mnf2023 group discussion lecturer: mr c chipeta tel:...
TRANSCRIPT
MN
F202
3 G
ROUP
DIS
CUS
SIO
N
Lect
urer
: Mr C
Chi
peta
Tel:
(012
) 429
375
7
Ema
il: ch
ipec
@un
isa.a
c.za
Topi
cs To
Be
Disc
usse
d
•Ra
tio a
naly
sis•
Time
valu
e of
mon
ey•
Risk
and
retu
rn•
Bond
and
shar
e va
luat
ion
•W
orki
ng c
api
tal m
ana
gem
ent
•Ex
amin
atio
ns
Ratio
Ana
lysis
•Ra
tio a
naly
sis -
invo
lves
met
hod
s of
calc
ula
ting
and
inte
rpre
ting
fina
ncia
l ra
tios t
o a
sses
s a fi
rm’s
fina
ncia
l co
nditi
on a
nd p
erfo
rman
ce.
•In
tere
sted
pa
rties
-sh
areh
old
ers,
cred
itors
, and
the
firm
’s o
wn
man
agem
ent.
Type
s O
f Rat
io C
ompa
rison
s
•Tr
end
or t
ime-
serie
s ana
lysis
-ev
alu
ate
fir
m’s
per
form
ance
ove
r tim
e
•C
ross
-sec
tiona
l ana
lysis
-co
mpa
re
simila
r rat
ios f
or fi
rms w
ithin
sim
ilar
ind
ustri
es (b
ench
ma
rkin
g)
•C
ombi
ned
ana
lysis
-co
mbi
natio
n of
bo
th ti
me
serie
s & c
ross
-sec
tiona
l a
naly
sis
Cat
egor
ies
Of F
inan
cial
Rat
ios
•Liq
uid
ity ra
tios-
abi
lity
to sa
tisfy
shor
t-te
rm o
blig
atio
ns, e
.g. C
R &
QR
(AT)
•A
ctiv
ity ra
tios-
spee
d to
con
vert
acc
ount
s int
o sa
les o
r ca
sh, e
.g. I
nv.
Turn
, AC
P, A
PP &
TA
T
•D
ebt r
atio
s-m
easu
res p
ropo
rtion
of
ass
ets f
ina
nced
by
cred
itors
, e.g
. DR,
TIE
R, F
PCR.
FIN
AN
CIA
L RA
TIOS
(con
t.)
•Pr
ofita
bilit
y ra
tios-
eval
uate
firm
’s
prof
its, e
.g. G
PM, O
PM, N
PM, E
PS.
ROA
/RO
I & R
OE
•M
ark
et ra
tios-
firm
’s m
arke
t val
ue a
s m
easu
red
by
its c
urre
nt sh
are
pric
e,
e.g.
P/E
& M
/B
•D
uPon
t Sys
tem
of A
naly
sis-m
ultip
ly
firm
’s n
et p
rofit
ma
rgin
by
its to
tal a
sset
tu
rnov
er
FIN
AN
CIA
L RA
TIOS
(con
t.)W
hich
ON
E of
the
follo
win
g ra
tios m
ay in
dic
ate
poor
col
lect
ions
pro
ced
ures
or a
lax
cred
itpo
licy?
1.A
vera
ge p
aym
ent p
erio
d2.
Inve
ntor
y tu
rnov
er3.
Qui
ck ra
tio4.
Ave
rage
col
lect
ion
perio
d
A fi
rm h
as a
cur
rent
ratio
of 1
; in
ord
er to
impr
ove
its liq
uid
ity ra
tios,
this
firm
mig
ht …
1.im
prov
e its
col
lect
ion
proc
edur
es, t
here
by in
crea
sing
cash
and
incr
easin
g its
cur
rent
a
nd q
uick
ratio
s2.
