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Master of Professional Accounting
FINANCE FOR ACCOUNTANTS
ACCT867
FINAL EXAMINATION
V2 ,2017
FINAL EXAMINATION – SOLUTIONS AND MARKING SCHEME
SECTION 1: MUTIPLE CHOICE (TOTAL: 20 MARKS)
1
D
6
C
2
A
7
C
3
B
8
D
4
D
9
B
5
A
10
C
(2 marks each)
Workings:
Question 2
Question 3
After-tax discount rate = .08(1 – .34) = .0528 = 5.28%
Question 7
Ke = 16 = r0 + 1(r0 –.08) .16 = 2r0 – .08 .24 = 2r0 r0 = .12 = 12%
WACC = Kd * Wd + Ke * We = .08(.5) + .16(.5) = .12 = 12%
SECTION 2:
Question 1
Part (a)
Source of
Finance
Market
Value ($)
Proportion
Cost of
Capital
Weighted
COC
Common
Stock
13,720,000
√√
49.36%
√
17.24%
√√√√
8.51%
Preference
Shares
5,200,000
√√
18.71%
√
9.23%
√√
1.73%
Bonds
4,625,335
√√
16.64%
√
7.70%
√
1.28%
Term Loan
250,000
√
0.90%
√
7.70%
√
0.07%
Mortgage
1,700,000
√
6.12%
√
7.00%
√
0.43%
Retained
Earnings
2,300,000
√
8.27%
√
17.24%
√√√√
1.43%
27,795,335
WACC
13.44%
√√
30 √ @ 0.5 = 15 marks
Part (b)
The Weighted average cost of capital is 13.44%. This being the threshold rate against which to
benchmark investment projects, and since the current project claims an IRR of 14.5%, the investment
