Sfm400 Assignment 1

SCHOOL OF COMMERCE
BACHELOR OF APPLIED ACCOUNTING: AUDIT AND

INFORMATION SYSTEMS
(BAA-AIS 400)
STRATEGIC FINANCIAL MANAGEMENT

(SFM 400)
ASSIGNMENT ONE
PREPARED BY KELVIN MASEKO

(MA0226)
SUBMITTED TO
M.G.W. KACHANJE
SUBMISSION DATE
(19 MARCH 2016)
Page 1 of 7
QUESTION ONE
a.) EVA Calculation
EVA
NOPAT (Capital Capital Employed)
NOPAT Adjustments
K'000
20,000,000.00
16,000.00
10,000.00
25,000.00
10,000.00
15,000.00
20,076,000.00
Net Operating Profit after tax

Add: Interest on debt
Goodwill written off
Accounting Depreciation
Increases in provisions
Net capitalized intangibles
Capital Employed Adjustments
K'000
20,000,000.00
20,000.00
120,000.00
13,000.00
30,000.00
20,183,000.00
Net Operating Profit after tax

Add: Cumulative goodwill
Cumulative depreciation written off
NBV of intangibles
Provision
Therefore, EVA
20,076,000 (20,183,000 10%)
20,076,000 2, 018,300
18, 057, 700
Page 2 of 7
QUESTION ONE
b.)
The Present Value of K76, 000 in perpetuity starting from year 5 with cost of capital of
10%.
PV of a Perpetuity = Cost Rate

=
K76, 000 0.1
K760, 000.00
Discounting factor at Year 4: 0.683
Therefore:
K760, 000 X 0.683

= K519, 080.00
Page 3 of 7
C. the calculation of the Modified Internal Rate of Return (MIRR)
METHOD 1
MIRR
=
PVR
PVI
1
n (1+r) 1
=
123,805
78,180
=
5 1.1 -1
1.5835
=
5
1.5835
= 1.09268
= 1.09268 X 1.1
-1
= 0.2059
= 21%
Page 4 of 7
METHOD 2.
MIRR
-1
Terminal Values of the Return Phase

30,000.00
(1.1 1.1 1.1)
39,930.00
50,000.00
(1.1 1.1)
60,500.00
40,000.00
1.1
44,000.00
55,000.00
1.000
55,000.00
199,430.00
5
199,430
-1
78,100
= 21%
Page 5 of 7
d.) Payback Period
Therefore;
Pay Back Period
4 years + ( 1901 6210 12 months )
4 years + 3.6 months
4 years and 4 months.
Page 6 of 7
e. The role of short term financial management in implementation of the long term financial
management
MEMORANDUM
TO
:
The Managing Director
FROM
:
The Finance Director
DATE
:
10th March, 2016.
SUBJECT
:THE ROLE OF SHORT TERM FINANCIAL MANAGEMENT IN

IMPLEMENTING LONG TERM FINANCIAL MANAGEMENT.
I write to inform you about the role of short term financial management in implementing long financial Management.
The main goal of financial management is to arrange sufficient finance for meeting short-term and long term
objectives of an organization. Short term financial management plays different roles to aid the implementation of
long term financial management.
Short Term Objectives
The objectives of short term objective of financial management is to produce financial resources at an
affordable cost thereby increasing the return to the shareholders in form of earnings per share (EPS).
EPS compares two elements, namely; dividend per share and Retained Earnings per share. This objective
is also known as Profit maximization and is done continuously, year to year.
Monitoring of costs
Short term financial management monitors costs on continuous basis through budgets, suitable cost
reduction techniques wherever costs are high. Minimization of cost of borrowed capital from outside
through financial discipline, control over liquidity available in the organization so as to minimize the cost
of carrying too much cash. The decision-making techniques such as Capital Budgeting, Opportunity Cost
Analysis etc. may be applied in making decisions about capital expenditures. While spending on various
assets, the principles. One may not like to invest on a project which may be risky even though there may
be more profits.
Long term objectives
Long term financial management objectives aim at maximizing shareholders wealth. The utilization of
surpluses is essential for expansion and diversification plans and also in protecting the interests of
shareholders. Although ploughing back of profits may be the best policy of further financing but it
clashes with the interests of shareholders. A balance should be struck in using funds for paying dividend
and retaining earnings for financing expansion plans.
In conclusion, short term objectives in financial management are very vital and therefore, need to be
monitored and evaluated up until long term objectives are successfully implemented. Controlling and
putting in place short term financial objectives sustains the growth of the enterprise because the life of
long term financial objectives is dependent on the sustainability of short term financial objectives.
Sincerely Yours,
Kelvin Maseko
Finance Manager
e.). Balancing the requirements of various stakeholders

To balance the requirements of various stakeholders it is important to align corporate values with key
stakeholder groups. Focusing on:
Stakeholder analysis
Stakeholder return on Investments
Brand assessment
Page 7 of 7

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SCHOOL OF COMMERCE

BACHELOR OF APPLIED ACCOUNTING: AUDIT AND

STRATEGIC FINANCIAL MANAGEMENT

PREPARED BY KELVIN MASEKO

NOPAT (Capital Capital Employed)

Net Operating Profit after tax

Capital Employed Adjustments

Net Operating Profit after tax

20,076,000 (20,183,000 10%)

18, 057, 700

PV of a Perpetuity = Cost Rate

K76, 000 0.1

Discounting factor at Year 4: 0.683

K760, 000 X 0.683

C. the calculation of the Modified Internal Rate of Return (MIRR)

Terminal Values of the Return Phase

(1.1 1.1 1.1)

d.) Payback Period

4 years + ( 1901 6210 12 months )

4 years + 3.6 months

4 years and 4 months.

:THE ROLE OF SHORT TERM FINANCIAL MANAGEMENT IN

e.). Balancing the requirements of various stakeholders

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