impr
ove
its c
olle
ctio
n pr
actic
es a
nd p
ay a
ccou
nts p
ayab
le, t
here
by d
ecre
asin
g cu
rrent
liabi
litie
s and
incr
easin
g th
e cu
rrent
and
qui
ck ra
tios
3.d
ecre
ase
cur
rent
liabi
litie
s by
utilis
ing
mor
e lo
ng te
rm d
ebt,
ther
eby
incr
easin
g th
e cu
rrent
and
qui
ck ra
tios
4.in
crea
se in
vent
ory,
ther
eby
incr
easin
g cu
rrent
ass
ets a
nd th
e cu
rrent
and
qui
ck ra
tios
Sol
utio
ns
•Th
e A
vera
ge C
olle
ctio
n P
erio
d in
dica
tes
poor
co
llect
ion
proc
edur
es (S
ee P
age
60 o
f the
pr
escr
ibed
text
boo
k)•
Opt
ion
3 is
the
best
bec
ause
if y
ou re
duce
you
r cu
rren
t lia
bilit
ies
by u
tilis
ing
mor
e lo
ng te
rm
debt
, you
will
incr
ease
the
curr
ent r
atio
. Not
e th
at o
ptio
n 1
is n
ot th
e be
st b
ecau
se im
prov
ing
colle
ctio
n pr
oced
ures
redu
ces
debt
ors
and
incr
ease
s ca
sh a
t the
sam
e tim
e.
The
follo
win
g in
form
atio
n is
ava
ilabl
e fo
r JJ
Hol
ding
s. U
se th
is in
form
atio
n to
ans
wer
ques
tions
1 to
7:
Sal
es
R
3 85
0 00
0 C
ost o
f Goo
ds s
old
R
3 25
0 00
0 In
vent
ory
Turn
over
3.
89
Tota
l ass
ets
turn
over
0.
75
Earn
ings
ava
ilabl
e fo
r ord
inar
y sh
areh
olde
rs
R
900
000
Ord
inar
y sh
ares
equ
ity
R
2 50
0 00
0 B
ook
valu
e of
sha
res
R6
Num
ber o
f day
s in
a y
ear
365
1.
Su
ppos
e th
e av
erag
e ag
e of
inve
ntor
y (A
AI) f
or a
riva
l com
pany
is 8
0 da
ys. T
he
AAI f
or J
J H
oldi
ngs
indi
cate
s th
at it
…
1.
h
as a
hig
her a
vera
ge n
umbe
r of d
ays’
sal
es in
inve
ntor
y th
an th
e riv
al
C
ompa
ny
2.
has
a lo
wer
ave
rage
num
ber o
f day
s’ s
ales
in in
vent
ory
than
the
rival
c
ompa
ny
3.
is m
ore
effe
ctiv
e in
util
isin
g its
inve
ntor
y to
gen
erat
e sa
les
4.
turn
s ov
er it
s in
vent
ory
fast
er th
an th
e riv
al c
ompa
ny
2.
As
sum
ing
that
the
tota
l lia
bilit
ies
for J
J H
oldi
ngs
are
R3
500
000
and
that
the
indu
stry
ave
rage
for t
he d
ebt r
atio
is 5
0%, T
he c
urre
nt d
ebt r
atio
for J
J H
oldi
ngs
in
dica
tes
that
it h
as …
1.
a lo
wer
risk
of b
ecom
ing
bank
rupt
com
pare
d to
the
firm
s in
its
indu
stry
2.
a
high
er ri
sk o
f bec
omin
g ba
nkru
pt c
ompa
red
to th
e fir
ms
in it
s in
dust
ry
3.
half
of it
s as
sets
fina
nced
by
debt
4.
a
low
er p
ropo
rtion
of l
ende
rs’ f
unds
that
are
bei
ng u
sed
to g
ener
ate
prof
its
com
pare
d to
the
indu
stry
Sol
utio
ns
Deb
t ra
tio
(JJ
Hol
ding
s) =
A
sset
sTo
tal
000
500
3
To
calc
ulat
e to
tal
asse
ts w
e ne
ed t
o w
ork
out
the
Tot
al A
SS
ET
S T
urno
ver
rati
o:
Tot
al A
sset
Tur
nove
r =
A
sset
sTo
talsa
les
0.75
=
Ass
ets
Tota
l00
085
03
R
Tot
al A
sset
s =
75.
