Market ret 15% Market Value Proportion
Ord share 4,500,000 0.53
Re 0.214 Pref share 2,000,000 0.23
Debenture 951,356 0.11
Loan 1,100,000 0.13
8,551,356 1.00
Yield
Equity
Pref Cost of equity
Deb 21.4000%
Loan
438156
513200
951356

0.339

Capital register
Market price based return Adjusted weighted cost
0.47 0.247
0.06 0.014
0.07 0.008
0.098 0.013
0.281
New Division Exchange r
Rand
Premises 45,000,000.00
Machinery 18,000,000.00
Sales 25,000,000.00
Variable costs 7,000,000.00
Add Head office expenses 1,000,000.00
Existing HO expenses 800,000.00
Annual Depreciation on machinery 4,500,000.00
Acquisition
Euro
Acquire shares from existing shareholders 14,000,000.00
Annual sales 8,000,000.00
Annual variable costs 4,000,000.00
Annual fixed costs 1,000,000.00
consultant fees 700,000.00

New Division
Year 0 1-10'
Rm Rm
Annuity factor 1.00 5.65
Initial (once-off capital) costs -64.00
Premises -45.00
Machinery -18.00
Add HO expenses -1.00
Annual cash flows 18.00
Sales 25.00
Variable costs -7.00
NPV -64.00 101.70
NPV 37.70
16.00

Acquisition
Year 0 1-10'
€m '€m
Annuity factor 1.00 5.89
Initial costs -14.00
Share acquisition -14.00
Annual cash flows 3.00
Sales 8.00
Variable costs -4.00
Fixed costs -1.00
NPV -14.00 17.67
NPV 3.67
Exchange rate (Rands/Euro) 16.00
NPV Rands (million) = € (million) x exchange rate 58.68

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