000
085
03
R =
R5
133
333
Deb
t ra
tio
=
333
133
500
050
03
R=
68%
The
refo
re t
he c
orre
ct o
ptio
n is
2 s
ince
JJ
Hol
ding
s ha
s a
high
er d
ebt
rati
o co
mpa
red
to
the
indu
stry
AA
I (JJ
Hol
ding
s) =
89.3365
=
94 d
ays
Ther
efor
e th
e co
rrec
t opt
ion
is 1
bec
ause
its A
AI i
s hig
her
than
for t
he ri
val c
ompa
ny
Tim
e va
lue
of m
oney
Inst
ruct
ions
:Sh
arp
EL 7
33A
, EL
735:
Cle
ar M
emor
y: 2
ndFN
CA
Set t
o FI
N M
ode:
2nd
FN M
OD
EM
ake
sure
cal
cula
tor i
s not
in B
EGIN
mod
e: T
ore
mov
e, p
ress
2nd
FN B
GN
Set t
o a
t lea
st 4
dec
ima
l pla
ces
HP 1
0B11
:
Set t
o 1
P/YR
: 1
Ora
nge
Butto
n P/
YRPr
ess O
rang
e Bu
tton
CM
ake
sure
ca
lcul
ato
r is n
ot in
BEG
IN m
ode.
To
rem
ove,
pre
ss O
rang
eBu
tton
BEG
/EN
DSe
t to
at l
east
4 d
ecim
al p
lace
s: O
rang
e Bu
tton
DIS
P 4
Tim
e V
alue
of M
oney
Shar
p EL
738
:C
alc
ula
tor s
houl
d d
ispla
y TA
B a
nd D
EG.
(Nor
mal
Mod
e)M
ake
sure
pa
ymen
ts a
re se
t to
1 Pa
ymen
tpe
r Yea
r: Pr
ess 1
2nd
FN P
/YR
Mak
e su
re it
s not
in B
EGIN
mod
e: P
ress
2nd
FN B
GN
/EN
D
Exam
ples
ASS
ESSM
ENT
STUD
Y G
UID
Epp
.38-
40
Exa
mpl
es1.
Cal
cula
te th
e pr
esen
t val
ue o
f a R
25 0
00
perp
etui
ty a
t a 1
4% d
isco
unt r
ate.
2.C
alcu
late
the
pres
ent v
alue
of
R50
000
to b
e re
ceiv
ed a
t the
end
of 2
yea
rs, a
t an
inte
rest
ra
te o
f 10%
com
poun
ded
sem
i-ann
ually
.3.
Cal
cula
te th
e fu
ture
val
ue o
f a R
2 00
0 an
nuity
du
e, d
epos
ited
at 8
%, c
ompo
unde
d an
nual
ly
for e
ach
of th
e ne
xt 1
0 ye
ars.
4.D
onal
d m
akes
ann
ual e
nd o
f yea
r pay
men
ts o
f R
6260
.96
on a
5 y
ear l
oan
with
an
8 %
inte
rest
ra
te. W
hat i
s th
e or
igin
al p
rinci
pal a
mou
nt?
Exa
mpl
e
1.R
25 0
00/0
.14
= R
178
571
2. 5
0 00
0 FV
4 N
5 I
CO
MP
PV
:R
41 1
35.1
2
Exa
mpl
e3.
200
0 +/
-PM
T8
I10
NC
OM
P F
V:
R31
290
.97
4. 6
260.
96 +
/-PM
T5
N8
IC
OM
P P
V:
R24
998
.20
Exa
mpl
es (c
ont)
1.Ja
mes
is c
onsi
derin
g bu
ying
a c
ar fo
r R40
000
. Th
e ba
nk h
as q
uote
d hi
m a
n in
tere
st ra
te o
f 12
% p
er a
nnum
, com
poun
ded
mon
thly
. If h
e w
ishe
s to
repa
y th
e pr
inci
pal a
mou
nt o
ver 5
0 m
onth
s, w
hat i
s hi
s m
onth
ly in
stal
men
t?2.
Joy
is p
lann
ing
to s
end
her p
aren
ts o
n a
crui
se
cost
ing
R15
000
and
has
5 y
ears
to
accu
mul
ate
this
am
ount
. Cal
cula
te th
e am
ount
Jo
y m
ust d
epos
it at
the
begi
nnin
gof
eac
h m
onth
to a
chie
ve th
is. A
ssum
e in
tere
st ra
te is
6%
Exa
mpl
e1.
40 0
00 P
V1
I50
NC
OM
P P
MT:
R10
20.5
12.
15
000
FV60
N0.
5 I
CO
MP
PM
T:R
213.
92
Exam
ple
Shre
ll In
dust
ries,
a c
abin
et m
anuf
actu
rer,
expe
cts
to re
ceiv
e th
e fo
llow
ing
mix
ed s
tream
of c
ash
flow
s ov
er th
e ne
xt 5
ye
ars
from
one
of i
ts c
usto
mer
s:En
d of
yea
rC
ash
flow
1R1
1 50
02
R14
500
3R1
2 90
04
R16
000
5R1
8 00
0If
Shre
ll ex
pect
s to
ear
n 8%
on
its in
vest
men
t, ho
w m
uch
will
itac
cum
ulat
e by
the
end
of y
ear 5
if it
imm
edia
tely
inve
st
thes
e ca
sh fl
ows
whe
n th
ey a
re re
ceiv
ed?
Cal
cula
ting
the
PV
usi
ng S
harp
EL
738
Inpu
ts:
Pres
s:C
FI 2
ndFN
CA
0 EN
T11
500
EN
T14
500
ENT
1290
0 EN
T16
000
EN
T18
000
EN
T2N
DFN
CFI
8 EN
TD
own
arro
w k
eyPr
ess:
CO
MP
NPV
=R
57 3
31
Futu
re V
alue
of a
Mix
ed S
tream
Futu
re V
alue
of a
Mix
ed S
trea
m
(con
t.)
Exam
ples
(con
t.)7
Fred
Com
pany
, a s
hoe
man
ufac
ture
r, ha
s be
en
offe
red
an o
ppor
tuni
ty to
rece
ive
the
follo
win
g m
ixed
stre
am o
f cas
h flo
ws
over
the
next
5 y
ears
:En
d of
yea
rC
ash
flow
1R4
002
R800
3R5
004
R400
5R3
00If
the
firm
mus
t ear
n at
leas
t 9%
on
its in
vest
men
t, w
hat i
s th
e m
ost i
t sho
uld
pay
for t
his
oppo
rtuni
ty?
Pres
ent V
alue
of a
Mix
ed S
trea
m
Risk
Def
ined
•In
the
cont
ext o
f bus
ines
s and
fina
nce,
risk
is d
efin
ed a
s the
cha
nce
of su
fferin
g a
finan
cial
loss
.•
Ass
ets (
real
or f
inan
cial
) whi
ch h
ave
a gr
eate
r cha
nce
of lo
ss a
re c
onsid
ered
m
ore
risky
than
thos
e w
ith a
low
er c
hanc
e of
loss
.•
Risk
may
be
used
inte
rcha
ngea
bly
with
the
term
unc
erta
inty
to re
fer t
o th
e va
riabi
lity
of re
turn
s ass
ocia
ted
with
a g
iven
ass
et.
•O
ther
sour
ces o
f risk
Retu
rn D
efin
ed
•Re
turn
repr
esen
ts th
e to
tal g
ain
or l
oss o
n an
inve
stm
ent.
•Th
e m
ost b
asic
way
to c
alcu
late
retu
rn is
as
follo
ws:
EXA
MPL
E Q
2 SG
p.4
6
RIS
K O
F A
SIN
GLE
ASS
ET
(con
t.)
RETU
RN M
EASU
REM
ENT F
OR
A S
ING
LE
ASS
ET: E
XPEC
TED
RETU
RN•
The
mos
t com
mon
stat
istic
al in
dic
ator
of a
n as
set’
s ris
k is
the
stan
dar
d d
evia
tion,
σk,
whi
ch m
easu
res
the
disp
ersio
n ar
ound
the
expe
cted
val
ue.
•Th
e ex
pect
ed v
alue
of a
retu
rn, k-bar
, is t
he m
ost
likel
y re
turn
of a
n as
set.
Risk
Mea
sure
men
t For
A S
ingl
e A
sset
: Sta
ndar
d De
viat
ion
•Th
e ex
pres
sion
for t
he s
tand
ard
devi
atio
n of
retu
rns,
σk,
is gi
ven
in
Equa
tion
5.3
belo
w.
EXA
MPL
ES Q
5 SG
p.4
7
EXA
MPL
ES Q
6 SG
p.4
7
Risk
Mea
sure
men
t for
a S
ingl
e A
sset
: C
oeffi
cien
t of V
aria
tion
•Th
e co
effic
ient
of v
aria
tion,
CV
,is a
m
easu
re o
f rel
ativ
e d
isper
sion
that
is
usef
ul in
com
parin
g ris
ks o
f ass
ets w
ith
diff
erin
g ex
pect
ed re
turn
s.•
Equa
tion
5.4
give
s the
exp
ress
ion
of
the
coef
ficie
nt o
f var
iatio
n.
EXA
MPL
ES Q
7 SG
p.4
7
PORF
OLI
O R
ETUR
N
•Th
e re
turn
of a
por
tfolio
is a
wei
ghte
d
aver
age
of th
e re
turn
s on
the
ind
ivid
ual a
sset
s fro
m w
hich
it is
form
ed
and
can
be
calc
ulat
ed a
s sho
wn
in
Equa
tion
5.5.
Risk
and
Ret
urn:
The
Cap
ital A
sset
Pr
icin
g M
odel
(CA
PM) (
cont
.)•
Afte
r est
imat
ing
beta
, whi
ch m
easu
res a
sp
ecifi
c as
set o
r por
tfolio
’s sy
stem
atic
risk
, es
tima
tes o
f the
oth
er v
aria
bles
in th
e m
odel
m
ay b
e ob
tain
ed to
cal
cula
te a
n as
set o
r po
rtfol
io’s
requ
ired
retu
rn.
EXA
MPL
ES Q
’8,1
0 SG
p.4
8
Exa
mpl
e
Arm
stro
ng M
inin
g Lt
d is
exp
ectin
g to
pay
a
divi
dend
of R
4 a
shar
e at
the
end
of y
ear
1. It
s be
ta is
cur
rent
ly 1
.2 a
nd th
e re
turn
on
the
treas
ury
bills
is 7
%. T
he re
turn
on
the
JSE
All
shar
e in
dex
is 1
6%. D
ue to
the
polit
ical
vio
lenc
e in
Ken
ya, i
ts b
eta
has
jum
ped
to 1
.4.
Cal
cula
te th
e ne
w s
hare
pr
ice
assu
min
g a
cons
tant
div
iden
d gr
owth
of
10%
.
Exa
mpl
e
Firs
t, ca
lcul
ate
the
requ
ired
rate
of r
etur
nus
ing
the
CA
PM
:7
+ 1.
4(16
-7) =
19.
6%Th
en c
alcu
late
the
pric
e of
the
shar
e us
ing
the
cons
tant
gro
wth
mod
el:
gks
D−
1
67.41
1.019
6.0
4R=
−
Exa
mpl
e
5%R
isk
free
asse
t
1.0
30%
10%
Y
1.5
20%
20%
X
Bet
aS
tand
ard
devi
atio
nE
xpec
ted
Ret
urn
Sec
urity
Exa
mpl
e (c
ont)
1.W
hich
ass
et h
as th
e le
ast t
otal
risk
and
w
hich
ass
et h
as th
e le
ast s
yste
mat
ic ri
sk2.
Wha
t is
the
syst
emat
ic ri
sk fo
r a p
ortfo
lio
with
two
third
s of
the
fund
s in
vest
ed in
X
and
one
third
inve
sted
in Y
?3.
Wha
t is
the
portf
olio
exp
ecte
d re
turn
and
th
e po
rtfol
io b
eta
if yo
u in
vest
35%
in X
, 45
% in
Y a
nd 2
0% i
n th
e ris
k fre
e as
set?
Exa
mpl
e1.
Com
pute
CV
for b
oth
asse
ts a
nd c
ompa
re th
e C
Vs.
The
as
set w
ith th
e le
ast t
otal
risk
is th
e on
e w
ith th
e lo
wes
t C
V.
Ass
et X
: 20/
20 =
1A
sset
Y: 3
0/10
= 3
Ass
et X
has
the
leas
t tot
al ri
sk2.
Sys
tem
atic
risk
= 2
/3(1
.5) +
1/3
(1) =
1.3
33.
Por
tfolio
Ret
urn:
0.3
5(20
) + 0
.45
(10)
+ 0
.2 (5
)=1
2.5%
Por
tfolio
bet
a: 0
.35
(1.5
) + 0
.45
(1) +
0.2
(0)
=0.9
75
BA
SIC
VA
LUA
TIO
N M
OD
EL
BON
D VA
LUA
TION
Q’s
3,5
pp.
54,5
5 SG
BON
D VA
LUA
TION
: BA
SIC
BO
ND
VALU
ATIO
N
BON
D VA
LUA
TION
: BO
ND
FUN
DAM
ENTA
LS Q
5 p.
57
SG
Bon
d V
alua
tion
•S
emi A
nnua
l Cou
pon
pmts
A c
ompa
ny h
as is
sued
a b
ond
that
has
a
par v
alue
of R
1, 0
00 a
nd a
mat
urity
of 2
0 ye
ars.
The
cou
pon
inte
rest
rate
of 1
0 pe
r ce
nt is
pai
d se
mi -
annu
ally
. The
requ
ired
rate
of r
etur
n is
8 p
er c
ent p
er y
ear.
How
m
uch
will
you
pay
for t
he b
ond?
Bon
d V
alua
tion
•U
sing
Fin
anci
al C
alcu
lato
r
•40
N•
R1,
000
FV
•4
i•
50 P
MT
Com
pute
PV
= R
1 19
7.92
Bon
d Y
TM
•M
ills C
ompa
ny b
ond
curre
ntly
sel
ls a
t R
740
and
has
a co
upon
rate
of 1
0% a
nd a
R
1000
par
val
ue. T
he b
ond
pays
inte
rest
se
mi a
nnua
lly a
nd h
as 1
0 ye
ars
to
mat
urity
. Cal
cula
te th
e Y
TM
Yie
ld T
o M
atur
ity
-740
PV
50 P
MT
1000
FV
20 N
Com
pute
I =
7.56
%
Stoc
k Va
luat
ion
Mod
els:
Th
e B
asic
Sto
ck V
alua
tion
Equa
tion
Ord
inar
y Sh
are
Valu
atio
n M
odel
s:
The
Zero
Gro
wth
Mod
el•
The
zero
div
iden
d gr
owth
mod
elas
sum
es th
at th
e sh
are
(sto
ck) w
ill p
ay
the
sam
e di
vide
nd e
ach
year
, yea
r afte
r ye
ar.
OR
DIN
AR
Y SH
AR
E VA
LUA
TIO
N Q
7 p.
58 S
G
Shar
e (s
tock
) Val
uatio
n M
odel
s:
Con
stan
t Gro
wth
Mod
el•
The
cons
tant
div
iden
d gr
owth
mod
el
assu
mes
that
the
shar
e (s
tock
) will
pay
di
vide
nds
that
gro
w a
t a c
onst
ant r
ate
each
yea
r—ye
ar a
fter y
ear f
orev
er.
SHA
RE
(STO
CK
) VA
LUA
TIO
N Q
8 p.
58 S
G
Var
iabl
e G
row
th M
odel
•A
ssum
e A
BC
Cor
pora
tion
curre
ntly
pay
s a
divi
dend
of R
0.50
per
sha
re. Y
ou h
ave
estim
ated
that
the
com
pany
’s d
ivid
end
will
grow
at a
rate
of 1
5 pe
r cen
t per
yea
r for
th
e ne
xt th
ree
year
s. A
fter t
hat,
the
divi
dend
will
grow
at a
con
stan
t rat
e of
6
per c
ent.
The
requ
ired
rate
of r
etur
n is
12
per c
ent.
Var
iabl
e G
row
th M
odel
1
2 3
4
Year
Do
t0.
15,
FVIF
FV
(2) x
(3)
1 50
1.
150
57.5
2 50
1.
323
66.1
5
3 50
1.
521
76.0
5
Cal
cula
te th
e ex
pect
ed fu
ture
div
iden
ds u
sing
the
grow
th ra
te o
f15
per
cen
t.
Var
iabl
e gr
owth
mod
el
(1
) (2
) (3
)
tD
t
0.12
,PV
IF
FV
(1)
x (2
)
57.5
0.
893
51.3
5
66.1
5 0.
797
52.7
2
76.0
7 0.
712
54.2
2
Cal
cula
te th
e su
m o
f the
pre
sent
val
ues o
f exp
ecte
d fu
ture
di
vide
nds u
sing
the
requ
ired
rate
of r
etur
n of
12
per c
ent.
Sum
of P
Vs i
s 158
.22.
Thi
s yie
lds t
he v
alue
of 1
58
cent
s.
Var
iabl
e G
row
th M
odel
•C
alcu
late
the
valu
e of
the
shar
e fo
r the
co
nsta
nt g
row
th p
erio
d fro
m y
ear 4
on
war
ds. N
ote
we
use
the
grow
th ra
te o
f 6
per c
ent a
nd n
ot 1
5 pe
r cen
t.
•D
4 =
D3
x (1
+g) =
76.
05 x
(1+0
.06)
= 76
.05
x 1.
06=
80.6
1 ce
nts
Var
iabl
e G
row
th M
odel
•U
sing
the
form
ula
P3
=
•=
•=
1, 3
36 c
ents
gk
D4
− 0.06
0.1280
.61
−
Var
iabl
e G
row
th M
odel
PV of
1, 336
= 1, 33
6 x PV
IF3,12.0
= 1, 33
6 X 0.7
12
= 9
51.232
= 9
51 cen
ts
Var
iabl
e G
row
th M
odel
Add
the
PV
s of
the
two
grow
th p
erio
ds.
P0
= 15
8 +
951
= 1,
109
cen
ts=
R11
.09
SHA
RE
(STO
CK
) VA
LUA
TIO
N Q
9 p.
56 S
G
Oth
er A
ppro
ache
s to
Sha
re
Valu
atio
nP/
E A
ppro
ach
•P
/E =
18
•E
PS
=R
2.50
•V
alue
per
Sha
re =
18
x 2.
5= R
45.0
0
THE
CA
SH C
ON
VER
TIO
N C
YCLE
•B
oth
the
OC
and
CC
C m
ay b
e co
mpu
ted
as s
how
n be
low
.
C/A
and
WC
Man
agem
ent
A c
ar m
anuf
actu
rer u
ses
20 0
00 m
otor
s pe
rye
ar a
nd th
e co
st o
f car
ryin
g th
e m
otor
s in
inve
ntor
y is
R2.
00 p
er m
otor
and
the
cost
of
orde
ring
a m
otor
is R
200.
(Ass
ume
a 36
5 da
y ye
ar)
Req
uire
d:
•C
alcu
late
EO
Q•
Det
erm
ine
the
re o
rder
qua
ntity
, ass
umin
gth
at it
take
s 20
day
s to
rece
ive
an o
rder
and
that
a s
afet
y st
ock
of 1
0 m
otor
s is
requ
ired
Sol
utio
nsEO
Q =
COxsx
2=
2
200
x20
000
x2
= 2
000
units
Re o
rder
qua
ntity
= le
ad ti
me
x da
ily u
sage
=
20
x 36
520
000
=
20
x 55
= 1
096
uni
ts A
dd sa
fety
/buf
fer s
tock
of 1
0:
1
096
+ 10
= 1
106
uni
ts
EXA
MIN
ATIO
N•
50 M
CQ
s1 m
ark
each
•2
Long
que
stio
ns, T
ota
l of 2
0 m
ark
s •
Sect
ion
B w
ill be
from
cha
pter
14
and
15
of G
itma
n•
Tota
l ma
rks:
70; D
ura
tion:
2 h
ours
•St
udy
all u
nits
, ass
essm
ents
&
assig
nmen
ts q
uest
ions